Q3 2024 Darden Restaurants Inc Earnings Call

Frank: [music].

Hello, and welcome to the Darden fiscal year 'twenty 'twenty four third quarter earnings call. Your lines have been placed on listen only mode.

Operator: Hello, and welcome to the Darden Fiscal Year 2024 Third Quarter Earnings Call. Your lines have been placed on a listen-only mode until the question and answer session begins. To ask a question, you may press star 1 on your touch-tone phone.

Well the question and answer session to ask a question you May press Star one on your Touchtone phone. We ask you. Please ask one question and one follow up this conference is being recorded if you have any objections. Please disconnect at this time I'll now turn the call over to Mr. Kevin Kallikak. Thank you you may begin Kevin.

Operator: We ask that you please ask one question and one follow-up. This conference is being recorded. If you have any objections, please disconnect at this time.

Operator: I'll now turn the call over to Mr. Kevin Kalicak. Thank you. You may begin, Kevin.

Thank you Kevin Good morning, everyone and thank you for participating on today's call.

Kevin Kalicak: Thank you, Kevin. Good morning, everyone, and thank you for participating in today's call. Joining me today are Rick Cardenas, Darden's President and CEO, and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission.

Kevin Kalicak: Joining me today are Rick Cardenas, Darden's, President and CEO, and Rajiv and CFO.

Kevin Kalicak: As a reminder comments made during this call will include forward looking statements as defined in the private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Kevin Kalicak: Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission.

Kevin Kalicak: We are simultaneously broadcasting presentation. During this call, which is posted in the Investor Relations section of our website at Darden dotcom.

Kevin Kalicak: We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at Darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 fourth-quarter earnings on Thursday, June 20th before the market opens, followed by a conference call.

Kevin Kalicak: Today's discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.

Kevin Kalicak: Looking ahead, we plan to release fiscal 'twenty 'twenty four fourth quarter earnings on Thursday June 20th before the market opens followed by a conference call.

Kevin Kalicak: During today's call, any reference to pre-COVID when discussing third-quarter performance is a comparison to the third quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence's Casual Dining Benchmark, excluding Darden, specifically Olive Garden, Longhorn Steakhouse, and Cheddar Scratch Kitchen. During our fiscal third quarter, industry same restaurant sales decreased 4.2%, and industry same restaurant guest counts decreased 6.5%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our financial results and an update to our fiscal 2024 financial outlook. Now, I'll turn the call over to Rick. Thank you, Kevin. Good morning, everyone.

Kevin Kalicak: During today's call any reference to pre Covid when discussing third quarter performance as a comparison to the third quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to black box intelligence.

Kevin Kalicak: Casual dining benchmark, excluding darden, specifically olive garden, Longhorn steakhouse and Cheddar scratch kitchen.

Kevin Kalicak: During our fiscal third quarter industry same restaurant sales decreased four 2%.

Kevin Kalicak: And industry same restaurant guest counts decreased six 5%.

Kevin Kalicak: This morning, Rick will share some brief remarks on the quarter and Raj will provide details on our financial results and an update to our fiscal 'twenty 'twenty four financial outlook now I'll turn the call over to Rick.

Ricardo Cardenas: Thank you, Kevin and good morning, everyone I'm.

Ricardo Cardenas: I'm proud of our results this quarter. Each one of our segments grew total sales and profit in an operating environment that was tougher than we anticipated. We continued to outperform the industry benchmarks for same restaurant sales and traffic. Total sales were $3 billion, an increase of 6.8%, and adjusted, diluted net earnings per share were $2.62, which was in line with our expectations. We opened 16 restaurants during this quarter. Fiscal year to date, we have opened 43 restaurants in 22 states, 7 of which were reopened.

Ricardo Cardenas: I'm proud of our results this quarter each one of our segments grew total sales and profit in an operating environment that was tougher than we anticipated.

Ricardo Cardenas: We continued to outperform the industry benchmarks for same restaurant sales and traffic.

Raj: Total sales were $3 billion, an increase of six 8% and adjusted diluted net earnings per share were $2 62, which was in line with our expectations.

Raj: We opened 16 restaurants during this quarter.

So year to date, we have opened 43 restaurants in 22 states seven of which were reopening.

Raj: The quarter started well with strong holiday performance in December, but unfavorable winter weather negatively impacted January traffic.

Ricardo Cardenas: The quarter started well with strong holiday performance in December, but unfavorable winter weather negatively impacted January traffic. And while February results improved, we experienced some underlying softness we had not seen in the months leading up to January. The lower-income consumer does appear to be pulling back, and the mix of guests based on income is now in line with pre-COVID. I am proud that even as industry traffic trends weakened, we were able to gain shares. We continue to focus on controlling what we can control, leveraging and strengthening our four competitive advantages of significant scale, extensive data and insights, rigorous strategic planning, and our results-oriented culture, and executing our back-to-basics operating philosophy anchored in food, service, and atmosphere. Our restaurant teams continue to perform at their best, especially during our busiest times. In December, the Capital Grill set its all-time total monthly sales record.

Raj: And while February results improved we experienced some underlying softness we had not seen in the months leading up to January.

Raj: The lower income consumer does appear to be pulling back in the mix of guests based on income is now in line with pre Covid.

I am proud that even as industry traffic trends weekend, we were able to gain share.

Raj: We continue to focus on controlling what we can control leveraging and strengthening our four competitive advantages of significant scale extensive data and insights rigorous strategic planning and our results oriented culture.

Raj: In executing our back to basics operating philosophy anchored in food service and atmosphere.

Raj: Our restaurant teams continue to perform at their best especially during our busiest times in December the capital grille set their all time total monthly sales record.

Ricardo Cardenas: In February, Eddie V's set their all-time total weekly sales record, and Olive Garden established a new sales record for Valentine's. Our internal guest satisfaction metrics reflect our team's focus on being brilliant with the base. All of our brands remained at or near all-time highs for overall guest satisfaction during the quarter. Additionally, within the casual dining, polished casual, and fine dining segments of Technomics Industry Tracking Tool, a Darden brand was ranked number one for overall experience. The brands are Longhorn Steakhouse, Seasons 52, and Ruth's Chris Steakhouse.

Raj: In February Eddie V's at their all time total weekly sales record in Olive Garden established a new sales record for Valentine's day.

Our internal guest satisfaction metrics reflect our team's focus on being brilliant with the basics.

Raj: All of our brands remained at or near all time highs for overall guest satisfaction during the quarter.

Raj: Additionally, within the casual dining polished casual and fine dining segment of technomic industry tracking tool of Darden brand was ranked number one for overall experience. The brands were longhorn steakhouse seasons, 52, and Ruth's Chris Steakhouse.

Raj: Our team's ability to execute at a high level is driven by strong leadership and team member engagement across our brands.

Ricardo Cardenas: Our team's ability to execute at a high level is driven by strong leadership and team member engagement across our brand. We work hard to ensure our results-oriented culture is a competitive advantage for us, and our industry-leading retention rates confirm it is an area of strength. During the quarter, we completed our biannual engagement survey, and the results showed that our overall level of engagement is at an all-time high. Also, during the quarter, three of our brands were recognized as industry leaders in black box intelligence. Longhorn, the Capital Grill, and Season 52 each received the Employer of Choice Award. Now, let me provide a quick update on Ruth Kress.

Raj: We work hard to ensure our results oriented culture is a competitive advantage for us and our industry, leading retention rates confirm it is in an area of strength.

Raj: During the quarter, we completed our biannual engagement survey and our results showed that our overload all level of engagement is at an all time high.

Raj: Also during the quarter three of our brands were recognized as industry leaders in Black box intelligence Longhorn the capital grille and seasons 52, each received the employer of choice Award.

Speaker Change: Now, let me provide a quick update on Ruth's Chris.

Ricardo Cardenas: We are in the final stage of integration and remain on track to complete the major changes by the end of the fiscal year. We successfully completed the migration onto our HR platform at the end of December, and all restaurants have now successfully transitioned to our distribution network. Currently, we are halfway through converting the restaurants over to our point-of-sale system, and we are on track to complete that work by the end of May. This is the most challenging part of integration, and I'm really proud of the focus the Ruth's Chris team continues to have on delivering an exceptional guest experience. This can be seen in the fact that Ruth's Chris was named America's Favorite Chain Restaurant in Technomics' annual survey that was released during the quarter. The survey measures perceptions of service and hospitality, unit appearance and ambiance, food and beverage, convenience, and value. In addition to Ruth's Crisp, Seasons 52, Bahama Breeze, Longhorn, and the Capitol Grill were all ranked in the top ten.

Speaker Change: We are in the final stage of integration and remain on track to complete the major changes by the end of the fiscal year.

Speaker Change: We successfully completed the migration onto our HR platform at the end of December and all restaurants have now successfully transitioned to our distribution network.

Speaker Change: Currently we are halfway through converting the restaurants over to our point of sale system and we are on track to complete that work by the end of May.

Speaker Change: This is the most challenging part of integration and I'm really proud of the focus the Ruth's Chris team continues to have on delivering exceptional guest experiences.

Speaker Change: This can be seen in the fact that Ruth's Chris was named America's favorite chain restaurant and Technomic Annual survey that was released during the quarter.

Speaker Change: The survey measures perceptions of service and hospitality unit of parents, and ambiance food and beverage convenience and value.

Speaker Change: In addition to Ruth's, Chris seasons, 52, Bahama Breeze, Longhorn and the capital grille, where all ranked in the top 10.

Speaker Change: Overall I am pleased with our performance this quarter, we continue to manage the business for the long term by executing against our strategy and controlling what we can control.

Ricardo Cardenas: Overall, I am pleased with our performance this quarter. We continue to manage the business for the long term by executing against our strategy and controlling what we can control. We also continue to work in pursuit of our shared purpose, to nourish and delight everyone we serve. One of the ways we do this for our team members and their families is through our NextCourse Scholarship Program. Earlier this month, the Darden Foundation awarded more than 100 post-secondary education scholarships worth $3,000 each to children of Darden team members.

Speaker Change: We also continue to work in pursuit of our shared purpose to nourish and delight everyone. We serve.

Speaker Change: One of the ways. We do this is for our team members and their families is through our next course scholarship program.

Speaker Change: Earlier this month the Garden Foundation awarded more than 100, Postsecondary education scholarships were $3000 each to children of Darden team members.

Ricardo Cardenas: Education is one of the greatest equalizers in our country, and I'm thrilled that we can create a lasting impact on the lives of our team members' families through this program. Finally, I want to thank our 190,000 team members for everything they do to create exceptional experiences for our guests. You are the reason brands continue to be recognized as great places to work and top dining destinations. Now, I will turn it over to Raj. Thank you, Rick, and good morning, everyone.

Speaker Change: Education is one of the greatest equalizes in our country and I'm thrilled that we can create a lasting impact on the lives of our team members families through this program.

Speaker Change: Finally, I want to thank our 190000 team members for everything you do to create exceptional experiences for our guests. You are the reason brands continue to be recognized as great places to work in top dining destinations now I will turn it over to Raj.

Speaker Change: Yes.

Raj: Thank you Rex and good morning, everyone.

Third quarter earnings were in line with our expectations, although our sales were softer than we anticipated.

Rajesh Vennam: Third-quarter earnings were in line with our expectations, although our sales were softer than we intended. We were pleased with December's strong holiday performance, as the month's same restaurant sales were in line with our second-quarter results. However, winter weather in January negatively impacted traffic results by approximately 100 basis points for the quarter.

Raj: We were pleased with December strong holiday performance as the months same restaurant sales were in line with our second quarter results.

Raj: However, winter weather in January negatively impacted traffic results by approximately 100 basis points for the quarter.

