Q2 2025 Darden Restaurants Inc Earnings Call
Yes.
Speaker Change: Greetings and welcome to the Darden restaurants, Inc. Q2 fiscal year 'twenty 25 earnings conference call and webcast. At this time all participants are in a listen only mode.
Speaker Change: If anyone should require operator assistance. Please press star zero on your telephone keypad no.
Speaker Change: A question and answer session will follow the formal presentation.
Speaker Change: You may be placed in the question queue at any time by pressing star one on your telephone keypad. We ask you. Please limit yourselves to one question and one follow up then return to the queue. As a reminder, this conference is being recorded its now my pleasure to turn the call over to your host Mclain, Vice President Finance and Investor Relations. Please go ahead Phil.
Phil: Thank you Kevin Good morning, everyone and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's, President and CEO and Roger the Nam 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.
Phil: Subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Phil: Those risks are described in the company's press release, which was distributed this morning and its filings with the Securities and Exchange Commission.
We are simultaneously broadcasting a presentation. During this call which is posted in the Investor Relations section of our website at Darden Dot Com today's discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.
Phil: Looking ahead, we plan to release fiscal 'twenty 'twenty five third quarter earnings on Thursday March 20th before the market opens followed by a conference call.
Phil: During today's call all references to industry results refer to the black box intelligence casual dining benchmarks excluding darden.
Phil: During our fiscal second quarter industry same restaurant sales grew by 1% and industry same restaurant guest counts decreased one 8%.
Speaker Change: This morning, Rick will share some brief remarks on the quarter and Raj will provide details on our financial results and an update and an update to our fiscal 'twenty 25 financial outlook now I will turn the call over to Rick.
Rick Cardenas: Thank you Phil and good morning, everyone.
Rick Cardenas: We had a strong quarter that met our expectations same.
Rick Cardenas: Same restaurant sales at three of our four segments were positive in all of our brands remained intensely focused on our back to basics operating philosophy anchored in food service and atmosphere.
Rick Cardenas: I was pleased that our four largest brands olive garden, Longhorn Steakhouse yard house, and Cheddar scratch kitchen, all generated positive same restaurant sales for the quarter.
Rick Cardenas: During the quarter, the olive garden team's ongoing focus on being growing with the basics combined with great execution of an extended never ending pasta Bowl.
Rick Cardenas: Drove a positive sales gap to the industry.
Rick Cardenas: Never ending pasta Bowl start feature at a starting at price point of 13 99.
Rick Cardenas: Marking the third consecutive year at that price point, and making it an even more compelling value for our guests.
Rick Cardenas: Any P. B was once again, well received as evidenced by the highest refill rate ever and higher protein add ons compared to last year.
Rick Cardenas: In October Olive Garden launched its Uber direct pilot in approximately 100 restaurants.
Rick Cardenas: They are not promoting it yet in order to focus on the technology integration and operational execution.
Rick Cardenas: Pilot has gone very well, thanks to the operators and the pilot restaurants, the olive garden operations excellence team and the Darden I T team.
Rick Cardenas: Olive garden is on track to begin rolling it out to the rest of the system. After the holidays with potential completion by the end of the third quarter.
Rick Cardenas: Olive garden is a brand that is well positioned to leverage news to drive traffic and the team has been working on several initiatives to continue appealing to core guests as well as value seekers.
Rick Cardenas: One of these initiatives is an updated menu that launched two weeks ago, featuring the return of two fan favorites state gorgonzola and stuffed chicken marsala.
Rick Cardenas: These dishes, where the most requested entrees that fans asked olive garden to bring back and the initial response from guests is encouraging.
Starting in January Olive Garden's advertising will feature of the return of these fan favorites and an additional guest driving news at compelling price points.
Rick Cardenas: Longhorn continues to exceed expectations, driven by great guest value and strong operational execution.
Rick Cardenas: Longhorn team is extremely passionate about serving the highest quality steaks and casual dining which not only requires grilling eat steak perfectly, but also having the highest quality product.
Rick Cardenas: During the quarter Longhorn hosted their first date cut or summit with their suppliers from across the country to review their custom specifications and immersed their partners in the longhorn business and culture.
The summit ended with one supplier receiving the Golden stake award for the best adherence to Longhorn standards.
Rick Cardenas: And all of the partners left the event more aligned and better positioned to consistently meet the brand's expectations.
Rick Cardenas: After receiving stakes that meet their stringent quality specifications is such a long one team members to grow them to perfection.
Rick Cardenas: That's why the longhorn team validates their grill masters expertise each year regularly retrained on how to correctly season their stakes and ensures their managers verify that each stake as grill to the right temperature.
Rick Cardenas: This focus continues to pay off and resulted in an all time high steaks grilled correctly score during the quarter.
Rick Cardenas: The performance of yard House, and Cheddar has drove positive comps within our other segment.
Rick Cardenas: Yard House is built the competitive advantage of distinctive culinary offerings with broad appeal to a range of approachable and trend forward items.
One example of how they bring this to life is brought worst sliders that were featured during October Fest.
Rick Cardenas: Which helped drive further sales momentum for the brand during the quarter.
The yard house team is well positioned to build on their momentum with new food news during the third quarter.
Rick Cardenas: The Chatters team Leverages efficiency in darden's purchasing power to provide great food served with speed at a wild price.
Rick Cardenas: One way to achieve this is by capitalizing on lower cost opportunity buys to create limited time offers.
Rick Cardenas: During the quarter two L. T OS returned to their menu their Texas to you're bound for $21 49, which was followed by their bone in ribeye for $22 49 and.
Rick Cardenas: And each of these entrees also include honey butter croissants in two sides for that price.
Rick Cardenas: I'm proud of the momentum the Chatters team is building during the quarter they achieved their best ever retention level already exceeding their annual goal.
Rick Cardenas: Also in <unk>. Most recent survey their value score once again outperformed the casual dining category and Cheddars ranked first among casual dining brands for affordability.
Rick Cardenas: Now, let me provide a brief update on <unk>.
Rick Cardenas: We successfully closed the transaction during the quarter and the leadership team, including <unk>, President and Steve Hislop and their operations leader John Corbin is in place.
Rick Cardenas: The integration process has just begun and is being led by the same team that successfully directed the Ruth's Chris integration. They are focused on three key objectives preserving the employee experience and she was a unique culture, maintaining the guest experience and successfully migrating chewy us onto the darden platform with as few disruptions as possible.
Rick Cardenas: The timeline for this integration will likely be at a little longer than the one for Ruth Chris because we are about to begin rolling out the next generation of our point of sale system.
Rick Cardenas: This system currently supports nine different brands and as the nerve center for our competitive advantage of extensive data and insights.
Rick Cardenas: This is not an off the shelf product rather it's a proprietary system that we first built more than 20 years ago and continue to maintain enhance ourselves.
Rick Cardenas: It's integrated with all of our key restaurant applications and also has a number of great features that are designed to make our managers' jobs easier deliver key data to help enhance operations and ensure labor compliance.
Our team has been working for some time to completely rewrite and modernize the application in order to provide an improved and more modern user interface implement updated technology architecture offer the ability to operate on different types of hardware and deliver near real time analytics.
Rick Cardenas: All of this will reduce training time for our new team members drive speed by reducing number of clicks required to enter orders as well as other tasks enable our team to respond faster to request for system enhancements and further strengthen our competitive advantages of significant scale and extensive data and insights.
Rick Cardenas: The learning we capture from rolling it out will help minimize disruptions when we bring it online to choose.
Rick Cardenas: During the second quarter, we also experienced meaningful impacts from Hurricanes Helene and Milton.
Rick Cardenas: Our operations teams and our severe weather task force did an outstanding job, ensuring our restaurants, we're prepared for the storms enabled enable to reopen quickly.
Rick Cardenas: Only one restaurant the Cheddars in Asheville, North Carolina has been unable to reopen due to the damages sustained we expect to reopen this restaurant next fiscal year.
Rick Cardenas: Hurricane Hellenes impact was felt across multiple states, while hurricane Milton left a path of destruction across Florida.
Rick Cardenas: Each affecting our team members and guests as a company that cares one of the ways, we nourish and delight everyone. We serve is by responding to help others in times of need.
Rick Cardenas: That's why Darden is a proud partner of the American Red Cross each year. The Darden Foundation provides a 500000 other grant to their annual disaster, giving program.
Rick Cardenas: The program enables the Red cross to prepare communities for disasters like Helene and Milton and respond to help families. During the recovery process.
Rick Cardenas: Our team members can count on us as well nothing represents the strength of our culture quite like Darden dimes or.
Rick Cardenas: Our signature employee, giving program that enables team members across our family of restaurants and at the restaurant support center to support their fellow coworkers when the unexpected happens.
Rick Cardenas: We are grateful that all of our team members in the affected areas are safe and we moved quickly to help those who were hardest hit.
Rick Cardenas: Darden Dimes provided grants totaling $1 $1 million to more than 5600 impacted team members.
Rick Cardenas: As I reflect on the quarter I continue to believe in the power of our strategy and our brand's ability to compete effectively regardless of the environment.
Rick Cardenas: Each one of our brand leadership teams is focused on the long term and staying committed to our back to basics operating philosophy.
Rick Cardenas: I am proud of the way our teams performed throughout the second quarter and now we're in the midst of the busiest time of the year for our restaurants as a nurse and delight, our guests and create lasting holiday memories.
Rick Cardenas: On behalf of our leadership team and the board of directors I want to thank our 195000 team members I wish you and your families a happy holiday season, and hope to see you in our restaurants now I'll turn it over to Raj.
Raj: Thank you Rick and good morning, everyone.
Raj: Second quarter earnings results were in line with our expectations with positive same restaurant sales at our four largest brands.
The Thanksgiving shift to the third quarter. This year cost of sales benefit for the casual dining brands and a headwind for our fine dining brands in the second quarter.
Raj: However, even when adjusting for the benefit of the Thanksgiving holiday shift at our four largest brands same restaurant sales was still positive.
Raj: In the second quarter, we generated $2 9 billion of total sales, 6% higher than last year.
Driven by same restaurant sales of two 4%.
Raj: The acquisition of 132 East restaurants on October 11th.
Raj: And the addition of 39 net new restaurants.
Raj: The Thanksgiving holiday shift contributed approximately 90 basis points to the same restaurant sales for the quarter.
Raj: But was partially offset by a negative 30 basis points impact from Hurricanes Helene and Milton.
We outperformed the industry benchmarks again this quarter Sam.
Raj: Same restaurant sales were 140 basis points better than the industry and same restaurant guest counts also exceeded the industry by 140 basis points.
Raj: Adjusted diluted net earnings per share from continuing operations of $2 and <unk>.
Raj: About 10% higher than last year.
Raj: We generated $445 million of adjusted EBITDA and.
Raj: And returned $308 million to our shareholders paying $166 million in dividend.
Raj: $142 million in share repurchases.
Raj: Now looking at our adjusted margin analysis compared to last year.
Raj: Food and beverage expenses were 80 basis points lower.
Raj: And by the pricing leverage as commodities were slightly deflationary.
Raj: And they were better than our expectations.
Firstly on labor was 20 basis points lower with productivity improvements.
Raj: And sales leverage from the Thanksgiving shift more than offsetting the total labor inflation of three 7%, which was well above all our pricing.
Raj: Restaurant expenses were flat.
Raj: Marketing expenses were 30 basis points higher driven by increased media spending due to more weeks of now about anything possible, which we remain while we remain disciplined in how we spend our marketing dollars.
Raj: Our restaurant level EBITDA of 19, 5% for the quarter was 70 basis points higher than last year.
Raj: Adjusted G&A expenses were 10 basis points higher than last year as unfavorable mark to market expense on our deferred compensation costs 20 basis points increase for the quarter.
Raj: Due to the way, we hedge mark to market expense. This unfavorable ability is largely offset in the tax line.
Raj: Intersect interest expense increased 20 basis points, driven by the financing expenses related to the <unk> acquisition and other cash needs.
Raj: Our adjusted effective tax rate was 12, 3%, which includes the favorable impact from the mark to market hedge I referenced earlier.
Raj: Our effective tax rate would have been approximately 14% without the impact of mark to market.
Raj: In total our adjusted earnings from continuing operations were $240 million, which was eight 3% of sales and 20 basis points better than last year.
Raj: Looking at our segments for the quarter.
Raj: Total sales for Olive garden increased by three 3% driven by same restaurant sales of 2% outperforming the industry benchmark by 100 basis points.
Raj: Last year Olive Garden same restaurant sales were four 1% in the second quarter.
On a two year basis, Olive garden has grown same restaurant sales by over 6%.
Raj: Exceeding the industry benchmark by 640 basis points over that period.
Raj: Olive Garden continues to have strong segment profit margin delivering 21, 4% for the quarter, which is 40 basis points higher than last year.
Raj: At Longhorn total sales increased 10, 4% driven mostly by same restaurant sales growth of seven 5% outperforming the industry benchmark by 650 basis points.
Raj: These results build on strong results from Q2 last year, where they had same restaurant sales of four 9%.
Raj: Leverage from strong from the strong sales growth resulted in segment profit margin of 18, 9% 150 basis points above last year.
Raj: Total sales in the fine dining segment decreased three 8%.
Raj: Same restaurant sales were negative at all of our fine dining brands for the quarter.
Speaker Change: Thanks, giving is a busy day for our fine dining brands and the shift of this holiday from the second quarter last year into the third quarter. This year.
Speaker Change: And with the Hurricanes resulted in an approximately 200 basis points of negative impact to same restaurant sales.
Speaker Change: Adjusted for these impacts fine dining same restaurant sales decreased approximately three 8%, which was a sequential improvement from the first quarter.
Speaker Change: The negative sales growth resulted in lower segment profit margin than last year.
Speaker Change: The other business segment sales increased by 12, 9% driven by the acquisition of QE and positive same restaurant sales of 0.7%.
Speaker Change: Segment profit margin of 13, 6% was 70 basis points better than last year.
Speaker Change: Turning to our financial outlook for fiscal 2025, we updated our guidance to reflect the acquisition of QE, our year to date results and expectations for the back half of the year.
Speaker Change: As a reminder, same restaurant sales for the year do not include Ruth's, Chris Steakhouse at <unk>, because they were not owned and operated by Darden for a 16 month period at the beginning of the fiscal year.
Speaker Change: So we now expect total sales of approximately $12 1 billion, including approximately $300 million from trees.
Speaker Change: Same restaurant sales growth of approximately one 5%.
Speaker Change: $50 to 55, new restaurants.
Speaker Change: Capital spending of approximately $650 million.
Speaker Change: Total inflation of approximately two 5%, including commodities inflation of approximately 1%.
Speaker Change: And annual effective tax rate of approximately 12, 5%.
Speaker Change: Approximately 118 million diluted average shares outstanding for the year.
Speaker Change: This results in no change to our adjusted diluted net earnings per share outlook of $9 40 to $9 60.
Speaker Change: Which excludes approximately $47 million of pre tax transaction and integration related costs.
Speaker Change: Looking at the back half of the fiscal year, we expect sales and EPS growth rate to be lower in Q3 than the growth rates in Q4, given the impact of the Thanksgiving holiday shift into the third quarter.