Rajesh Vennam: As we moved into February, sales trends improved but were below our expectations, exposing some underlying consumer weakness. Despite the unexpected variability in our sales trend, our teams did a great job managing their business. In the third quarter, we generated $3 billion in total sales; restaurant sales were 6.8% higher than last year, driven by the acquisition of Ruth's Chris Steakhouse and 55 net new restaurants, which was partially offset by negative same restaurant. We outperformed the industry again this quarter. With the same Russian sales, they were 320 basis points better than the industry. Same restaurant guest counts, there were 270 basis points better, and on a two-year basis, we have outperformed on same restaurant sales by 770 basis points and by 970 basis points on same restaurant guest counts. Our focus on managing the business and controlling costs resulted in adjusted diluted net earnings per share from continuing operations of $2.62 in the quarter, an increase of 12% from last year's reported earnings per share.

Raj: As we moved into February sales trends improved but were below our expectations exploiting some underlying consumer weakness.

Raj: Despite the unexpected variability in our sales trend our teams did a great job managing their businesses.

Raj: In the third quarter.

Raj: We generated $3 billion of total sales, 6.8% higher than last year, driven by the acquisition of Ruth's, Chris Steak House, and 55, net new restaurants, which was partially offset by negative same restaurant sales of 1%.

Raj: We outperformed the industry again this quarter, but same restaurant sales were 320 basis points better than the industry and same restaurant guest counts and our 270 basis points better.

Raj: And on a two year basis, we have outperformed on same restaurant sales by 770 basis points.

Raj: And by 970 basis points on Tampa restaurant guest counts.

Raj: Our focus on managing the business and controlling costs.

Raj: Altair and dilute adjusted diluted net earnings per share from continuing operations of $2.62 in the quarter, an increase of 12% from last year's reported earnings per share.

Raj: We generated $512 million of adjusted EBITDA and returned approximately $190 million of capital to our shareholder through $157 million in dividends and $33 million of share repurchases.

Rajesh Vennam: We generated $512 million of adjusted EBITDA and returned approximately $190 million of capital to our shareholders through $157 million in dividends and $33 million of share repurchases. Now, looking at our adjusted margin analysis compared to last year, food and beverage expenses were 90 basis points better, driven by pricing leverage. Total commodities inflation of approximately 1.5% was below a total pricing of approximately 3.5%.

Raj: Now looking at our adjusted margin analysis compared to last year.

Raj: Food and beverage expenses were 90 basis points better driven by pricing leverage.

Raj: Total commodities inflation of approximately 1.5% was below our total pricing of approximately 10, 5%.

Raj: Restaurant Labor was 10 basis points unfavorable to last year due to total labor inflation of approximately 4.5%, partially offset by pricing and productivity improvement that out Brian.

Rajesh Vennam: Restaurant labor was 10 basis points unfavorable compared to last year due to total labor inflation of approximately 4.5%, partially offset by pricing and productivity improvements at our brand. Restaurant expenses were 10 basis points higher as sales deleverage was partially offset by strong cost management priorities. Marketing expenses were 10 basis points higher than last year, consistent with our expectations. All of this resulted in restaurant-level EBITDA of 20.6%, 70 basis points better than last year; GNA as a percent of sales was 40 basis points lower than last year, and total expense was slightly favorable to our previous guidance related to lower incentive compensation and ongoing synergies from the integration of rules. Interest expense increased 50 basis points versus last year due to the financing expenses related to the Ruth's Chris acquisition.

Raj: That's fair and expenses were 10 basis points higher as sales deleverage was partially offset by strong cost management by our team.

Raj: Marketing expenses were 10 basis points higher than last year consistent with our expectations.

All of this resulted in restaurant level EBITDA of 26% 70 basis points better than last year.

Raj: G&A as a percent of sales was 40 basis points lower than last year and total expense was slightly favorable to our previous guidance related to lower incentive compensation and ongoing synergies from the integration of Ruth's Chris.

Raj: Interest expense increased 50 basis points versus last year due to the financing expenses related to the Ruth's Chris acquisition.

And for the quarter and yes, Theyre earnings from continuing operations was 10, 6% of sales.

Rajesh Vennam: And for the quarter, adjusted earnings from continuing operations was 10.6% of sales, 30 basis points, better than last Looking at our segments. Olive Garden increased total sales by 0.7% driven by new restaurant growth partially offset by negative same restaurant sales of 1.8%. Olive Garden Same Restaurant Sales outperformed the industry benchmark by 240 basis points, and their traffic outperformed the industry by 270 basis points. Despite the negative same restaurant sales, Olive Garden's segment profit margin of 22.5% was flat to last year. Longhorn's total sales increased 5.1% driven by new restaurant growth and same restaurant sales growth of 2.3%. Longhorn Same Restaurant Sales outperformed the industry by 650 basis points. Segment profit margin of 18.7% was 130 basis points above last year, driven by pricing leverage and improved labor productivity. Total sales at the fine dining segment increased with the addition of Ruth's Chris Company-owned restaurant. Same restaurant sales at both Capraville and Eddie V's were negative, as the fine dining category continued to be challenged year over year.

Raj: 30 basis points better than last year.

Raj: Looking at our segments.

Raj: Olive garden increased total sales by 0.7% driven by new restaurant growth, partially offset by negative same restaurant sales of one 8%.

Raj: Olive garden same restaurant sales outperformed the industry benchmark by 240 basis point.

Raj: And their traffic outperformed the industry by 270 basis points.

Raj: Despite the negative same restaurant sales Olive garden segment profit margin of 22.5% was flat to last year.

Raj: And longhorn total sales increased 5.1% driven by new restaurant growth and same restaurant sales growth of 2.3%.

Raj: Longhorn <unk> same restaurant sales outperformed the industry by 650 basis points.

Raj: Segment profit margin of 18, 7% was 130 basis points above last year, driven by pricing leverage and improved labor productivity.

Raj: Total sales at fine dining segment increased with data shelf Ruth's Chris company owned restaurants.

Raj: Same restaurant sales at both Capa and Eddie vs. What negative as the fine dining category continued to be challenged year over ear finite.

Rajesh Vennam: Fine Dining Segment Profit Margin was flat year-over-year at 21.8%. The other business segment sales increased with the addition of Ruth's Chris franchised and managed location revenue, but it was partially offset by combined negative same restaurant sales of 2.6% for the brands in the other segment. However, this was still 160 basis points above the industry benchmark. Segment profit margin of 14.9% was 90 basis points better than last year, driven by the additional royalty revenues and higher overall pricing relative to inflation. Turning to our financial outlook for fiscal 2024, we have updated our guidance to reflect our year-to-date results and expectations for the fourth quarter. We now expect total sales of approximately $11.4 billion.

Raj: Fine dining segment profit margin was flat year over year at 21, 8%.

Raj: The other business segment sales increased with the addition of Ruth's, Chris franchised and managed location revenue, but was partially offset by combined negative same restaurant sales of two 6% for the brands in the other segment.

Raj: However, this was still higher than 60 basis points above the industry benchmark.

Raj: Segment profit margin of 14, 9% was 90 basis points better than last year, driven by the additional royalty revenues and higher overall pricing related inflation.

Raj: Okay.

Raj: Turning to our financial outlook for fiscal 'twenty 'twenty four we have updated our guidance to reflect our year to date results and expectations for the fourth quarter.

Raj: We now expect total sales of approximately $11.4 billion.

Rajesh Vennam: Same restaurant sales growth of 1.5% to 2%. 50 to 55 new restaurants. Capital spending of approximately $600 million. Total inflation of approximately 3%, including commodities inflation of approximately 1.5%. An annual effective tax rate of 12% to 12.5% and approximately 121 million diluted average shares outstanding for the year.

Raj: Same restaurant sales growth of 1.5% to 2% 50.

Raj: <unk> 50 to 55, new restaurants.

Raj: Capital spending of approximately $600 million.

Raj: Total inflation of approximately 3%, including commodities inflation of approximately one 5%.

Raj: And annual effective tax rate of 12% to 12, 5%.

Raj: And approximately 121 million diluted average shares outstanding for the year.

Raj: This resulted in an increase to our adjusted diluted net earnings per share outlook of $8 80 to $8.90, which excludes approximately $55 million of pre tax transaction and integration related costs.

Rajesh Vennam: This results in an increase to our adjusted diluted net earnings per share outlook of $8.88 to $8.90, which excludes approximately $55 million of pre-tax transaction and integration related costs. For the fourth quarter specifically, our annual outlook implies sales of $2.95 billion to $2.99 billion. Same restaurant sales between negative 0.5% and positive 1%, and adjusted diluted net earnings per share between $2.58 and $2.68. Now looking forward into fiscal 2025, we plan on opening between 45 and 50 new restaurants and spending between $250 million and $300 million of capital on those new restaurants. Additionally, we anticipate approximately $300 million of capital spending related to ongoing restaurant maintenance, refresh, and technology. And finally, we anticipate an effective tax rate of approximately 13% for fiscal 2025.

Raj: For the fourth quarter, specifically, our annual outlook implies sales of 2.95 billion to $2 $99 billion.

Raj: Same restaurant sales between negative, 5% and positive 1%.

Raj: And adjusted diluted net earnings per share between $2 58, and $2 68.

Raj: Now looking forward into fiscal 'twenty twenty-five we plan on opening between 45, and 50, new restaurants, and spending between $250 million and 300 and $300 million of capital for those new restaurants.

Raj: Additionally, we anticipate approximately $300 million of capital spending related to ongoing restaurant maintenance refresh and technology.

Raj: And finally, we anticipated effective tax rate of approximately 13% for fiscal 2025.

Raj: And now I'd like to close by saying that we continue to be very proud of our half of how our teams are managing their businesses to deliver strong results in this dynamic environment.

Rajesh Vennam: And now I'd like to close by saying that we continue to be very proud of how our teams are managing their businesses to deliver strong results in this dynamic environment. With that, we'll open the call to questions. Thank you.

Speaker Change: With that we'll open the call for questions.

Thank you well now be conducting a question and answer session. As a reminder, we ask you. Please ask one question and one follow up to be placed in the question queue. Please press star one at this time. Our first question today is coming from Eric Gonzalez from Keybanc capital markets. Your line is now live.

Operator: We'll now be conducting a question and answer session. As a reminder, we ask that you please ask one question and one follow-up. To be placed in the question queue, please press star 1 at this time.

Eric Andrew Gonzalez: Our first question today is coming from Eric Gonzalez from KeyBank Capital Markets. Your line is now live. Hey, thanks for taking the question. Maybe if you could unpack the comments about the low-income consumer pulling back and maybe specifically talk about what behaviors you're seeing that lead you to that conclusion and how the brands are differing from Olive Garden to Cheddar as to maybe some of the higher-end brands, how that low-income consumer is changing their usage of those brands. Thanks. Hey Eric.

Eric Andrew Gonzalez: Hey, Thanks for taking the question, maybe if you could unpack the comments about the low income consumer pulling back and maybe specifically talking about what behaviors, you're seeing that leads you to that conclusion and how the brands are differing.

Eric Andrew Gonzalez: From all gardens chatter as to maybe some of the higher end brands and how that will change.

Eric Andrew Gonzalez: Changing their usage of those brands.

Eric Andrew Gonzalez: <unk>.

Eric: Hey, Eric.

Eric: We're clearly seeing consumer behavior shifts our data shows our data shows we're essentially back to our normal pre COVID-19 mixed across all income groups.

Ricardo Cardenas: We're clearly seeing consumer behavior shifts. Our data shows we're essentially back to our normal pre-COVID mix across all income groups. But specifically, your question: for the third quarter, transactions from households with incomes above $150,000 were higher than last year. Transactions from incomes below $75,000 were much lower than last year, and at every brand, and at every brand, transactions fell from incomes below $50,000.

Eric: For but specifically your question for the third quarter transactions from households, with incomes above $150000 were higher than last year.

Eric: Transactions from incomes below $75000 were much lower than last year.

Eric: And at every brand.

Eric: And at every brand transactions fell from incomes below $50000.