Speaker Change: Finally, as we expected we closed in on the <unk> deal in October acquiring one hiring three two east restaurants.
Speaker Change: We're in the early stages, but the integration is going well and we now expect to realize run rate synergies of approximately $17 million.
Speaker Change: With approximately $2 million realized in fiscal 2025, and the balance in fiscal 2026.
Speaker Change: As we mentioned previously we anticipate the transaction will be neutral to our adjusted earnings per share for the fiscal year, not including transaction and integration related expenses.
Speaker Change: We're very pleased with the actions our brand teams are taking to adjust their guest needs and Delaware strong results will continue to adhere to our strategy and have confidence in the center of our business model now.
Speaker Change: Now, we'll open up open it up for questions.
Speaker Change: Thank you, we'll now be conducting a question and answer session. As a reminder, if you'd like to be placed in the question queue. Please press star one on your telephone keypad and we ask you. Please ask one question and one follow up then return to the Q1 moment. Please hold your poll for questions.
Speaker Change: Our first question today is coming from David Palmer from Evercore ISI. Your line is now live.
Speaker Change: Thanks. Good morning, guys wanted to ask a question on Olive Garden I know you.
Speaker Change: You have a very good consumer insights team there wanted to ask you about about what youre seeing with that brand.
Speaker Change: Given the fact that the customer satisfaction levels are so high.
Speaker Change: Comparable to the leaders in any segment.
Speaker Change: Olive garden is seems to be equal to that superiority in the Italian segment I'm. Just wondering why do you think the sales gap to the industry is not better.
Speaker Change: Is it in.
Speaker Change: Why is that not related to the advertising.
Speaker Change: A lot of people ask about that.
Speaker Change: GAAP.
Speaker Change: Right now in your advertising spend to pre Covid.
Speaker Change: I think it's down about a half so any comments on that would be helpful.
Rick Cardenas: Hey, David It's Rick.
Speaker Change: A couple of things about olive garden one.
Speaker Change: The gap to the industry, while it's a little bit narrower than it has been in the past if you think about how much we've gapped over the last five years, it's been an exceptional gap and so if you. If you go back a few maybe a year ago in the call. We said, we don't expect to keep the gap as high as it is now and so in that.
Speaker Change: Happened, we've also not gone after some significant discounting promotions like others are brought back we kept our strategy too.
Speaker Change: Two to drive profitable same restaurant guest count growth profitable sales growth.
Speaker Change: And so this quarter, we showed the power of doing some things we added a few weeks to our never ending pasta Bowl promotion and those weeks that were running never ending pasta bowl against nothing.
We're great weeks for us.
Speaker Change: Just like others, who are starting who have started running promotions against nothing they've been doing it a little longer.
Speaker Change: And so our gap while smaller we still feel confident we're doing the right things in the long term.
Speaker Change: And in terms of marketing.
Speaker Change: The did the amounts that you said I don't think are exactly accurate I'll, let raj kind of comment on that part.
Raj: Yeah, David on the marketing spend it's really driven by essentially longhorn spending very little right. So longhorn who used to spend close to 3% I think today. They are spending probably maybe 0.3, 0.4% of sales at best So that's really the biggest driver of marketing decrease olive garden is spending less but it is not half it's more in the call it 25%.
Raj: Percent less than what it used to spend.
Speaker Change: So you believe that.
Speaker Change: You don't believe the scale of advertising is a problem you're comfortable at these levels of advertising spending going forward.
Yes, David I wouldn't say, whether we're comfortable or not I I would say, we can continue to look at ways to advertise olive garden and there as we think about what we're gonna do we ticked up advertising in this quarter, we could continue to do that so it depends on what we're running and what kind of promotions, we have but we feel really good about what we have.
Speaker Change: And our second half of the year.
So there potentially could be a pick up in marketing in the second half, but we don't want to comment.
Speaker Change: Comment on that for competitive reasons.
Speaker Change: Thank you very much.
Speaker Change: Sure.
Speaker Change: Thank you. Your next question is coming from Eric Gonzalez from Keybanc capital markets. Your line is now live.
Hi, Good morning. Thanks for the question just on that last point about marketing I think you mentioned an effort in January youre going to bring back to the fan favorites and then.
Speaker Change: And then your messaging will also include a compelling price point, so just putting the pieces together because it sounds like the next quarter might have a little bit of an uptick in advertising.
Speaker Change: Well, if you think about the third quarter is already a really strong quarter for us usually it's one of our highest volume quarters.
Speaker Change: So without kind of commenting on how much marketing will tick up or not.
Speaker Change: I would just tell you that our advertising will look different.
Speaker Change: We have as I said.
Speaker Change: Some exciting news with our two return fan favorites and another fan favorite that's coming with a compelling price point for a limited time, so our advertising will look different in the third quarter.
Speaker Change: Comment on if it's going to be higher or lower.
Speaker Change: Okay and then just also on the never impossible I think you've talked about the strong performance, particularly those weeks that didn't compare against the prior year. So I'm just curious how the promotion played out during the quarter like how did it do once with the longer promo period headed into one easy.
Speaker Change: Easy last weeks kind of lap last year.
Speaker Change: Yeah, I'm going to start by saying how proud I am still of the work that Dan and the team at Olive Garden has done to improve the guest experience and react to what's going on in the marketplace and one of those reactions was to add some weakness to never any possible and so we're pleased about those four extra weeks, we knew that we would have.
Speaker Change: A trend change by adding those four extra weeks, but then we knew in the last eight weeks, we'd be wrapping against stronger media weight kind of looks then launch waits et cetera, but what happened throughout the promotion. It was it was a good promotion for US we kept our preference I never any possible throughout the entire thing. So there was nowhere out on.
Speaker Change: Demand for the for the items.
Speaker Change: And as I said on my prepared remarks, we had record prep.
Speaker Change: Preference for refills and record.
Speaker Change: Record preference for the buy ups. So the promotion did well now we had expected it to be below prior year in the back half in the second part of the promotion, especially when we were when we were wrapping on launch weights.
Speaker Change: What we did during that was add the new sauce, but a new sauce isn't going to be as powerful as a launch weight of a new promotion. So we felt really good at where we ended up with never ending pasta Bowl and and <unk>.
Speaker Change: We're looking at what that did for us and what we could do in the future with other promotions.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you next question today is coming from Jim Solera from Stephens. Your line is now live.
Jim Solera: Yes. Good morning, Thanks for taking my question.
Speaker Change: To drill down a little bit in longhorn in particular.
Speaker Change: Just given some of the commentary you guys had marketing spend there's really low but.
Speaker Change: <unk> is very strong can you just kind of parse out which driving the continued strength there maybe relative to some of the other trends that you've seen in casual.
Speaker Change: We think about that progressing through the years, especially these other competitors have.
Very prominent.
Speaker Change: Marketing that focuses on dollar price points got Longhorns.
Speaker Change: The annual value.
Speaker Change: Well, that's what long runs brand is so theyre not going to fight back or the price point promotion or a brand thats about quality inexperienced. So I'll start by by saying Longhorn has made investments over the years, even before COVID-19 to improve the quality of their food to improve the execution of that food.
Speaker Change: And so things that we've done over those times of making sure that our grill Masters are well trained.
Speaker Change: Cook Cook, the steaks exactly as the as the guests like it and that showed up in our record guest records takes you are correctly score this quarter.
Speaker Change: Dramatically different than where it was just three or four years ago.
Speaker Change: We continue to make investments in food, we have we put more dollars on the plate than anybody else in our space and guest notice that value and so they're willing to come to our restaurants and do that and so what are the results. The results seven 5% comp for the quarter up on a four plus person.