Rajesh Vennam: Similar to Q2, this shift was most pronounced in our fine dining segment. And then just to follow up, if you could just talk about how, from a margin perspective, this year has been pretty strong. I'm wondering if you could maybe tease out how much of that margin improvement is related to commodities versus what you've achieved from a productivity perspective. And as you look to next year, do you see that being a year of additional productivity gains, or is some of that pulled forward today? Hey Eric, this is Raj.

Eric: Similar to Q2 this shift was most pronounced in our fine dining segment.

Speaker Change: Oh, Great and then a follow.

Speaker Change: A follow up if you could just talk about in a more from a margin perspective this year's been.

Speaker Change: Pretty strong.

Speaker Change: If you could maybe tease out how much of that margin improvement is related to commodities versus what you've achieved from a productivity perspective and as you look to next year do you see that being a year of additional productivity gains.

Speaker Change: Of that hopefully later this year.

Speaker Change: Eric This is Raj so from a margin perspective, if you if you look at where while we talked about at the beginning of the year. We this was one of the years, where we had a pricing a little bit above inflation going into the fiscal year.

Rajesh Vennam: So from a margin perspective, if you look at what we talked about at the beginning of the year, this was one of the years where we had prices a little bit above inflation going into the fiscal year. But as the year progressed, inflation came in better than we expected for both commodities and labor. And then that combined with our team's strong cost management that improved productivity on the labor front. We also improved our waste. We had some favorability on the mix in terms of how the trading happened between the items. So all of these were contributors to our margin improvement versus our plan. Now, as we look at next year, you know, we'll share more details in June. But the way we look at it as we we're going through the planning process right now, but we always use our long-term framework as a guidepost to inform how we think about plans. So we'll share more details in June. But we have, you know, if you look back over the last four years, we were underpriced a lot. Thank you. Our next question is coming from Brian Bittner from Oppenheimer. Your line is now live. Thank you. Good morning.

Raj: But as the year progressed inflation came down battle inflation came in better than we expected for both commodities and labor are and then that combined with our team's strong cost management that improved productivity on the labor front. We also improved our waste we had some favorability in the mix in terms of how the.

Raj: The trading happened between the items. So all of these were contributors to our margin improvement what is our plan now as we look at next year, we will share more details in June.

Raj: But the way we look at our as we were going through the planning process right now, but we're always use our long term framework as a guidepost to inform how we think about plan. So we'll share more details in June.

Raj: And but we have a if you look back over the last four years, we want our price de la.

Raj: Thank you. Our next question is coming from Brian Bittner from Oppenheimer. Your line is now live.

Brian John Bittner: Thank you good morning, I wanted to follow up on the lower income consumer and your comments about the this cohort pulling back because it was a pretty pronounced commentary there and I know you talked to Eric's question about what you're seeing but I think.

Brian John Bittner: I wanted to follow up on the lower income consumer and your comments about this cohort pulling back because it was a pretty pronounced commentary there. And I know you talked to Eric about what you're seeing, but I think this is reflected in your 4Q same-store sales outlook, but do you anticipate this dynamic that you're seeing with the low-end consumer to be powerful enough to impact industry sales throughout the rest of the calendar year? And if so, how are you thinking about updating your strategy to deal with this? Hey Brian,

This is reflected in your four Q same store sales outlook, but do you anticipate this dynamic that youre seeing with the low end consumer to be powerful enough to impact industry sales throughout the rest of the calendar year and if so how are you thinking about updating your strategy to deal with this.

Speaker Change: Hey, Brian Yeah, we can't determine whether its going to be impacting the rest of the year well. We can say what I can say is that impact of the low end consumer was a year over year phenomenon.

Ricardo Cardenas: Yeah, we can't determine whether it's going to be impacting the rest of the year. What I can say is that impact on the low-end consumer was a year-over-year phenomenon, and now we're back to our pre-COVID mix. And so if you think about where we were before COVID, what percent of our guests were below 50,000, what percent of our guests were below 75, et cetera, across all of our segments, all of our brands, it's almost exactly the same as it was before COVID. So at least that makes us feel like we know how to operate in this environment. The other thing is, if you look at Black Box, according to Black Box, every segment in the industry from QSR on up was negative in same restaurant traffic in our third quarter. Every one of them.

Brian John Bittner: And now we're back to a pre COVID-19 mix and so if you think about where we were before COVID-19 what percent of our guests who are below 50000, what percent of our guests were below 75 et cetera across all of our segments all of our brands. It's almost exactly the same as it was before COVID-19. So at least that makes us feel like we know how to operate this in this environment.

Brian John Bittner: The other thing is if you look at it black box. According to Black box every segment in the industry from Q S are on up was negative in same restaurant traffic and in our third quarter.

Brian John Bittner: Every one of them. So you know I know that's also a year over year phenomenon.

Ricardo Cardenas: So, you know, that's also a year-over-year phenomenon. So we'll continue to monitor what we see with the guests and what we see with that lower-end consumer, but we're pleased that it's back to our normal pre-COVID levels. And in respect to marketing, you know, as we've talked about often, we're focused on profitable sales growth, and our brands, all of our segments, improved sales and profits for the quarter year over year. And, you know, we, even with the increase in competitive activity, we exceeded industry traffic by 270 basis points on top of the 700 basis point gap we had in Q3 last year. So almost 1,000 points, so a 970 point gap in two years.

Brian John Bittner: So we'll continue to monitor what we what we see with the guest and what we see on that lower end consumer, but we're pleased that it's back to a normal or normal pre COVID-19 levels.

Brian John Bittner: And in respect to our marketing.

Brian John Bittner: As we've talked about often we're focused on profitable sales growth.

Brian John Bittner: And our brands are all of our segments improved sales and profit for the quarter year over year.

Brian John Bittner: And you know when we we even with the increase in competitive activity, we expected way exceeded I'm, sorry industry traffic by 270 basis points on top of a 700 basis point gap. We had in Q3 last year. So almost 10, yeah, almost a 1000 points. So 970 point gap in two years.

Ricardo Cardenas: So we're going to stick to our strategy of everyday value for our guests and continue to use our filters to evaluate any marketing activity. If that means that we're going to spend a little bit more in a quarter or a little bit less in a quarter, that's what we'll do. But we're going to focus on our strategy and stick to it as long as we can. Thanks.

Brian John Bittner: So we're going to stick to our strategy of everyday value to our guests and continue to use our filters to evaluate any marketing activity and if that means that we're going to that we're going to spend a little bit more in a in a quarter or a little bit less than a quarter.

Brian John Bittner: That's what we'll do but we're going to focus on our strategy and stick to it as long as we can.

Speaker Change: And just as my follow up as it relates to the third quarter specifically your your ability to manage the margins was very impressive. Despite you know where the comp shook out can you just talk a little more specifically about how you'd nimbly manage that labor and other operating expense line and just.

Rajesh Vennam: And as my follow-up, as it relates to the third quarter specifically, your ability to manage the margins was very impressive despite where the comps shook out. Can you just talk a little more specifically about how you nimbly manage that labor and other operating expense line? And just, Raj, as we look to 4Q, I think you had previously said you expect to underprice inflation by about 150 to 200 basis points in the fourth quarter. Is that still the range you want us thinking about pricing versus inflation for 4Q? Thanks.

Speaker Change: As we look to for Q I think you had previously said you expect to underprice inflation by about 150 to 200 basis points in the fourth quarter is that still kind of the range you want us thinking about pricing versus inflation for for Q. Thanks.

Speaker Change: Hey, Brian I'll start with how we manage labor and productivity and then I'll, let Raj answer the question on the pricing. So if you think about what we've been doing over the over the years, we are improving we've been improving our technology on guest count forecasting by using machine learning and AI tools to help to help the brands.

Rajesh Vennam: Hey Brian, I'll start with how we manage labor and productivity, and then I'll let Raj answer the question about pricing. So if you think about what we've been doing over the years, we've been improving our technology on guest count forecasting by using machine learning and AI tools to help the brands write better schedules and manage their business better. And we're able to react quicker to the impacts that we see in our restaurants. But we're also continuing to find ways to improve productivity. And one of the ways and benefits that we had this quarter was continued improvement in turnover. And so we've had less training expense for new team members, and we've got better retention, so the team members know how to do their job better.

Raj: Right better schedules and manage their business better.

Speaker Change: We're able to react quicker.

Speaker Change: Two two impacts that we see in our restaurants, but we're also continuing to find ways to improve productivity.

Speaker Change: And one of the ways and the benefits that we had this quarter is continued improvement in turnover.

Speaker Change: And so we've had less less training expense for new team members and we've got better retention. So the team members know how to do their job better.

Speaker Change: You know in the turnover ranks.

Ricardo Cardenas: You know, in the turnover ranks where we are today across Darden, our turnover went down by about 20 percentage points versus last year and is almost 30 percentage points better than the industry. And now our turnover is much closer to pre-COVID levels, except for Yardhouse and Cheddar's, which we believe are at a level lower than they've ever had in their history. So those things help with labor and food costs and other parts of the P&L. And I'll let Raj answer the other part of that.

Speaker Change: Where we are today across darden.

Speaker Change: Our turnover went down by about 20 basis point 20 percentage points versus last year, and almost 32 percentage points better than the industry and now our turnover is much closer to pre COVID-19 levels.

Speaker Change: Except for yard house, and shatters, which actually we believe are at a level lower than they've ever had in their history. So those things help with labor.

Speaker Change: And in food costs. Another in other parts of the P&L and I'll, let Raj answer the other part of that inflation.

Raj: Yeah, Brian for Q4, we're still expecting that gap to be in the 100 to 150. So overall inflation is expected to be in the mid single.

Rajesh Vennam: Yeah, Brian, for Q4, we're still expecting that gap to be in the 100 to 150. So overall inflation is expected to be in the mid threes for us, and prices are probably going to be in the two to two and a half. So we still expect to underprice inflation by in that range of 100 to 150 in Q4. Thank you. The next question is coming from Dennis Geiger from UBS. Your line is now live.

Raj: You know mid threes for us and the pricing is probably going to be in the two to two and half. So we still expect to underprice inflation by in that range of 100 to 150 in Q4.

Raj: Yes.

Raj: Thank you. Your next question is coming from Dennis Geiger from UBS. Your line is now live.

Dennis Geiger: Great. Thanks, guys wondering if you could speak to what you're seeing from a customer average check standpoint anything was with respect to alcohol or other mixed contribution that you saw in the quarter or that have changed relative to prior quarters.

Dennis Geiger: Great. Thanks, guys. Wondering if you could speak to what you're seeing from a customer average check standpoint. Anything with respect to alcohol or other mixed contributions that you saw in the quarter or that have changed relative to prior quarters? Yeah, we're actually talking about the check for the third quarter.

Dennis Geiger: Yeah were actually part of the check for the third quarter, we actually saw the mix moderate from the levels. We saw in terms of what we saw in Q2. So if you look at our casual brands are the negative mix was around 40 basis points are in in Q2, it was closer to 60.

Rajesh Vennam: We actually saw the mix moderate from the levels we saw in terms of what we saw in Q2. So if you look at our casual brands, the negative mix was around 40 basis points, whereas in Q2, it was closer to 60 basis points.

Dennis Geiger: Basis points.

Rajesh Vennam: And then from a fine dining perspective, we saw a huge improvement. I think fine dining in the second quarter was north of 200 basis points negative mix. We're now seeing in the low 100 basis points negative mix. So that's almost halved.

Dennis Geiger: And then from a from a fine dining we say a huge improvement I think fine dining in the second quarter was north of 200 basis points of negative mix.

Dennis Geiger: We're now seeing in the low 100 basis points of negative mix. So that's almost <unk> almost half. So we are seeing some improvement in terms of check Matt of check mix.

Rajesh Vennam: So we are seeing some improvement in terms of check mix. Part of that could be a wrap-up, but also the holidays were pretty strong. And so on that front, we're actually seeing positive momentum, I guess, quarter to quarter. Great. Thanks, Russ. Just one other quick one.

Dennis Geiger: And part of that could be a wrap but also the holidays were pretty strong and so so that on that front, we're actually seeing a positive momentum I guess quarter to quarter.