Speaker Change: Sent comp last year and on a seven plus percent comp the year before.
Speaker Change: So those investments and quality have paid off.
Speaker Change: Guests know, they're getting the highest quality steaks and expertly prepared at a great value.
Speaker Change: And then the last thing I'll say is you know stake brands that with strong operations that deliver on quality or winning.
Speaker Change: And so that's we think that that longhorn is working on the right things.
Speaker Change: And I can't comment on do I think they're going to continue to way outperform everybody else for the next few years, but we think they are doing the right things.
Speaker Change: Great.
Speaker Change: Are you able to just break out that.
Speaker Change: Seven five traffic mixed price for longhorn.
Speaker Change: Yeah that the traffic was a mid force I think for three or four three or four four in the check was about three something and the price was like 2829. So they had a positive mix a little bit.
Speaker Change: Okay great.
Speaker Change: Thank you next question is coming from Peter Saleh from <unk>. Your line is now live.
Speaker Change: Hey, good morning, and congrats on a great quarter.
I did want to ask maybe about the Uber eats partnership and the accounting of how you guys are accounting for the delivery and the service charge.
Speaker Change: In the olive garden comp and.
Speaker Change: What if anything is reflected in your guidance kind of going forward from the benefit of customers, maybe switching from self pickup to.
Delivery through <unk> is there anything there.
Yes, Peter first of all it's very small right. When you think about the impact let me start with the accounting part of it the delivery fee and service fee are considered as part of sales. However, when you look at the impact.
Speaker Change: We right now we have it at 100 restaurants, we have had it for maybe less than half the quarter at fully throughout the Ah <unk>.
Speaker Change: Those 100 restaurants.
Speaker Change: And when you take the dollars that come through it it's single basis points impact. So it's not it's very miniscule.
And as we look forward to yes, there may be could it be 510 basis points, maybe but it's not going to be a huge I mean, it obviously depends on what percentage.
Speaker Change: Off off premise or what percentage of sales and delivery will be.
Speaker Change: So we will share more when we actually have more information to share, but right now we expect it to be fairly minimal.
Speaker Change: Great and then just on the unit growth it looks like it ticked up in at least your guidance ticked up by about five units any comments on where that's coming from is that the inclusion of <unk> or is there something more just trying to understand where the incremental five are coming from.
It's really the inclusion of <unk> <unk> five.
Speaker Change: You saw the opening converted to cheese and as we said we're trying to continue to work towards getting you know as we look at next fiscal or trying to build a pipeline.
And so that's.
Speaker Change: Some of them Theres some difference between the ear to ear.
Speaker Change: A few weeks moved could come in but it's really driven by choice.
Speaker Change: Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thank you next question is coming from Jeffrey Bernstein from Barclays. Your line is now live.
Speaker Change: Great. Thank you very much my first question is just on the fiscal 'twenty five comp guidance.
Speaker Change: Looks like for the system you tightened it to one 5% I think previously you were one to two so.
Speaker Change: Two related questions on that one just why with two quarters remaining would.
Would you tighten it to such a specific price point I'm, just wondering whether that demonstrates maybe increased confidence that there's going to be a lot less volatility.
Speaker Change: And the second question around that is just what does it assume directionally at least for olive garden, Longhorn and I know.
Speaker Change: Olive garden had much easier compares you got a new value MTO potentially on the come.
Speaker Change: Obviously, its very strong momentum so I would have assumed maybe both of those brands would be above that one 5% just trying to see if I'm interpreting that correctly. Thank you.
Speaker Change: Yes.
Speaker Change: Hey, Jeff, Let's just start with the guidance on the same restaurant sales of itself. We said, yes, we expect it to be approximately one half the.
Speaker Change: The way we're thinking about it is we're looking at the underlying trends on a multi year basis and the actions we're taking in the back half we're incorporating all of that and yes, you could say that implies that we have a little bit more increased confidence in the in the sales being more closer to that midpoint or better of them that are in that range and thats why we tightened it to be.
There and right now as we get we have two quarters behind us. So we have the idea we have we had those out actualized. So it makes it a little bit more the range is not as narrow or when you take into consideration. The fact that now we're looking at only two quarters and we're trying to calculate the full year.
Got it and in terms of the assumption for Olive garden Longhorn within there Mike.
Speaker Change: Correct to assume that you would think olive garden would accelerate from here and obviously longhorn has been running well above those ranges. So just trying to get a sense for whether that's the correct interpretation or whether there are some offsets that we're not fully appreciating.
Speaker Change: No I think thats, probably a fair assumption given.
Speaker Change: Given the mix of the brands, we have in the portfolio.
Speaker Change: Yeah.
Speaker Change: Understood and then my follow up is just on the fine dining.
Speaker Change: So I think you said they improved sequentially when.
Speaker Change: When you back out the Thanksgiving and the Hurricane shifts I'm, just wondering are there any particular brands leading or lagging.
Getting a lot of questions around maybe the increasing GOP one impact that might have an impact on kind of higher end brands I'm wondering whether you think that's having any noticeable impact at this point. Thank you.
Okay.
Speaker Change: Yeah.
Speaker Change: Hey, Jeff.
Speaker Change: Think about our fine dining brands Theres really no brands, leading or lagging our Ruth's, Chris is just a little bit less than than capital grille, and Eddie V's, but some of that is due to the fact that last year. If you recall in the second quarter, we eliminated lunch and a lot of their restaurants, we turned off third party delivery and a lot of their restaurants and actually we didn't take any price.
Speaker Change: Yes.
Speaker Change: At Ruth's, Chris where we had them for the other brands in.
Speaker Change: In regards to G. L. P. One so I think right now it's about 6% of the population around G. L. P. One drugs.
Speaker Change: It could be having an impact on the higher end brands.
Speaker Change: And we will continue to monitor that monitor that.
Speaker Change: That said, that's the benefit of a large portfolio like ours and having multiple brands in many different categories, but we will monitor the G. L. P. One and see if there's any any actions that we have to take to to help strengthen from that.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Sara Senatore from Bank of America. Your line is that life.
Speaker Change: Thank you.
Speaker Change: I have a question for you guys.
Speaker Change: The broader environment.
Speaker Change: You mentioned that.
Speaker Change: Hello.
Speaker Change: Large casual dining brands were all positive.
Speaker Change: Polished casual and fine dining.
Speaker Change: Yeah.
Speaker Change: And yes, one of the things that we're seeing in Olive Garden for example of that.
Speaker Change: Pricing up.
Speaker Change: Okay.
So yes, it seems like people are willing to pay up for.
Speaker Change: Sure Yes.
Speaker Change: Sure.
Speaker Change: Specifically, but in Delta a little bit.
Speaker Change: Are you seeing any.
Speaker Change: Do you think among your brands.
Speaker Change: Well, it's a longhorn or anything like that again, you just mentioned that the value of having a portfolio.
Speaker Change: Curious if you can.
Speaker Change: Johnny or extrapolate from that.
Speaker Change: <unk>, which seems to be strongest.
Speaker Change: Sort of mid price point.
Speaker Change: A clear desire.
Speaker Change: So first of all I'm in Belgium.
Speaker Change: Yes.
Yes, there are couple of things on the on the environment first of all it looks like the consumer is starting to feel a little bit better than they were in prior quarters.
Speaker Change: To give you a little bit of a reset our external research shows that consumer sentiment is trending positive.
Speaker Change: And there's a little bit of a feeling of optimism out there by the belief of labor market will improve.
But then when you're in the terms of the of the come more casual brands or is the fine dining brands were.
Speaker Change: She's seeing optimism in our restaurants.