Speaker Change: That's great. Thanks, Thanks Raj just one other quick one just as it relates to off premise anything to call out there in the quarter, what Youre seeing you know how your strategy has been effective despite some of the consumer pressures out there on the on the off premise side of things.

Rajesh Vennam: Just as it relates to off-premise, anything to call out there in the quarter, what you're seeing, how your strategy has been effective despite some of the consumer pressures out there on the off-premise side of things? Thanks, guys. Yeah, from an off-premise perspective, our sales as a percent of sales were slightly below last year, but not by much. This is typically a high season for Olive Garden off-premise, so Q3 was closer to 26%. Last year it was also in that range.

Raj: Thanks Scott.

Raj: Yeah from an off premise perspective, our sales as a percent of sales was slightly below last year, but not a lot. This is typically a high season for olive garden off premise. So Q3 was closer to 26% last year was also in that range, we're probably 40 or 50 basis points, lower but not a lot and longhorn was around 13% which was also.

Rajesh Vennam: We were probably 40, 50 basis points lower, but not by much. And Longhorn was around 13%, which was also about 40 or 30 basis points lower. But overall, I think it goes back to execution.

Raj: About.

Raj: 40, or 30 basis points, lower but overall I think it goes back to the execution. Our focus has been staying on just ensuring that we execute at the highest levels for off premise and that's helped contribute to maintain the stability.

Rajesh Vennam: Our focus has been staying on just ensuring that we execute at the highest levels for off-premise, and that's helped contribute to maintaining the stability. Thank you. Our next question today is coming from Jon Tower from Citigroup. Your line is now live.

Yeah.

Raj: Thank you. Our next question today is coming from Jon Tower from Citigroup. Your line is now live.

Jon Michael Tower: Great, thanks. I appreciate that. I guess the first one is, and I understand you guys want to stay true to the operating philosophy, but how do you keep your brands top of mind and invisible in front of consumers when the industry is getting more aggressive with, you know, getting in front of them by spending a lot more dollars than they have in the past several years on marketing? Hey, John.

Jon Michael Tower: Great. Thanks, I appreciate that.

Jon Michael Tower: I guess the first one is and I understand you guys want to stay true to the operating philosophy, but how do you keep your brands top of mind and invisible in front of consumers when the industry is getting more aggressive with getting in front of him by spending a lot more dollars than they have in the past several years on marketing.

Jon Michael Tower: Hey, John you know if you think about the amount we spend even with the spending that we had this quarter olive garden in most of the weeks were in the top three and share of voice and so we're still in front of our consumer we have other ways to get in front of the consumer with our E Club.

Ricardo Cardenas: You know, if you think about the amount we spend, even with the spending that we had this quarter, Olive Garden, for most of the weeks, was in the top three in share avoidance. And so we're still in front of our consumers. We have other ways to get in front of the consumer with our e-club and other digital spend. But, you know, at the end of the day, the best way to get people to come into our restaurants is to have guests recommend us to others.

Jon Michael Tower: And with other digital spend but you know at the end of the day, the best way to get people to come into our restaurants is to have guests recommend us to others and so that's what we're continuing to focus on we will continue to use marketing.

Ricardo Cardenas: And so that's what we're continuing to focus on. We will continue to use marketing with our filters to talk about our core equities and to continue to drive results in the long term. You know, and we do have great everyday value. And as we think about what we want to do in the future, I don't want to get into the details.

Jon Michael Tower: With our filters to talk about our core equities and <unk> and to continue to drive drive results in the long term.

Jon Michael Tower: And we do have great everyday value and what you know as we think about what we wanted to do in the future I don't want to get into the details, but you know we have levers to pull and if we if we pull them you'll know after reform.

Ricardo Cardenas: But, you know, we have levers to pull, and if we pull them, you'll know after we pull. Okay, I appreciate that. And then just on the 25% outlook for unit growth, I was surprised it was lower than at least this year from a gross opening or planned opening perspective. Can you speak to why, you know, as of right now, you're expecting kind of 45 to 50 versus what we've been seeing the past several years? Yeah, John, you said it. The new restaurant projection we have for next year, it is within our long-term framework, but it's lower than we'd like it to be. We're going to keep working on getting to the high end of that framework over time, but it'll take a little bit of time.

Speaker Change: Okay I appreciate that and then just on the 25 outlook or the unit growth that I was surprised it was lower.

Speaker Change: Then at.

Speaker Change: At least this year from a gross opening or planned opening perspective can you speak to why you know as of right now you're expecting kind of 45 to 50 versus what we've been seeing the past several years.

Speaker Change: Yeah, John you said it the new restaurant projection, we have for next year. It is within our long term framework, but it's lower than we'd like it to be we're going to keep working on getting to the high end of that framework over time, but it'll take a little bit of time.

Ricardo Cardenas: You know, I would say construction costs were quite a bit higher than pre-COVID levels, and we have walked away from some deals because of the construction costs, and they've come back to us after we walked away. And so we're willing to slow it down a little bit to get a better result in the long term. But the good news is that at least the construction costs have stabilized. The other thing is it's still taking longer to get construction starts than it was four years ago. It's also taking longer to get to completion than it has in the past. And so if you think about the time it'll take to build a restaurant, it's longer than it used to be. A lot of that's driven by developers, utility hookups, and time for permits, and also time for getting certificates of occupancy.

Speaker Change: I would say construction costs were quite a bit higher than pre COVID-19 levels.

Speaker Change: And we have walked away from some deals because of the construction costs and they've come back to us after we walked away and so we're willing to slow it down a little bit to get a better result in the long term.

Speaker Change:

Speaker Change: And but the good news is at least the construction costs have stabilized. The other thing is it's still taking longer to get construction starts and it was four years ago. It's also taking longer to get to completion than it was in the past and so if you think about the time it'll take to build a restaurant it's longer than it was a lot of that's driven by developers utilities hookup.

Speaker Change: And time for permitting and also time forgetting certificates of occupancy. So if you think about the time that we have openings, we've got a lot of our openings.

Ricardo Cardenas: So if you think about the time that we have openings, we've got a lot of our openings next year towards the end, which could slip, and that's what we're just wanting to make sure that we get the number, that we tell you a number that we're going to hit. But we want to get closer to that high end over the long term. And the other thing is, I want everybody to remember, we do include M&A as part of those new restaurants. And we didn't talk about that, but Ruth, Chris, we added 77 restaurants this year, so it gave us a little bit of a relief valve to not be so aggressive if we didn't need to be aggressive. Thank you. Our next question today is coming from David Tarantino from Barrier Gerbine, who's now live. Hi, good morning.

Speaker Change: Next year towards the end, which could slip and that's what we were just wanted to make sure that we get the number and we tell you a number that we're going to hit.

Speaker Change: But you know we want to get closer to that high end over the long term.

Speaker Change: And the other thing is I want everybody to remember we do include M&A as part of those new restaurants, and we didn't talk about that but Ruth's, Chris We added 77 restaurants. This year. So it gave us a little bit of a of a relief valve to not be so aggressive if we didn't need to be aggressive.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question today is coming from David Tarantino from Baird. Your line is now live.

David E. Tarantino: Hi, Hi, good morning.

David E. Tarantino: I want to come back to the question of how you would manage the business if the environment were to get worse from here. And in particular, you know, you mentioned you had some levers to pull. I know you don't want to share details about that. But I was wondering if you could just comment on whether anything would change, whether it got worse, and then, and then specifically on the pricing question, just wondering your pricing philosophy and whether you will continue to be conservative, you know, relative to your inflationary goals. Yeah, David, you know, as we think about the levers we can pull, you know, we have, as we've talked over the years, we've brought our marketing down. We've actually focused more on our core equities, you know, and every year we might take marketing up a little bit, but we're not going to strategically, we're not going to change our strategy. We're not going to become a discount kind of heavily promotional brand.

David E. Tarantino: I wanted to come back to the question of how you would manage the business if the environment were to get worse from here and in particular.

David E. Tarantino: You mentioned you had some levers to pull on and I know you don't want to share details around that but I was wondering if you could just comment on whether anything would change if things got worse and then and then specifically on the pricing question I was just wondering your pricing philosophy in the current environment.

David E. Tarantino: And and whether you would continue to be conservative.

David E. Tarantino: Relative to your inflation levels.

Speaker Change: Yeah, David you know as we think about the levers we can pull them you know we have as we've talked over the years, we brought our marketing down we've actually focus more on our core equities you know in every year, we might take marketing up a little bit, but we're not gonna Swift strategic we're going to kick in.

Speaker Change: To change our strategy, we're not going to become a discount kind of heavily promotional brand. We worked really hard through COVID-19 and before to get to what we think is a better stable stronger business for us for the long term and we would be willing to deal with short term pressures to not change our strategy to get to the law.

Ricardo Cardenas: We worked really hard through COVID and before to get to what we think is a better, stable, stronger business for us for the long term, and we would be willing to deal with short-term pressures to not change our strategy to get there. Now again, we have some tactics that we can do that would still stick to our strategy, but we don't plan on getting to be a promotional deep discounting brand. Again, Olive Garden, which had less marketing in Q3 than it did in Q2, while they had less marketing than last year in the second quarter. Our competitors had more, but Olive Garden still gained a share.

Speaker Change: Term now.

Speaker Change: Now again, we have some tactics, we can do which would still stick to our strategy, but we're not going to we don't plan on getting to be a promotional deep discounting brand again, olive garden, which had less marketing in Q3 than it did in Q2.

Speaker Change: While they are they had less marketing than than than the last.

Speaker Change: Last year, and then in the second quarter.

Speaker Change: Our competitors had more olive garden's still gained share and that's what our focus is is share gain sales and profit growth over the time.

Ricardo Cardenas: And that's what our focus is, is share gain, sales, and profit growth over time. We're going to continue to focus on execution. Food, our service, and our atmosphere to increase frequency with our core guests, and we love our core guests. We think they're great for us, and we'll continue to build over time. We're just not going to fight gravity on what's going on in the environment.

Speaker Change: We're going to continue to focus on execution, our food our service and our atmosphere to increase frequency with our core guests.

Speaker Change: And we love our core guests, we think they're great for us and will continue to continue to build over time.

Speaker Change: No. We're just not going to fight gravity on on what's going on in the environment, we're going to stick to what we want to do.

Ricardo Cardenas: We're going to stick to what we want. And then on the pricing side, you know, our strategy is to continue to price below inflation over time. You know, and we've taken a lot less pricing than the competitive set. We've taken a lot less pricing than CPI, a lot less pricing than... Then full service, limited service over the last four years. So it gives us some room to continue to price if we need to, but our plan is still, in the long term, to price below. Great. It makes sense.

Speaker Change: And then on the pricing side, you know where our strategy is to continue to price below inflation over time.

Speaker Change: And we've taken a lot less pricing than than the competitive set we've taken a lot less pricing than CPI, a lot less pricing than.

Speaker Change: Then than full service and limited service over the last four years. So it gives us some room to continue to price if we need to but are still our plan is still over the long term to price below inflation.

Speaker Change: Right makes sense. Thank you.

Jeffrey Andrew Bernstein: Thank you. Thank you. The next question today is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Speaker Change: Yes.

Speaker Change: Thank you. Your next question today is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Speaker Change: Yeah.

Jeffrey Andrew Bernstein: Great, thank you. My first question, Rick, you mentioned the operating environment being tougher than anticipated. Just wondering how you would size up how much of that is the broader macro versus maybe, I'm assuming your data is showing that the broader industry pullback was not just Darden in February, that you're seeing the broader industry see the very same directional trend in February. Is that fair to say?

Jeffrey Andrew Bernstein: Great. Thank you.

Jeffrey Andrew Bernstein: My first question, Rick you mentioned in the operating environment tougher than anticipated.

Jeffrey Andrew Bernstein: Wondering how would you size up how much of that is the broader macro versus maybe what you'd say there were any internal missteps.

Jeffrey Andrew Bernstein: I mean I'm, assuming your data is showing that the broader industry pullback.

It was not just darden in February that Youre seeing are the broader industry see the very same directional trend in February.

Speaker Change: Fair to say any thoughts there would be great.

Ricardo Cardenas: Any thoughts there would be great? Sure. Yeah, Jeff, I think it's a broader market versus any specific missteps we had. You know, our gap increased from January to February. Our traffic and sales gap increased, both of those increased between January and February. And as I said, every category in the industry from QSR on up had negative traffic in the first quarter. And so I think there's a little bit of a bigger, a bigger challenge, at least a year over year challenge for our consumer. And we're going to see how that plays out over the next couple of quarters and see if there's anything we need to change, but it won't be a dramatic change.

Speaker Change: Yeah, Jeff I think it's a broader market versus any specific missteps, we had you know.

Speaker Change: Our GAAP increased from January February are our traffic and sales gap increased both the both of those increase between January and February and as I said every <unk>.

Speaker Change: Category and in the industry from <unk> had negative traffic in the quarter.

Speaker Change: And so I think theres, a little bit of bigger a bigger challenge at least a year over year challenge.

Speaker Change: For our consumer.

Speaker Change: And we're going to see how that plays out over the next couple of quarters and see if there's anything we need to change, but it won't be dramatic change.

Speaker Change: Understood and then just.

Speaker Change: To follow up.

Jeffrey Andrew Bernstein: And then just to follow up, February sounds like it improved but below plan. Did that underlying consumer weakness persist into March? I mean, I know we're talking about short periods, but February is a short period, and now we're pretty far into March.

Speaker Change: The February sounds like you said it improved but below plan did did that underlying consumer weakness persist into March I mean, I know, we're talking about short periods, but February is a short period in that we're pretty far into March I'm, just wondering whether you've seen any change for the better or the worse and just curious from your perspective, because you do have I believe up to <unk>.

Ricardo Cardenas: I'm just wondering whether you've seen any change for the better or the worse. And just curious from your perspective, because you do have, I believe, up to nine brands now. What do you think drove that change in behavior? Is there anything in particular you're seeing? Because it does seem like January was weather, but then it really was just February and potentially into March.

Speaker Change: Nine brands now what do you think drove that change in behaviors or anything in particular youre seeing because it does seem like a.

Speaker Change: January was weather, but then it really was just February and potentially into March. So I'm. Just wondering what your perspective is in terms of what drove that pull back. Thank you.

Ricardo Cardenas: So I'm just wondering what your perspective is in terms of what drove that pullback. Thank you. Yeah, I would say, first of all, our guidance contemplates everything we know about March. I don't want to get into that.

Speaker Change: Yeah, I would say first of all our guidance contemplates everything we know about March I don't want to get into March we have a lot of a lot of challenges forecasting three weeks and I'm in a month when you've got spring break shifts in those kinds of things happen and so you know we're going to continue to watch.

Ricardo Cardenas: We have a lot of challenges forecasting three weeks in a month when you've got spring break shifts and those kinds of things happen. And so, you know, we're going to continue to watch. You know, I think I've read a little bit about tax returns being a little bit delayed. But, you know, we're not going to get too much into that. We improved our gap between January and February, and so that's what we feel good about. But we're not going to talk about that.

I think I've read a little bit on tax returns being a little bit delayed.

Speaker Change: But you know, we're not going to we're not going to read too much into that.

Are we improved our gap between January and February and so that is what we feel good about we're not going to talk about March yet.

Speaker Change: Thank you next question is coming from Jeff Farmer from Gordon Haskett. Your line is now a lot great. Great. Thanks, just following up on Jeff's question there so.

Jeffrey Daniel Farmer: Thank you. The next question is coming from Jeff Farmer on behalf of Gordon Haskett. Your line is now live.

Jeffrey Daniel Farmer: Great. Great Thanks.

Ricardo Cardenas: Just following up on Jeff's question there. So, again, you had made some reference to the lower income consumer, but in terms of thinking about just maybe a little bit softer trends than you had expected, how much of that would you put at the feet of the lower income consumer as opposed to the balance of potential drivers? Yeah, I would say that, you know, if you think about our results being a little bit softer than we thought, I would put it more at the feet on the lower end than the higher end.

Jeffrey Daniel Farmer: Then you had made some reference to the lower income consumer but in terms of thinking about just maybe a little bit softer trends than you had expected how much of that would you put at the defeat of the lower income consumer as opposed to the balance of potential drivers.

Jeffrey Daniel Farmer: Yeah, I would say that you know if you think about the R. R. R. A results being a little bit softer than we thought I would put it more at the feed at the lower end than the higher end.

Ricardo Cardenas: You know, our higher end consumer was up versus last year. So that would tell you that, you know, it was really more about the lower end consumer. You know, but, you know, as I think about what the consumer trends are, I just want to remind everybody that we believe that operators can deliver on their brand promise, and value can continue to appeal to consumers despite economic challenges. And that's what we're going to continue to focus on doing. I remain confident that we are well positioned and prepared for whatever we have to deal with.

Jeffrey Daniel Farmer: Our higher end consumer was up versus last year. So that would tell you that you know it was really more on the lower end consumer you know, but you know as I think about what the consumer trends are.

Jeffrey Daniel Farmer: Wanted to remind everybody that we believe that operators that can deliver on their brand promise.

Jeffrey Daniel Farmer: With value can continue to appeal to consumers despite economic challenges and that's what we're going to continue to focus on doing.

Jeffrey Daniel Farmer: I remain confident that we're well positioned and prepared for whatever we have to deal with thanks to the breadth of those nine brands that Jeff talked about the strategic decision, we made to price well below inflation and CPI over the last four years.

Ricardo Cardenas: Thanks to the breadth of those nine brands that Jeff talked about, the strategic decision we made to price well below inflation and CPI over the last four years, and those outstanding team members we have in our restaurants who are committed to creating exceptional guest experiences for our guests. And so, yeah, the lower end consumer probably drove a little bit more of our miss compared to what we thought when we talked to you before. But we're going to continue to focus on what we do and take care of every guest that walks in the door the best that we can to have them come back. And then the second question you just touched on; you gave me a pretty good segue there.

Jeffrey Daniel Farmer: And those outstanding team members, we have in our restaurants, who are committed to create exceptional guest experiences for our guests and so yeah. The lower end consumer probably drove a little bit more of our our under our Miss to what we thought when we talked to you before but we're going to continue to focus on what we do and take care of every gets it walks in the door the.

Jeffrey Daniel Farmer: Best that we can tap them to come back.

Speaker Change: And then the second question you just touched on you gave me a pretty good segue there, but in terms of your more conservative pricing strategy relative to your peers.

Ricardo Cardenas: But in terms of your more conservative pricing strategy relative to your peers, from what you've seen, has that driven traffic outperformance, or market share outperformance? Does that strategy actually pay dividends to these customers, casual dining customers? Do they appreciate that the Darden brand portfolio is actually a better value than a lot of other concepts from what you've seen? Yeah, Jeff, I think if you look at our gap over two years, our gap to the industry is, as I said, almost 1000 basis points. I'm sorry.

Speaker Change: From what you've seen has that driven traffic outperformance market share outperformance is that strategy actually.

Speaker Change: They pay dividends just to these customers casual dining customers appreciate that the Darden brand portfolio was actually.

Speaker Change: A better price value than a lot of other concepts from what you've seen.

Speaker Change: Yeah, Jeff I think if you look at our GAAP over two years are our gap to the industry as I said being almost 1000 basis points.

Speaker Change: I'm, sorry that yet.

Andrew Strelzik: Yeah, a 10% gap over the three years. It's been strong, and that's what we do. We're taking this price below inflation, offering a great everyday value, and we think over the long term, that continues to build the value differential we have. We've got value leaders across, and that helps build the traffic. Thank you. Thank you. The next question today is coming from Andrew Strelzik from BMO Capital Marketers. Your line is now live. Hey, good morning.

Speaker Change: 10% get over the three years its been strong and that's that's what we do we're taking this this price below inflation, having a great everyday value and we think over the long term that continues to build the value differential we have we've got value leaders across and that helps build the trap.

Speaker Change: GAAP alright.

Speaker Change: Alright, thank you.

Speaker Change: Yeah.

Speaker Change: Thank you. Your next question today is coming from Andrew <unk> from BMO capital markets. Your line is now live.

Andrew: Hey, good morning, Thanks for taking the question.

Andrew Strelzik: Thanks for taking the question. I wanted to ask about industry capacity, particularly given what you're talking about with a more challenging kind of traffic backdrop. And I think initially during COVID, Darden talked about maybe a 10% decline in location because of closures. And it feels like from a lot of the public companies we hear from, there's a desire to accelerate unit growth, or there has been. I'm not exactly sure what's going on on the independent side.

Andrew: Wanted to ask you about industry capacity, particularly given what you're talking about with the more challenged kind of traffic backdrop and I think initially during COVID-19 Darden talked about maybe a 10% decline in locations.

Andrew: Because of closures and it feels like from a lot of the public companies, we hear from there theres a desire to accelerate unit growth or has been in.

Andrew: I'm not exactly sure whats going on on the independent side. So I guess I'm. Just curious if you have a sense where capacity is now versus that 10% reduction or are you seeing it come back in any of your markets or any specific regions and maybe if you could touch on the independents side as well thanks.

Rajesh Vennam: So I guess I'm just curious if you have a sense of where capacity is now versus that 10% reduction. Are you seeing it come back in any of your markets or any specific regions? And maybe you could touch on the independent side as well.

Rajesh Vennam: Thanks. Andrew, I think we're still in that ballpark of 10 plus percent, but if you actually look at the last year or so, there have been more closures than openings from the data we've seen. So there are net closings even in the last nine, 12 month data that we're looking at. When you think about the environment today, with all the regulation around where things are, it's very hard for someone to open a new restaurant.

Andrew: Andrew I think we're still in that ballpark of 10 plus percent, but if you actually look at the last year or so there'd been more closures than openings from the data. We've seen so net net closings are even in the last nine.

Speaker Change: Nine to 12 month data that we're looking at.

Speaker Change: When you think about the environment today with all the regulation that arent, where things are it's very hard for someone to open a new restaurant in the financing costs have gone up there is less development happening that's actually part of the reason we talked about some growth are being constrained a little bit in the near term for us.

Rajesh Vennam: The financing costs have gone up. There is less development happening. That's actually part of the reason we talked about some growth being constrained a little bit in the near term for us on the unit opening. So we would say it's not that different. It has not gotten much better, maybe, let's put it that way. Okay, great.

Speaker Change: On the unit opening so I. So we would say it's not that different. It's it has got he has not gotten much better maybe let's put it that way.

Speaker Change: Okay, Great and then you know maybe it's on your unit growth expectations for next year, just curious where we should expect a few real peak to come from I guess does it just match based on the size of the portfolio where are.

John William Ivankoe: And then, you know, maybe on your unit growth expectations for next year, just curious where we should expect the few ropings to come from. I guess, does it just match based on the size of the portfolio or any of the brands in particular? Yeah, I'd say assume that two-thirds of the growth is going to come from Olive Garden and Longhorn combined, and then the rest is, a third is from all the other brands. I don't know that we would say there's a huge difference year over year. It's a little bit of a change, but as we look forward, as Rick said, we'll continue to try to get that ramped up further. Thank you. The next question is coming from John Ivankoe from J.P. Morgan, your Liner's Ally. Hi, thank you.

Any of the brands in particular thanks.

Speaker Change: Yeah, I'd say I assume that two thirds of that is two thirds of the growth is going to be come from olive garden Longhorn combined and then the rest is authorities from all the other brands I don't know that we would say there's a huge difference year over here.

Speaker Change: It's a little bit of a change, but as we look forward as Rick said, we'll we'll continue to try to get that ramped up further.