Speaker Change: In contrast to seeing this optimism there in contrast to previous quarters, we're seeing growth in visits from our guests, making between 50000 and $100000 a year, which is really more of a casual dining brands.
Speaker Change: We're not seeing as much of an increase in visits yet on the consumers that are above that.
And so.
Speaker Change: The other thing in fine dining.
Speaker Change: In the past it just like we've said in the past it appears that consumers who are splurging on fine dining for the basically those who are making up less than $150000 have continued to pull back. So it's impacting fine dining a little bit the kind of more.
Speaker Change:
Speaker Change: More average income consumer is starting to feel a little bit better.
Speaker Change: In regards to trade down there there could be some trade down from capital grille to longhorn or a ruth's Chris to longhorn that.
Speaker Change: That might be benefiting them and maybe another state players, but you know frequency isn't super high so to be able to to vet that out.
Speaker Change: To quarter isn't necessarily the easiest thing to do but there's probably a little trade down.
Speaker Change: Yeah, that's really helpful. Thank you.
Speaker Change: Thank you Brenda middleclass indulging itself as maybe it was briefly financing amounts more youre kind of trading up that cash.
Speaker Change: It's probably trading back to where they were.
Speaker Change: Right Okay.
Speaker Change: Got it thank you.
A quick follow up.
Speaker Change: On Saturday.
Speaker Change: Yes, comping positively.
It's really just shy maybe being a little slow off the mark after the acquisition.
Speaker Change: Okay.
Speaker Change: One point the expectation was for a much faster growth out of that brand.
Speaker Change: This is at an inflection point now where we could see that.
Speaker Change: Well, we think that they've actually done a lot to improve the operation as I said earlier, John Wilkerson and his team.
Have been amazing at bringing their turnover down turnovers at their their best ever levels and that helps having team members that know the brand understand their brand and can execute the brand.
Speaker Change: We've also.
<unk> done a little bit of testing with some some ways to let the consumer know about cheddars and so I would say inflection point I don't want to use that word because that would imply something significant change. When you think about unit growth. It takes a little while to build the pipeline.
Speaker Change: That said we've opened.
Speaker Change: One restaurant in a new lower cost prototype, that's doing very well for us and we're opening another one fairly soon and we would expect to start ramp building that pipeline up so that we can get.
Towards that high end of our our framework for new unit growth in <unk> that will be part of that that improvement. So we'll talk a little bit more about unit growth in the March call, which is what we normally do but yeah inflection point might not be the right word but confidence that we can we can continue to open. These restaurants is maybe a better way to.
Speaker Change: Got it.
Speaker Change: Thank you so much.
Speaker Change: Sure.
Speaker Change: Thank you. Your next question is coming from Andrew Charles from TD Cowen. Your line is now live.
Andrew Charles: Great. Thanks Raj within the reiterated EPS guidance can you just help level set your expectations for line items around G&A interest expense and depreciation for the year just on the <unk> acquisition.
Speaker Change: Andrew I think G&A, we had previously guided approximately $4 50 million I think we're going to be with chewy is really it's going to be close to 470, So think of it as $470 million roughly obviously, they will it's going to be some movement, depending on what happens with mark to market and incentive.
Speaker Change: But you know that's a good number to use.
Speaker Change: And then from an interest expense.
Speaker Change: I think our interest expense for the back half is probably call it $47 million a quarter in that range.
Speaker Change: And then DNA I think as a percent of sales shouldn't be.
Speaker Change: Similar to where we've been trending a there is an increase year over year in the back half, probably 10 20 basis points higher.
Speaker Change: Devin just by the incremental Capex.
Speaker Change: Our inflation on the Capex really over the last several years.
But I think that's really how you should think about it.
Speaker Change: Okay. That's helpful. And then just on beef good to see low single digit inflation outlook, you know 40% coverage.
Speaker Change: The conversations youre, having with vendors on this I mean, this is something that you'd like to be more covered on but it seems like the constitutes a bit prohibitive and you'd rather go.
Speaker Change: Spot market rather than more covered.
Speaker Change: They kind of know more of the outlook there beyond what's covered and what would lead you to be more covered there.
Speaker Change: Yeah, I think beef I'll start by saying really our supply chain team has done an amazing job at being better than market. If you look at what happened throughout the year, we've been able to the strategy that they have deployed in terms of selectively contracting, but also having the spot market at the right times.
Speaker Change: Looking at all their knowledge and talking to the suppliers has been very helpful. In delivering strong results for us and that's been.
Speaker Change: That shows up in our P&L right. When you look at that so that as you. All know currently the beef prices are up.
Significantly year over year, just driven.
Speaker Change: Retailers are actively promoting saw these prime beef cut sentry buys.
Speaker Change: So the prices are up in November December.
Speaker Change: Sure.
Speaker Change: I think we our team expects.
Speaker Change: That as we get into calendar 2025 early January the seasonal dip will there will be some opportunities for us to go cover a little bit more so I don't want to get too much into the details, but I just know that I have we have very high confidence in the strategy that our team is pursuing in terms of how we get the coverage.
Speaker Change: The last point is from a vendor perspective, they've been asking for.
Speaker Change: The Packers have been reluctant to call it out front due to the supply concerns that they have so that's part of the reason the premiums that are demanding that are being demanded or the prices are not what we we like so that's why we have not covered as much.
Speaker Change: That's helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you next question is coming from Andrew <unk> from BMO capital markets. Your line is now live.
Speaker Change: Hi, I wanted to talk about total inflation for 2025.
Speaker Change: Perhaps if you could walk us through some of the drivers of that and maybe how youre thinking about margin progression through the back half of the year. Thank you.
Speaker Change: Yeah, Andrew so from a total inflation I think we said we're going to be approximately two 5%. So if you think about the first half was just over 2%.
Speaker Change: So food was fairly neutral.
Speaker Change: Commodity inflation was basically flat in the first half, but labor was in the high threes and then all other costs were somewhere in the 3%. That's how we get to that two ish a little over 2% in the first half as we look at the back half we expect it to be a Q3 to Q4 Q4 would be probably the highest is what we're expecting.
Speaker Change: Food and beverage steps up a little bit a part of that is driven by.
Speaker Change: Beef and chicken have been yes.
Speaker Change: Turning inflationary in the back half and actually seafood as well. So if you look at beef was pretty flat in the first half chicken was deflationary for us in the first half.
Speaker Change: And then seafood was basically slightly deflationary so those three categories turning inflationary in the back half, albeit low single digits.
Speaker Change: As part of the reason why we have that step up we.
Speaker Change: We would expect the back half to be around two ish percent on commodities inflation with Q3, maybe a little bit south of that in Q4 north of that and then from a labor, it's probably not a big change would probably be in that high threes.
Speaker Change: And then all of us would be in that 3% range.
Speaker Change: Okay.
Speaker Change: Got it. Thank you and then I just wanted to dig a little bit deeper into olive garden's never ending pasta promotion and how that performed relative to expectations, specifically as it relates to the mix of customers that opted to pay extra for the protein add on and the impact that that had on same store sales growth in the quarter.
Speaker Change: Thank you.
Rick Cardenas: Yeah, Andrew as I mentioned, we had a.
We had record.
Rick Cardenas: Consumers buying that buy up and so that performed above our expectations and.
Rick Cardenas: And we had record refills, which was above our expectations. The refills I think it was a positive thing for us it gives the consumer even more value more abundance.
Rick Cardenas: And so the same store sales impact on the buy up.
Rick Cardenas: It wasn't tremendous but we did have positive mix at olive garden.
Rick Cardenas: So that could have been part of it but without getting into the detail of how much debt that buy up caused impact cost same restaurant sales that would kind of gets you to know how many people bought up so we're not going to get into that level of detail.
Speaker Change: Alright, Thank you very much.
Rick Cardenas: Sure.
Speaker Change: Thank you next question is coming from Brian Harper from Morgan Stanley. Your line is now live.
Speaker Change: Yeah. Thanks, Good morning, guys just Uber.
Speaker Change: I know you said you didnt promote it yet, but what was it you know fairly.
Speaker Change: Fairly material at some of the stores, where you've rolled out so far I guess to the extent you're willing to comment then.
Speaker Change: The expectation that you.
Speaker Change: You would start to kind of promote it more actively and are in.
Speaker Change: In the fourth quarter or how do you plan to kind of approach.
Speaker Change: Leaning into that.
Speaker Change: Yeah, Brian.
Speaker Change: The pilot has gone very well for us.
Speaker Change: As I mentioned, but we arent promoting it yet so we're not assuming any of these sales are incremental.
Speaker Change: So the in order to get the item or the delivery you have to go to a website to try to piece to take out order and if the restaurant is in the pilot it'll ask you if you want delivery or not so that's the only way people know about it.
Speaker Change: We're averaging somewhere about one 5% of sales.
Speaker Change: Across the 100 restaurants.
Speaker Change: Delivery.
Speaker Change: Without that not including the delivery fee. So it's not going to be a tremendous impact to comps for this quarter again, we said, it's not we don't think it's incremental.
Speaker Change: It does we have seen some positive results, though so it accounts for about 6% of our to go business.
Speaker Change: In order volume is increasing week to week, so that's again with no marketing.
Average order size is actually bigger than the average pickup order size that was a little bit of a surprise for us.
Speaker Change: And the real Pleasant surprise is that about 15% of the orders have a catering item on there.
Speaker Change: And our existing catering delivery requires ordering prior to five P. M. The day before so maybe guests are figuring out they can order these items closer to when they want them. If they don't want don't want the extra service that they get from olive garden catering itself. So.
Speaker Change: In terms of marketing I'm, not going to tell you the timing of the marketing.
Speaker Change: Right now, we're assuming the pilot restaurants.
Speaker Change: Or earn incremental as I said, we're focusing on rolling it out to the rest of the system.
Speaker Change: To arrest of Olive garden, and as I said, we intend to to complete that by the end of the third quarter, most likely it'll be done by the end of the third quarter.
Speaker Change: And then as locations come online those guests will know that you can get delivery.
Speaker Change: After we complete the rollout we're going to make sure that the operators have time to run it and make sure that they learn how it works even though its been very seamless to the restaurants that have had it.
Speaker Change: And then the good thing is as part of our partnership with Uber marketing dollars are available in the Olive garden marketing team is working on plans to deploy those dollars and some more with marketing. This delivery I can't tell you if it's going to be in Q4 I can't tell you it's been in Q1.
Speaker Change: But we do plan on marketing. This this new this new offer after the rollout.
Speaker Change: Okay. Yeah. That's helpful. Thank you.
Speaker Change: Just you know you quoted pricing for Longhorn did you.
Speaker Change: Site, what it was for olive garden as well and.
Speaker Change: I think you'd previously provided some comments just on the rest of the year. It is.
Speaker Change: Pricing still kind of what you'd expect for the second half for any change to your plans there.
Speaker Change: Yes, Brian Olive Garden pricing was also sort of 3% I think they were had like two eight or two nine across the system Garden was also just started three.
We expect back half to be fairly similar.
Speaker Change: Mid to high Twos is what we're expecting and then the other thing with Olive garden mix in the second quarter was we did see a significant contribution from catering catering.
Speaker Change: Catering was contributing about 60 basis points positive, which we don't necessarily count as guests, but that's that's a meaningful impact to sales.
Speaker Change: Thank you.
Speaker Change: Thank you next question today is coming from Lauren Silberman from Deutsche Bank. Your line is now live.
Speaker Change: Thank you and congrats on the quarter, so really strong performance, particularly at Olive Garden Longhorn can you just talk about the cadence through the quarter and any color on what you're seeing in December yes.
Speaker Change: Thanks.
Speaker Change: And that's created some noise just trying to understand what youre, saying in terms of underlying trend.
Yeah, Laura and good morning so.
Speaker Change: When we look at the quarter the trends within the quarter.
Speaker Change: September was pretty strong for us driven by olive garden, how earning possible.
Speaker Change: But when we actually look at the underlying base traffic trends during the quarter adjusted for holiday and weather because we had storms impact as we talked about earlier I think just the hurricane impact in September was about 30 basis points. The hurricane impact in October was about 50 basis points. So when you account for that noise of the weather and then shift.
The holidays and promotion what we see is the underlying basic traffic trends improved.
What we saw the prior two quarters across all of our brands.
Speaker Change: And then actually you know as we think about what that has continued as we as we're looking to the third quarter.
Speaker Change: But we're only three weeks into the quarter, but it'd be the significant change in holiday schedule watch this last year the holiday impact each brand differently. So the best way to really look at this the trends worsening.
Speaker Change: Is was just pre COVID-19 when we had the exact same holiday schedule 2019 holiday schedule was the same as this year for this quarter. So if you look at that timeframe.
Speaker Change: When we look at through that lens and look at retention on traffic versus pre COVID-19.
Speaker Change: We feel we feel very good about what we're seeing so.
Speaker Change: So that is all incorporated into our guidance.
Speaker Change: Great. Thank you and then I just wanted to follow up on the LTE only thing you'll be starting in January clarifying you'll be promoting a three item depth chicken Marcellus take Oregon, Idaho, and then Eric classic at a specific price point and any color about how youre thinking about the price point and what's compelling given some of the problems out there.
Speaker Change: I understand.
Speaker Change: Well for competitive reasons, we're not going to talk about the what the price point is Laura and I will say that you know we are going to continue to stick to our filters, though.
Speaker Change: So this is not a deep discount, but it's a compelling price point so.
Speaker Change: You'll see that pretty soon I think it's January 2nd I think is when it starts or right around there and so it won't be long.
Great. That's all three of those menu items.
Speaker Change: Excuse me.
Speaker Change: It'll be all three menu items that are promoted at a price point.
Speaker Change: No there'll be one at a price point the other two are already on the menu. So people know would know what that price point is but the one that's the limited time offer the other two will stay on the menu.
Great. Thanks, so much.
Speaker Change: Sure.
Speaker Change: Thank you next question is coming from Jon Tower from Citi. Your line is now live.
Jon Tower: Great. Thanks for taking the question Rick I know in previous calls you talked about the idea of speed of service across the brands, particularly at Olive garden as being an area, where you feel like there's still room for improvement I'm. Just curious if you could give us any sort of update on on where you are on progress there and perhaps weaving that into some of the technology you had spoke to earlier.
Speaker Change: Upgrading the infrastructure around the point of sales.
Speaker Change #100: We think that it will be a bit of an unlocked to help expedite the speed across the system.
Speaker Change #101: Yeah, John Thanks for the question.
Speaker Change #101: As I said on the last call the opportunities for speed vary by brand.
Speaker Change #101: So each brand is approaching it a different way that makes the most sense for them.
Speaker Change #101: We are seeing gradual improvement in all of our brands every one of the brands have seen improvement in speed.
Speaker Change #101: That said, we also said this is gonna be a very long term improvement in the speed. Because this was a long term thing that happened in the casual dining industry in the full service industry to actually get slower. So it's going to take awhile to get faster you have to convince people in our restaurants, not I guess, we have to convince our team that this is.
Speaker Change #101: The right thing in that so as you know we have 200000 people. So it takes it will take a while.
Speaker Change #101: And I'll give you an example, without necessarily getting olive garden, because they're doing the same thing, but cheddars has has really taken a big push on this because again Greg.