Speaker Change: Thank you next question is coming from Johnny Wankel from Jpmorgan. Your line is ally Hi. Thank you I you know I I remember in in past periods. There are a number of things that you've done.

John William Ivankoe: I remember in past periods there were a number of things that you did that weren't necessarily operationally difficult, and I don't think it overly discounted the brands. Things like dinners for two, buy one, take one, maybe even highly targeted couponing to certain lower income consumers to bring them back. Those types of things did prove effective for Darden of the past.

John William Ivankoe: That arent necessarily operationally difficult and you know and I don't think overly discounts the brands things like dinners for to buy one take one maybe even you know highly targeted disk couponing to certain lower income consumers to bring them back those types of things did prove effective.

John William Ivankoe: Two the darden in the past I mean, I wonder if ideas like that are on the table as the first part of the question and then secondly, you know.

Ricardo Cardenas: I wonder if ideas like that are on the table. And secondly, a lot of higher-income consumers are obviously getting more price-resistant about some of the restaurants that they visit. Is there a way to invite some of the higher-income consumers, maybe through different types of promotions, back to the Olive Garden as well, that you haven't been doing in the past couple of years? Thank you. Hey John.

John William Ivankoe: A lot of the higher income consumer obviously, as you're kind of getting more price resistant about some of the restaurants that they visit is there a way to invite some of the higher income consumer you know maybe two different types of promotions back into olive garden as well you know that you have been doing in the past couple of years. Thank you.

Speaker Change: Hey, John Yeah that was the the deep discounting and couponing a lot of promotions was kind of the darden pre COVID-19. This.

Ricardo Cardenas: Yeah, that was deep discounting, couponing, a lot of promotions. That was Darden pre-COVID. This is Darden post-COVID, which is when we're talking about marketing being things that elevate brand equity, that are easy to execute, and they're not at a deep discount. It doesn't mean that we won't have price points on things over time, but that's kind of more of our everyday low price or around that price. You think about Never Ending Possible, we ran that this year at $13.99. It was a great promotion for us, and that was for $13.99.

Speaker Change: This is the Darden post Covid, which is when we're talking about marketing being things that elevate brand equity that are easy to execute and theyre not at a deep discount doesn't mean that we won't have price points on things over time, but that's kind of more of our everyday low price.

Speaker Change: Or around that price you think about never any possible. We ran that this year at 13 99. It was a great promotion for us and that was at 13 99. So we can think about doing those things again next year with never ending pasta Bowl, we already have buy one take one on our menu basically with a $6.

Ricardo Cardenas: So, you know, we could think about doing those things again next year with Never Ending Possible. We already have buy one, take one on our menu, basically, with the $6 take-homes. So, you know, there's a lot of everyday value already. In terms of kind of talking to the higher-end consumer, as I mentioned, we actually grew. At the higher-end consumer, at all of our segments. The $200,000 plus, and $150,000 plus, were up year over year. But, you know, I think you could see a few signs of some consumers trading down within our brands. You think about Longhorn did really well as they grew even at the high-end consumer at a little bit lower, you know, the 150, 125. And they actually had a positive check.

Speaker Change: Homes.

So you know theres a lot of everyday value already in terms of of kind of talking to the higher end consumer as I mentioned, we actually grew at the higher end consumer at all of our segments. The 200000, plus once at $1 50, plus was up year over year.

Speaker Change: But you know I think you could see a little a few signs of some consumers trading down within our brands.

Speaker Change: Think about longhorn did really well with the you know as they grew even at a little bit at the high end consumer at a little bit lower than $1 50, 125, and they had actually positive check.

Speaker Change: And so so we're seeing some of that shift in some ways and so we think as long as we execute great and we have great word of mouth that will get that higher end consumer maybe to trade one of our brands from someone else.

Ricardo Cardenas: And so we're seeing some of that shift in some ways. And so we think as long as we execute great and we have great word of mouth, that will get that higher-end consumer maybe to trade to one of our brands from someone else. Even if it trades from one of our current brands to one of our brands, that's fine with us, too.

Speaker Change: Even if it trades from one of our current brands to one of our brands that's fine with us too.

Ricardo Cardenas: But, again, long-term, every day, talk about what our core equities are, execute better than the restaurant next door, and we'll win. And we'll deal with short-term challenges. And is the company discussing, you know, kind of reintroducing or at least thinking about, a more effective way to approach loyalty? I mean, is that something that becomes table stakes in 24 and 25, or are we happy with the current approach?

Speaker Change: But again long term.

Speaker Change: Every day talking about what our core equities are execute better than their restaurant next door and we will win and we will deal with short term challenges.

Speaker Change: And is the company is discussing you know kind of reintroducing or at least thinking about you know a more effective way to approach loyalty I mean is there.

Speaker Change: That's something that become table stakes in 'twenty, four and 'twenty five where are.

Speaker Change: Are we happy with the current approach.

Speaker Change: No were happy with their current approach if you think about loyalty and full service restaurants frequency isn't Super high and we've learned that when we did loyalty before and so it's a little bit less less valuable for our consumer we believe now there's other ways to get that data the value of loyalty is the data that you get and we have other ways to grab that data doesn't mean that we won't think about loyalty.

Ricardo Cardenas: You know, we're happy with the current approach. If you think about loyalty in full-service restaurants, frequency isn't super high, and we learned that when we did loyalty before. And so it's a little bit less valuable for a consumer, we believe. Now, there are other ways to get that data. The value of loyalty is the data that you get, and we have other ways to grab that data. But that doesn't mean that we won't think about loyalty in the future.

In the future, we're just focusing on what we can do right now to continue to execute better.

Ricardo Cardenas: We're just focusing on what we can do right now to continue to execute better, to drive results, and not to drive something that's just buying sales. You know, because we'll have to keep buying it next year and the year after that. We don't want to go out and buy sales.

Speaker Change: To drive drive results and not to drive something that's just buying sales you.

Speaker Change: You know because we'll have to keep buying it next year and the year. After that we don't want to go out and buy sales who want to go out and earn those sales.

Ricardo Cardenas: We want to go out and earn those rewards. Thank you. The next question today is coming from Danilo Gargiulo from Bernstein Researcher Line. The line is now live. Great, thank you. So, first of all, it appears that Longhorn weathered these challenges of this tough operating environment better than other brands. So I'm wondering what caused that, and what learnings could be applied to other brands. So, Danilo, I think, as we talked about in the past, there are a lot of things, right?

Speaker Change: Yes.

Speaker Change: Thank you. Your next question today is coming from Daniel if I draw from Bernstein Research. Your line is now live.

Daniel: Great. Thank you.

Daniel: So first of all it appears the longhorn weathered these challenges of this tough operating environment better than other brands. So I'm wondering what caused that and what learnings can be applied to the other brands.

Daniel: So Daniela I think as we talked about in the past there's a lot of things right first of all let's start with the Big picture are.

Danilo Gargiulo: First of all, let's start with the big picture. We've talked about how, in general, steak does a little bit better when beef prices are higher just because the relative gap between the consumer would rather not take the risk of cooking something that's expensive. So let's start with that big picture. But with that said, within the steak category, not everybody is winning.

Daniela: We've talked about how in general stake.

Daniela: Does a little bit better in beef prices are higher just because the relative gap between the consumer would rather not take risk on cooking something that's expensive. So let's start with that big picture, but that said within the steak category not everybody's winning so if you look at longhorn outperformance has been driven by out executing.

Rajesh Vennam: So if you look at Longhorn, our performance has been driven by our execution. We talk about simple operations, quality, and investments in quality. So our team, Todd and the team, have done a great job over the last four years continuing to invest in the food and in service. And so, if you look overall, you get better value today than you ever did. So if you look at their pricing headings, they're not as good as they used to be. Their pricing has been a lot lower in the industry. Then again, the industry is worse. And especially for a steakhouse, their pricing has been much lower than the competition. So the value equation is much better, and they have great execution. Really, those are the two things.

Daniela: Houston, we talk about that.

Daniela: Simple operations quality, our investments in quality. So our team are Todd and the team have done a great job over the last 40 years investing continuing to invest in our in the in the food and and in service and so if you look at overall, you get a better value today than you ever dead.

Daniela: So if you look at their pricing has been a lot lower in the industry are what is the industry and especially for the steak house their pricing has been much.

Daniela: Much lower than the competition. So the value equation is much better than a great execution really those are the two things.

Rajesh Vennam: Great, thank you Raj. And I want to follow up on one of the comments that Rick was just making about the level of attraction of your customers over a long period of time. And I wonder if you can provide some updates on your customer trends with regard to the frequency at which they are spending in your brand. And maybe you can also offer some insights on the size of your eClub members today versus the past and the total addressable market that you have.

Speaker Change: Great. Thank you and.

Speaker Change: One follow up on one of the comments that Rick was just making on the.

Speaker Change: The level of.

Speaker Change: Attraction of your call.

Speaker Change: Over the long period of time.

Speaker Change: And.

Speaker Change: I Wonder if you can provide some updates on your customer trends with regards to the frequency at which they are spending in your brands and maybe if you can offer also some insight on the size of your E club members today versus the past then and there.

Speaker Change: Total addressable market that you have so how many cost and rates you are youre seeing on a monthly basis.

Danilo Gargiulo: So how many customers are you seeing on a monthly basis at any of your brands? Well, let me start by saying I think we serve about a million guests a day across all of our brands, or more than that, actually. And so we get a lot of people coming in. But our frequency hasn't dramatically changed over the last year. And our e-club is roughly, you know, between 25 and 30 million guests. That's an active e-club.

Speaker Change: Any of your brands.

Speaker Change: Well, let me, let me start by saying I think we serve about 100 about $1 million yesterday.

Speaker Change: Across all of our brands, so or more than that actually and so we get a lot of people coming in are frequency hasnt dramatically changed over the last year.

Speaker Change:

Speaker Change: And our E Club is roughly you know between 25 and 30 million guests Ah that's active E club, we have more more members, but they're active.

Ricardo Cardenas: We have more members, but they're active, and so we have ways to communicate with them. And that's across all of our brands. And so we're really confident now that we've got our, as I said earlier, income demographic back to where we were pre-COVID. We know how to operate in that environment.

Speaker Change: And so we have ways to communicate with that and that's across all of our brands.

Speaker Change: And so.

Speaker Change: Where we're really confident.

Speaker Change: Now that we've got our as I said earlier on the demo on the on the income demographic back to where we were pre COVID-19, we know how to operate in that environment.

Speaker Change: We're seeing some shifts.

Ricardo Cardenas: We're seeing some shifts, excuse me, in the above 65 years old. We've talked about that before. They're shifting a little bit more to lunch and a little bit earlier to dine. And that's great. But so those are the only real, excuse me, major shifts we've seen. Thank you. Next question is coming from Sara Senatore from Bank of America. Your line is valid. Great. Thank you very much.

Speaker Change: With me.

Speaker Change: At the above 65 years old and we've talked about that before they're shifting a little bit more to lunch.

Speaker Change: Little bit earlier to dine.

Speaker Change: That's great, but so those are the only real.

Speaker Change: Excuse me major shifts we've seen.

Speaker Change: Thank you. Your next question is coming from Sara Senatore from Bank of America. Your line is now live.

Sara Harkavy Senatore: Great. Thank you very much just a couple of clarification. Please the first is in terms of the casting industry I know.

Sara Harkavy Senatore: Just a couple of clarifications, please. The first is in terms of the gap in the industry. I know you mentioned that it widened from January to February, but I was curious if it also had been widening before that, from the fiscal 2Q to 3Q. I think historically the gap has tended to widen when the trend industry gets tougher because of that sort of more selective consumer. But I wanted to see if that was the case, kind of stepping back.

Sara Harkavy Senatore: You mentioned that it widen from January and February there just curious if it's also then had been widening before that from fiscal two two to three Q I think historically the gap has widened when trend industry gets tougher because of that circuit.

Sara Harkavy Senatore: Consumer.

Sara Harkavy Senatore: But I wanted to see if that was if that was the case people stepping back and then the.