Speaker Change #101: Great food at speed and oil prices, which had us about and they recently updated their steps of service to focus on a few key areas not going to get into what those areas are and they've already seen faster execution.
Speaker Change #101: In their restaurants.
Speaker Change #101: All of the other brands have to in.
Speaker Change #101: In regards to technology as I mentioned.
Speaker Change #101: We are going to be piloting and rolling out our next generation point of sale, which actually helps do things a little bit faster.
Speaker Change #101: Think about the brands today that have Z ask on that on the table. Many of them are really focusing their servers on ringing the appetizer in right at the table, which is something that's always been available, but really having a push on that and that is helping so theres a lot of things that we're doing to get speed.
But again this is going to be a long term thing.
Speaker Change #101: And we're really pleased of the of the early progress.
Speaker Change #102: Great. Thank you I appreciate that and then maybe just in terms of the marketing side and I'll touch on a little bit earlier, but just curious where the connected TV piece comes into this and specifically you had mentioned the idea of Cheddars, maybe building some brand awareness I'm curious if that's weaved into it than just speaking broadly.
Speaker Change #103: Connected TV versus traditional linear TV can you give us a gauge of.
Speaker Change #103: The cost differential between the different.
Speaker Change #103: <unk> channel so connected versus linear.
Speaker Change #103: If there is any significant savings you can drive.
Speaker Change #103: Utilizing that relative to traditional TV.
Hey, John we have been testing a lot of different things in digital marketing in connected TV for several years.
Speaker Change #104: We've got a great internal digital team that knows a lot about that and we have been testing it at Cheddars, we've been testing at Olive garden, we've been testing it at longhorn and the benefit of our portfolio is we can test it at our big brands Olive Garden, Longhorn and then they move it to our smaller brands like <unk> and others.
Cheddars is seeing pretty pretty good results from their test and they've expanded their test.
Speaker Change #104: We believe it's a channel that we can continue to expand.
Speaker Change #104: As in the cost it's more effective so whether it cost a little bit more it's much more effective because it's targeted.
Speaker Change #104: We can target to the G. O codes, if we have to we can target specific a specific.
Speaker Change #104: Vic age groups or consumer groups.
Speaker Change #104: And or new or users or non users of our brand we can get some pretty good targeting for connected TV and so we feel pretty good about where that is but.
Speaker Change #104: Even if it is I think and when you take the effectiveness out into account is probably not that different in cost.
Speaker Change #105: Got it thanks for taking the questions.
Speaker Change #106: Thank you next question is coming from Dennis CAGR from UBS. Your line is now live.
Dennis CAGR: Great. Thanks, guys and thanks for the encouraging color on Uber direct.
Dennis CAGR: Encouraging also the rollout I think there's a little bit faster than we had thought.
Speaker Change #108: Previously I am just curious relative to the full year guide and the Cobra direct if there is anything embedded there I feel like previously that there was no expectation for any any contribution Rick I know you said you are not commenting on the marketing and and as of now Youre kind of assuming no incremental so.
Speaker Change #108: So just is there anything embedded from Uber in the guide for this year or not yet.
Dennis CAGR: Hey, Dennis Thanks for pointing out that the rollout may be a little bit quicker than we thought and I'll tell you why that is.
Speaker Change #109: A couple of things one is the technology worked flawlessly from the beginning if you think about pilot sometimes technology has some issues. Yeah. We had a few little tweaks here or there, but the I T team and the Uber team did a great job integrating our proprietary point of sale into their systems and actually Uber had to make some changes.
Speaker Change #109: To their systems.
Speaker Change #109: Two to work the way we wanted it to work. So we wanted to make sure that all worked well and.
Speaker Change #109: And second.
Speaker Change #109: If you think about.
Speaker Change #109: What we the reason that we're going a little bit faster.
Speaker Change #109: Because one of the most important things that we that we think helps things be successful as operation operated by them.
Speaker Change #109: And operators at all of the pilot locations are pretty much fully embraced in this and are almost unanimous and that we should put this in every olive garden as fast as we can.
Speaker Change #109: It's essentially.
Speaker Change #109: Almost exactly like curbside pickup and so it's not a real big change for them because it's integrated into our point of sale and that was a key.
Speaker Change #109: In regards to our guidance, we don't have any real incremental sales built into our guidance for for the launch and for the rollout in this fiscal year.
Speaker Change #110: That's great encouraging. Thank you just wondering if I could sneak it in as it relates to menu innovation going forward as we look ahead, how do we think about that when we see more menu innovation from olive garden, specifically going forward in the last few years is there a shift at all there as we think about the longer term. Thank you guys.
Yeah Dennis.
Dennis CAGR: Think about what we've done over the years and really simplifying the olive garden menu. There are items that that we've wanted to continue to improve and to bring back and you see two of them right now with state Gorgonzola and stuff chicken Marsala.
Dennis CAGR: There are others that we've we've worked on as we look at our menu and to see where we have gaps in the menu. There are there will be some more innovation and even some more innovation on the compelling price points that we can offer for a limited time just to get that consumer that needs a little bit more value to come in but.
Dennis CAGR: They'll have great value across their entire menu for all of our guests.
Speaker Change #111: Great. Thanks, Rick.
Speaker Change #111: Yeah.
Speaker Change #112: Thank you next question is coming from Gregory Frankfurt from Guggenheim. Your line is now live.
Hey, Thanks for the question Rick I, just this might be a little bit out of left field, but.
Speaker Change #112: One of the things I guess, we've seen recently from maybe outside of restaurants is a lot of major retailers being able to have a step function a major step function in processing customer data operational data.
Speaker Change #112: I still think it's playing a role in that do you feel like thats relevant at Darden or you're seeing this internally at Darden and I guess, what sort of competitive moats do you think this helps create.
Speaker Change #112: Yeah.
Speaker Change #112: Hey, Greg This is Raj. So we have you know we've actually been on a little bit on the forefront in terms of leveraging the data a lot of the token aviation was put in place several years ago for us as we move to the data Lake a few years ago, we have a strategy.
Speaker Change #112: We had embarked on this data strategy work four or five years ago, and so we built a strong foundation to really collect and organize the data and then we have a team of data scientists and advanced analytics teams that actually leverage all of that.
Speaker Change #112: And whether it's new technology.
Speaker Change #112: It's snowflake R R.
Speaker Change #112: The technologies that we've been able to leverage that are cloud based that have helped us.
Speaker Change #112: Really stay ahead of our competitors in terms of analytics.
Speaker Change #112: That's already been in the works.
Speaker Change #112: I don't necessarily expect it to be a step change, but it's been a gradual improvement and we continue to get better obviously with the with the advent of Gen. AI. We have a team that's focused on a group of people that are focused on figuring out how best we can leverage it within our business.
Speaker Change #112: There is there are some pilots, but theres not a lot at this point for us to share, but where we are on that journey and we feel we feel good about the capabilities we built.
Speaker Change #113: Thanks for the perspective, thanks Raj.
Speaker Change #114: Thank you. Your next question is coming from Jim Volker drill from Bernstein. Your line is now live.
Speaker Change #115: Thank you.
Speaker Change #116: When we look at the labor market, especially for maybe the back half of 'twenty five into 'twenty kind of kick the.
Speaker Change #116: The tightening immigration policies, which could be implemented maybe the restaurant libert point might be shrinking and maybe driving the salaries. So understandably you have a better and putting them probably decent than peters and you've demonstrated that over the years, but assuming that some of that impact may also be affecting you.
Speaker Change #117: Planning tool.
Speaker Change #118: Considering to pass on any cost increases onto consumers you've seen that consumers can absorb that or how are you going to be continuing.