Sara Harkavy Senatore: And then the other question I have is, you know, I've obviously gotten a lot of questions about low incomes, and I wanted to understand how perhaps this normalization will serve as a headwind in the coming quarter. So, for example, you're back at the pre-COVID level.

Sara Harkavy Senatore: The other question I have is you know obviously gotten a lot of questions about allowing Pam I wanted to understand how perhaps this normalization will serve as a headwind in the coming quarters. So for example, yeah you're back at that pre Covid. My book now does that continue to be a bit of a headwind.

Rajesh Vennam: Now, does that continue to be a bit of a headwind for the next three quarters until you last this quarter? And are you thinking about offsets in the form of better mix? So, you know, perhaps that normalization continues to show up from a traffic perspective, but by the same token, less of a mixed headwind thing. Okay, let's start with the gap itself. So if you look at the gap, in January, the gap narrowed a bit. We think primarily because of the geography and the footprint we have that is disproportionately affected by weather.

Sara Harkavy Senatore: You know for the next three quarters until you lap this quarter.

Sara Harkavy Senatore: Yeah are you thinking about offsets in that format.

Sara Harkavy Senatore: So you know perhaps that normalization.

Sara Harkavy Senatore: We used to show up from a traffic perspective, but.

Sara Harkavy Senatore: By the same token less it doesn't exactly right.

Sara Harkavy Senatore: Okay, let's start with the the the gap itself.

Sara Harkavy Senatore: So if you look at the gap in January the gap narrowed a bit we think primarily because of the geography and the footprint. We have that has a disproportionately impacted by weather.

Rajesh Vennam: If you look at the concentration of where the weather was, that was a higher concentration of our restaurants, and we think that's part of the reason the gap was not as strong. Now, the other part of this gap narrowing this quarter as compared to the last quarter was the fact that we're closing on a huge gap from a year ago. We had a very strong performance a year ago. So that's really, you know, how we would kind of frame that. We're not, you know; we're not going to be able to do that.

Sara Harkavy Senatore: If you look at the concentration of where the weather was Dod was a higher concentration of our restaurants and we think that's part of the reason the gap was not as strong now.

Sara Harkavy Senatore: Now the other part of this gap narrowing this quarter related to the last quarter was the fact that we're wrapping on huge gap from a year ago, we had a very strong performance a year ago. So that's really.

Sara Harkavy Senatore: How we would kind of frame that.

Sara Harkavy Senatore: We're not.

Rajesh Vennam: Look, we've been clear that it's very hard to maintain multiple hundreds of basis points of gap forever. We're going to have that narrow over time. But things we've done with our pricing and our value equation have helped us continue to take share, and we're happy with that. And as Rick said earlier, in an environment when there was intensity, promotional intensity, more so than ever, we still outperformed, and we were able to gain share. So that's the piece on the industry. Now, as you look at the income mix.

Sara Harkavy Senatore: Well look we've been clear that it's very hard to maintain multiple hundreds of basis points of gap whatever we're going to have that narrow over time.

Sara Harkavy Senatore: But things we've done with our pricing in a rally equation have helped us continue to take share and we're happy with that and as Rick said earlier in an environment. When there was intensity in our promotional intensity.

Sara Harkavy Senatore: More so than our we still outperformed.

Sara Harkavy Senatore: And we were able to gain share. So that's the piece on the industry, though as you look at that.

Sara Harkavy Senatore: Income mix.

Rajesh Vennam: Yeah, so this has been an ongoing shift. So we talked about in Q2 that we're starting to see a shift a little bit more towards the pre-COVID mix. So as we looked at Q4 now, Q3 that just ended, we were right essentially where we were before COVID. So yeah, the next three quarters, there's a little bit of moderation in getting that, but it's not as big as it was this quarter. If you think about it, we don't think, I mean, we'll have to see, but based on the data we have, what we are seeing is that we're seeing a little bit of a shift. It should moderate, but we would expect the next two to three quarters to kind of get back to those lows. From a mix perspective, though, a check mix, we actually think mix is going to get better.

Ricardo Cardenas: Yeah. So this is been an ongoing shift so we've talked about in Q2 that we're starting to see a shift a little bit more towards the P covered Max. So we are so as we lap as we looked at Q4 now Q3 that just ended we were right essentially where we were before COVID-19. So yeah. The next three quarters, there is a little bit of <unk>.

Ricardo Cardenas: Moderation of getting that but it's not as big as it was this quarter. If you think about we don't think I mean, we'll have to see but based on the data. We have what we are seeing it should be it should it should moderate but we would expect the next two to three quarters to kind of get back to those levels are from.

Ricardo Cardenas: From a mix perspective, the check mix, we actually think mix is going to get better we expect mix to continue to moderate.

Rajesh Vennam: We expect mix to continue to moderate. I think I mentioned already that Q2 to Q3 we saw an improvement. As we get into Q4, we should see that get better. And as we get into next year, we expect this to be not a huge headwind. We'll see how that plays out, but that's our best thinking at this point. Great. Thank you very much.

Ricardo Cardenas: I think I mentioned already that Q2 to Q3, we saw an improvement as we get into Q4, we should see that get better and as we get into next year. We expect this to be a not a huge headwind.

Ricardo Cardenas: And we'll see how that plays out but that's our best thinking at this point.

Speaker Change: Great. Thank you very much.

Gregory Ryan Francfort: Thank you. The next question today is coming from Gregory Francfort from Guggenheim Securities. Your line is now live.

Thank you next question today is coming from Gregory Frankfurt from Guggenheim Securities. Your line is in their life.

Gregory Ryan Francfort: Hey, guys. Thanks for the question a lot of what I wanted to ask was asked but I wanted to ask you about the commodity outlook.

Rajesh Vennam: Hey guys, thanks for the questions. A lot of what I wanted to ask was asked, but I wanted to ask you about the commodity outlook and thoughts into the fourth quarter, maybe what's implied and risks to the upside or downside on that going forward. Thanks. Hi Greg.

Gregory Ryan Francfort: Thoughts into the fourth quarter, maybe what's implied and risks to the upside or downside on that going forward. Thanks.

Speaker Change: Hi, Gregg sorry.

Rajesh Vennam: Sorry. As far as the commodities side, if you look at where we expect the third quarter to be around, the implied guidance would be around 3% for commodities inflation. And part of the reason why it's going up relative to where we've been is that everything except for seafood is inflationary as we move into the fourth quarter. Now, not huge, but as you look at beef and produce, they are more in the mid-single to high single digits. And then most other categories are in low single digits.

Speaker Change: As far as the the quiet on the commodity.

Gregg: RT side, if you look at where we.

Gregg: What we expect we expect third quarter to be at or the implied guidance would be around 3% for our commodities inflation Oh.

Part of the reason.

Gregg: It's going up related to where we've been is that everything except for seafood as inflationary as we move into the fourth quarter no not not huge but as you look at beef and produce are more in the mid single to high single digit inflation and then most other categories are in low single digits. So a little bit of that is just a.

Rajesh Vennam: So a little bit of that is just, you know, comparison to last year, a function of the levels last year. But from a coverage point of view, we're 75% covered for Q4, which is consistent with historical average levels. And I think on beef, we're actually 80% covered for Q4. As far as we look into 2025, as I said earlier, we're in the middle of the planning process for next year, so we'll be able to share more on the June call. But I think at this point, we are working through some contracts for next year, so I would hesitate to share a lot of that. Thank you for the perspective.

The comparison to last year, a function of the levels last year.

Gregg: But from a coverage point, where 75% covered for Q4, which is consistent with historical average levels and I think on beef, we're actually 80% covered for Q4 as far as as we look into 'twenty five.

Speaker Change: As I said earlier, we're in the middle of planning process for next year, So we'll be able to share more.

In the June call, but I think.

But I think at this point, we it's we are we are working through some contracts for next year. So I would hesitate to shared a lot at this point.

Speaker Change: Thank you for the perspective.

Patrick Lee Johnson: Thank you. The next question is coming in from Patrick Johnson from Steeple. Your line is now live. Great, thanks. Good morning, guys.

Speaker Change: Thank you next question is coming from Patrick <unk> from Stifel. Your line is now live.

Patrick: Great. Thanks, Good morning, guys.

Ricardo Cardenas: Rick, I wanted to touch on menu innovation, particularly at Olive Garden and Longhorn, and I'm just curious if there are any opportunities you see to either introduce permanent menu items that still align with the brand strategy, or even if there's potential to create limited-time platforms like the NeverEnding Pasta Bowl that aren't necessarily discounted but could drive incremental interest in visits over time. Yeah, Patrick, there's always room for menu innovation. We've got to balance innovation and new items with improving our existing items and making sure our menus stay compact and simpler than they were before COVID. And there's also always room for some kind of limited time offers, not necessarily promotional offers. So currently, Longhorn has lamb on their menu, and it sells really well.

Patrick: Rick I wanted to touch on menu innovation, particularly at Olive garden, and Longhorn and I'm. Just curious if there are any opportunities you see to either introduce permanent menu items that still aligned with the brand strategy.

Patrick: Even if there is potential to create limited time platforms like never ending pasta bowl that arent necessarily discounted, but could drive incremental interest in visits overtime.

Ricardo Cardenas: Yeah, Patrick there's always room for menu innovation, we've got to balance innovation, and new items with improving our existing items and making sure our menu ste.

Speaker Change: Stay compact and simpler than they were before COVID-19.

Speaker Change: And there's also always room for kind of limited time not necessarily promotional offers so currently longhorn has lam lam on their menu and it does really well, it's doing a lot better than it did last year and Ah you know with with brands like Cheddars, we use opportunity buys to put some menu items on the menu but.

Ricardo Cardenas: It's doing a lot better than it did last year. And, you know, with brands like Cheddar's, we use opportunity buys to put some items on the menu, but at really great values. And Olive Garden's continuing to look at ways to improve some of their items and maybe introduce an item, but take off an item. So, yeah, we still have a lot of work to do with innovation. But, you know, most of our guests come to us for what we have on our menu today, and we're not going to alienate the core guests by completely changing. Those menus are around, and we don't plan on getting back to six or seven week promotions where an item is great. It sells great for six weeks, and then the guest comes back in week ten, and it's not there anymore.

Speaker Change: At really great values.

Speaker Change: And olive garden's continuing to look at ways to improve some of their items and maybe introduce an item, but take off an item. So yeah. We still have a lot of work that we do with with innovation, but you know most of our guests come to us for what we have on our menu today and we're not going to alienate the core guest buy.

Speaker Change: By completely changing those menus around and where we don't plan on getting back to a six or seven week promotion, where an item is great. It does great for six weeks and then a guest comes back in week 10, and if not there anymore and so we'll continue to innovate, but we will continue to innovate a lot more on improvements.

Ricardo Cardenas: And so we'll continue to innovate, but we'll continue to innovate a lot more on improvements. But we won't introduce new items here and there. Great, thank you guys. Thank you. Next question is coming from Lauren Silberman from Deutsche Bank. Your line is now live. Thank you very much.

Speaker Change: But we'll introduce new items here and there.

Speaker Change: Great. Thank you guys.

Lauren Danielle Silberman: Thank you next question is coming from Laurence supplement from Deutsche Bank. Your line is now live.

Lauren Danielle Silberman: Thank you very much if you follow ups can you just talk about that same store sales differences that you're seeing across regions and then from a marketing perspective, youre now running less than one 5% of sales this year well below pre COVID-19.

Lauren Danielle Silberman: A few follow-ups. Can you just talk about the same-store sales differences that you're seeing across regions? And then from a marketing perspective, you're now running less than one and a half percent of sales this year, well below pre-COVID at three or even higher. So I understand you want to be prudent and protect yourself long-term. Why is this the right level of marketing spend today? How do you assess it, even if it's not deep discounting?

Laurence: <unk> three or even north so I understand you want to be prudent and protect long time why is this the right level of marketing spend today, how do you assess it even if it is not deep discounting.

Rajesh Vennam: Lauren, so from a regional perspective, we continue to see softness in Texas and California. I think Texas has seen weakness pretty much throughout the year, and that continues to be the case. Florida was a little weaker, but nothing crazy. But you also had the weather impact that probably disproportionately impacted both Texas and California during Q3. Different types of events, but weather there.

Speaker Change: Yeah, Lauren so from a regional perspective, we continue to see softness in Texas, and California, I think Texas pretty much throughout the year, we had seen a weakness and that continues to be the case.

Speaker Change: Florida was a little weaker but nothing crazy, but he also had the weather impact that probably disproportionately impacted both Texas and California during Q3.

Speaker Change: Ah different different types of events, but rather there. So that's the regional from a marketing perspective, we've been very clear that look we're going to be prudent we're going to be very deliberate in how we bring back marketing we've learned a lot in terms of the effectiveness of marketing different channels, how we deploy it and we've talked about bringing it back in.

Rajesh Vennam: So that's the regional. From a marketing perspective, we've been very clear that, look, we're going to be prudent. We're going to be very deliberate in how we bring back marketing. We've learned a lot in terms of the effectiveness of marketing, different channels, and how we deploy it. And we've talked about bringing it back at a level that's more methodical in terms of 10 to 20 basis points increase over time, in a way that's margin neutral.

Speaker Change: And at a level that's that's more.

Speaker Change: More methodical.

Speaker Change: In terms of you know 10 to 20 basis points.

Speaker Change: Increase overtime.

Speaker Change: In a way that's margin neutral all.

Rajesh Vennam: All else being equal, that's kind of how we're thinking about it. And we have done a lot of work. We continue to do a lot of work on marketing mix analysis, and we've got our teams of data scientists internally and work with some external partners to ensure that we're getting the appropriate return.

Speaker Change: All else being equal so that's kind of really what how we're thinking about it and we have done a lot of work.

Speaker Change: We continue to do a lot of work on marketing mix analysis and that we've got our teams of data scientists internally and work with some external partners to ensure that we're getting the appropriate return and it's actually being effective the way we want it to be reduced to elevated brand equity and build long term guest loyalty.

Rajesh Vennam: And it's actually being effective the way we want it to be, which is to elevate brand equity and build long-term guest loyalty. Thank you. And then if I can just on the guide, lower sales maintained, or, you know, increase the lower end of the guide, inflation more favorable, any other puts and takes in the guide for the year?

Speaker Change: Yeah.

Speaker Change: Thank you and then if I can just on the guy lowered sales maintain or increase the lower end of the guide inflation and more favorable any other puts and takes.

Speaker Change: And the guide for the year and then can you just clarify what you're expecting for the full year on G&A. Thank you.

Lauren Danielle Silberman: And then can you just clarify what you're expecting for the full year on G&A? Thank you. Yeah, let me start with GNA.

Speaker Change: Yeah, let me start with the G&A, we expect G&A to be pretty similar to what we said last time 440 million I think is what we said for last in the last quarter, So call it roughly $100 million for Q4.

Rajesh Vennam: We expect GNA to be pretty similar to what we said last time, $440 million. I think that was what we said in the last quarter. So call it roughly $100 million for Q4. Look, I think the big things are we've obviously brought down some sales expectations, but inflation is better, and then our teams are doing a better job managing our business. So there's some improvement in productivity, improvement in other waste, and other types of inefficiencies.

Speaker Change: Look at I think the big things are we've obviously brought down some.

Speaker Change: Some sales expectation by inflation is better and then our teams are doing a better job managing our business. So there is some improvement in productivity improvement and other other waste and other types of inefficiencies, but outside of that nothing nothing nothing that's that's not outside of those few I'd.

Rajesh Vennam: But outside of that, nothing that's not outside of those few items that I've just mentioned. But if you just step back and look at where we started the year, right? If we look at the beginning of the year, we said earnings guidance was $8.55 to $8.85. And we said, to the extent sales slow down or we see weakness in sales, we should see inflation come down, and our cost management should continue to help us get closer to that. And today, we're talking about earnings guidance of $8.80 to $8.90. Now, with a lot fewer sales, but we got there through other wins. So, again, I don't want to say we told you, but it's just that reality. That's what happened.

Speaker Change: That I've just mentioned.

Speaker Change: But if you just step back and look at what we where we started the year right. If we look at the beginning of the year. We said our earnings guidance was $8.55 to $8 85, and we said to the extent sales slowdown or we see weakness in sales, we should see inflation come down and our cost management.

Speaker Change: To help us get a.

Speaker Change: Get us closer to that and today, we're talking about earnings guidance of $8.80 to $8.90 now with a lot lower sales, but we got there through other means.

Speaker Change: Again, I don't want to say, we said, we told you, but it's just that as.

Speaker Change: That is reality, that's what happened.

Rajesh Vennam: Thank you. I appreciate it. Thank you. Next question is coming from Peter Saleh from BTIG. Your line is now live. Hey, great.

Speaker Change: Thank you I appreciate it.

Speaker Change: Thank you next question is coming from Peter Saleh from <unk>. Your line is now live.

Hey, great. Thanks for taking the question I apologize if I missed this but I know you guys commented on the traffic softness for the lower income consumer and maybe by cohort, but can you maybe discuss.

Peter Mokhlis Saleh: Thanks for taking the question. I apologize if I missed this, but I know you guys commented on the traffic softness for the lower income consumer and maybe by cohort. But can you maybe discuss the behavior of those consumers in terms of their check management?

Peter Mokhlis Saleh: The behavior of those consumers in terms of their check management or are you seeing a lot of trade down for the consumers that are coming in.

Rajesh Vennam: Are you seeing a lot of trade down for the consumers that are coming in within the menu or within brands? Are they cutting alcohol or appetizers or desserts or just anything that suggests that those consumers that are coming in are also managing that check down? Yeah, interestingly, from a check management perspective, it's not as much driven by income. The gap is more driven by older consumers, especially 65 plus, who are managing the check a little bit more. Irrespective of their income, this is what we're seeing.

Peter Mokhlis Saleh: Within the menu or within brands are they are they cutting alcohol or appetizers and desserts or just anything that suggests that those consumers that are coming in are also management that shut down.

Peter Mokhlis Saleh: Thanks.

Speaker Change: Yeah, Interestingly from a check management's perspective, its not as much driven by income on the GAAP is more driven by our older and older consumers, especially 65, plus is managing the check a little bit more it irrespective of their income is what we're seeing and then also I think Rick mentioned earlier they are shifting more to lunch. So we're seeing a couple.

Rajesh Vennam: And they're also, I think Rick mentioned earlier, they're shifting more to lunch. So we're seeing a couple things. They're getting a little bit less add-ons, but also managing the check. But also, like I said earlier, from Q2 to Q3, it's actually less check management.

Speaker Change: Things that theyre getting a little bit less add ons, but also managing the check but.

Speaker Change: But also like I said earlier from Q2 to Q3.

Speaker Change: It's actually less management of check now with a little bit less traffic, but that's but what's happening is check management is actually getting better in terms of a negative mix is not as big as it was in Q2.

Rajesh Vennam: Now with a little bit less traffic, but what's happening is check management is actually getting better in terms of negative mix is not as big as it was in COVID. Thank you very much. Thank you. The next question is coming from Brian Vaccaro from Raymond James. Your line is now live. Hi, thanks, and good morning. For my question, and sorry if I missed it, but could you share what the traffic was like in the quarter for Olive Garden and Longhorn? I know that's usually in the queue, but did you or can you share that?

Speaker Change: Thank you very much.

Speaker Change: Thank you next question is coming from Brian Vaccaro from Raymond James Your line is now live.

Hi, Thanks, and good morning.

So one of my question and sorry, if I missed it but could you share what traffic in the quarter was for olive garden, Longhorn and I know that's usually in the Q, but did you or can you share that.

Brian Michael Vaccaro: Yeah sure Olive garden check was 2% in the quarter. So basically traffic would be negative negative three eight and then longhorn traffic was negative in the mid negative to us.

Brian Michael Vaccaro: Yeah, sure. Olive Garden's check was 2% in the quarter, so basically, traffic would be negative 3.8, and then Longhorn traffic was in the mid-negative 2%. Okay, thank you for that. And I guess you've had this question a couple of times, but I'll ask it this way.

Speaker Change: Okay. Thank you for that and I guess he that had this question a couple of times, but I'll ask it this way.

Brian Michael Vaccaro: You know, in an environment where you're seeing softness among the lower end consumer and maybe there's just a broader backdrop where value seems increasingly important, I guess it's interesting to see Olive Garden's relative comp outperformance narrow, given the brand's strong everyday value positioning. So I guess, how do you reconcile that? And is there any evidence that you're starting to seed some profitable guests to certain brands, not asking for names, but certain brands that are gaining share or have shifted their tactics in the last year? Yeah, Brian.

Speaker Change: In an environment, where you're seeing softness on the lower end consumer and maybe there's just a broader backdrop where value seems increasingly important I.

Speaker Change: I guess, it's interesting to see olive garden's relative comp outperformance narrow given the Bronx, the brand's strong everyday value positioning Seth I guess, how do you reconcile that and is there any evidence that you're starting to see some profitable guests.

Speaker Change: Certain brands not asking for names, but certain brands that are gaining share or have shifted their tactics in the last year.

Seth: Yeah, Brian as if if you think about olive garden, So as Raj said olive garden exceeded the industry benchmark for same restaurant traffic by 270 basis points. You know they spent less in media at a time when many of their competitors ramped up discounts and on television.

Ricardo Cardenas: If you think about Olive Garden, as Raj said, Olive Garden exceeded the industry benchmark for same restaurant traffic by 270 basis points. You know, they spent less on media at a time when many of their competitors ramped up discounts on television. So they exceeded by 270 with less media, and when others were ramping up. Their two-year gap is 830 basis points.

Seth: So they exceeded by 270 with less media.

Seth: And when others were ramping up.

Seth: There are two year gap is 830 basis points.

Ricardo Cardenas: So that's a big share gain over two years, and I'm really proud of the work that Dan and his team have done to improve the guest experience. They continue to focus on their key equity of never-ending, craveable, abundant Italian food, specifically focusing on ensuring every guest is offered a refill on their never-ending first course. And that's a huge value.

So that's a big share gain over two years, so I'm really proud of the work that Dan and his team have done to improve the guest experience.

Seth: They continue to focus on their key equity of never ending craveable abundant Italian food, specifically focusing on ensuring every guest has offered a refill on they're never any first course, and that's a huge value.

Ricardo Cardenas: I can't tell you if an Olive Garden guest has shifted over to one of those competitors, but I can tell you that we trade guests all the time. Some of Olive Garden's biggest competitors are the ones that are doing some of the discounting today. And so we're really proud of the 270 basis point gap on top of the gap they had before. And if we're seeding a profitable guest, I don't think it's a seed forever. It's just because people shift and they move around.

Seth: I can't tell you if our if I didnt Olive garden guess has shifted over to one of those competitors, but I cannot but I can tell you that we trade guests all the time some of our biggest olive garden's biggest competitors are the ones that are doing some of the discounting today and.

Seth: And so we're really proud of the 270 basis point gap on top of the gap that had before and if we're seeding a profitable guests I don't think it's a seed forever. It's just because people shift and they move around and so we're going to keep focusing on what we can do.

Brian Michael Vaccaro: And so we're going to keep focusing on what we can do to keep our guests coming back for one more visit. Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments. Thank you. That concludes our call. I'd like to remind you that we plan to release fourth-quarter results on Thursday, June 20th before the market opens, with a conference call to follow. Thanks again for participating in today's call, and have a great day. Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Seth: To keep our guests coming back coming back for one more visit.

Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.

Speaker Change: Thank you that concludes our call.

Speaker Change: To remind you that we plan to release fourth quarter results on Thursday June 20th before the market opens with a conference call to follow thanks again for participating in today's call and have a great day.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.