Speaker Change #117: Continuing with.
Speaker Change #117: Much more prudent pricing actions going forward. Thank you.
Speaker Change #119: Hey, the new low AR I think it's still a little too early to comment on the new administer then and what theyre going to do.
Speaker Change #119: We've been through a an administration that kept our immigration a little bit lower or more.
Speaker Change #119: At a more normal level.
Speaker Change #119: And had and we're able to operate in that in that environment before.
Speaker Change #119: I will go back to our actuals, our overall strategy. Our overall strategy is to find ways to become more efficient.
Speaker Change #119: To take all of our inflation into account, which includes our food inflation or labor inflation and other.
Speaker Change #119: And also using our scale advantages of darden to find other ways to take some cost out so that we can price below others.
Speaker Change #119: Without getting into what we would do we would have to see what the impact is but right now we expect to stick to our strategy of keeping our pricing below who we compete against.
Speaker Change #119: And if you look at over the last five years I think it's about 500 basis points less in CPI, and almost 1000 basis points less than.
Speaker Change #119: Then limited service restaurants so.
Speaker Change #119: I think it's about 20% over the last five years the pricing total for Darden. So that's much less than everybody else and we will continue to focus on that.
Speaker Change #119: Great.
Speaker Change #120: Building on your comment given the shift in not only the political environment, but also the consumer sentiment that you mentioned earlier. So in light of that you know looking into 2020 side. What is the one item that youre. Most excited about and what is the one item that you're watching more closely because maybe you have some concerns about thank you.
Speaker Change #121: I'm excited about our team and our brands I'm excited about what olive garden's doing to talk about their brand.
Speaker Change #121: In a different way.
Speaker Change #121: To drive the guests to our restaurants I am excited about the investments that long run has made over the last five years and continue to make I'm excited about the performance of Cheddar and yard house and all of our brands.
Speaker Change #121: Also feel better about the consumer so there's there's there those are the things I'm excited about it I wanted to talk about it I'm excited about our internal stuff whatever happens externally. We will we will we will handle but I'm excited about what we're doing and I think we have been clear that we focus on the long term.
Speaker Change #121: And we have ways to move the needle and we showed that in the second quarter.
Speaker Change #122: Great. Thank you.
Speaker Change #123: Thank you next question today is coming from David Tarantino from Baird. Your line is now live.
David Tarantino: Hi, Good morning, just a quick question on the Capex guidance so.
Speaker Change #125: It stepped up quite a bit versus the midpoint of the range.
Speaker Change #125: Had last time and I suspect some of that's related to choice, but could you could you just elaborate on <unk>.
Speaker Change #126: Why the big step up and and then whether you think that is a good run rate for us to think about you know kind of growing from going forward.
David Tarantino: Hey, David.
David Tarantino: A couple of things obviously QE is coming in is it part of it I mean, as we mentioned we expect to open five to east restaurants, but there's also a pipeline and we also bought some some in some situations we bought some land which increases the capex, but with that said the other part of it is us laying the pipeline build.
David Tarantino: <unk> for next year. So we've said all along that we've been trying to kind of get we'd like to get to the high I don't know if our framework of 3% unit growth.
David Tarantino: And the pathway to that will sure we'll share more in March but right now obviously part of those projects next year, we have to spend now.
David Tarantino: Your question around you know.
David Tarantino: Run rate I would say this is a function of new units watched this maintenance maintenance side the maintenance capex at.
David Tarantino: Capex all of that is probably I don't see higher million dollars a year, we wouldn't expect that to move up materially, but if we have a step up in new units. It would go up too and so we will share more in March.
Speaker Change #127: Great. Thank you.
Speaker Change #128: Thank you. Our next question today is coming from Wroclaw growth of Poly from JP Morgan. Your line is now live.
Speaker Change #129: Good morning, guys Rick team.
And just a broader industrial cushman and I have a follow up any preliminary thoughts from your vantage point and what a potential product deregulation versus previous year would mean for the industry, but clearly casual dining space as it relates to say Monday at expediting development pipeline given your guide up.
Speaker Change #129: On patent meeting et cetera, and also any comments around specific policy as far pay our taxes on tape credits that you foresee.
Speaker Change #130: Yeah, I'm not going to comment on anything that could be coming down the line, we'll we'll comment on it when it happens.
But I will say anything that reduces the time to have to open a restaurant is good for us permitting regulated whatever whatever it is anything that can help.
Speaker Change #131: Kind of.
Speaker Change #131: Open up the marketplace in some way would be good.
Speaker Change #132: Okay on a quick follow up.
Speaker Change #133: What are your thoughts on having a fast casual brand within the portfolio over time your comments on <unk>.
Speaker Change #133: Really helpful, but I'm, just curious why not tap into Monday to address this sooner given the shifts we see in the industry, what I'll give it as more of a younger customer customers seem to gravitate towards the smart who will eventually be a part of the demographic interacting with the other brands.
Speaker Change #133: Rahul a couple of things one is we are a full service restaurant company that is where we have our scale advantage that is what we know the fast casual model is a very different model.
Speaker Change #133: And we believe that we can continue to excel in full service.
Speaker Change #133: There's a we've had conversations in a long time about that we'll get into more detail if you'd like on things we've said in the past that.
Speaker Change #133: That said.
Speaker Change #133: The the speed initiatives that were doing will help.
Speaker Change #133: But fast casual is not something that we would anticipate being in.
Anytime anytime soon.
Speaker Change #133: And I'll say the other thing that you mentioned about the younger consumer.
Speaker Change #133: A younger consumer.
Speaker Change #133: We over in that we actually have a higher percentage of our visits from younger consumers than we have from older consumers and as consumers move into their peak, earning years they move into casual dining.
Speaker Change #133: If you go back 10 years ago, the millennials had a certain percentage of visits to casual dining and you've come now those same people are visiting casual dining more so it's really more of a lifestyle and need state than it is.
Speaker Change #133: Then it is that they like fast casual versus versus casual dining.
Speaker Change #134: Appreciate the insight thank you.
Speaker Change #133: Sure.
Speaker Change #135: Thank you next question is coming from Jake Bartlett from Truest Securities. Your line is now live.
Speaker Change #136: Great. Thanks for taking the question languages on labor efficiencies and when you look at your labor cost per operating week, it's been trailing your your wage inflation that you've been you've been quoting and I'm thinking a little bit of a narrower difference this quarter, but I'm wondering is there a kind of a.
Speaker Change #136: More significant efficiencies gained at some point last year that youre going to start to lap and so maybe we shouldnt expect les.
Speaker Change #136: Labour Propping, we tend to lag so much and then could you talk about other opportunities you have for for driving efficiencies improve.
Speaker Change #136: Improve retention is helpful, but anything anything else and I have a follow up.
Speaker Change #137: Hey, Jake so yeah, we've talked about how you know.
Speaker Change #137: We're always as a system trying to find efficiencies.
Speaker Change #137: When we look at labor specifically.
Speaker Change #137: You pointed out yes labor has kept has grown less than the wage growth and that's really driven by a significant improvement in turnover. If you look at what's happened over the last several late last year and a half we've been our turnover has been improving and you heard Rick mentioned earlier, our board saw the historic best levels that some of our brands.
Speaker Change #137: That's it that's one of the big contributors in the second part I'll mentioned specific to the second quarter is the Thanksgiving shifting is actually you leverage labor a little bit more right because that.
Speaker Change #137: The days open for casual dining brands versus closed so there's a little bit of leveraging of that fixed labor that helps.
Speaker Change #137: And then as we said we were always in the process of continuous improvement it has to come at it.
Speaker Change #138: <unk> asked.
Asked to come through improving steps.
Service improving.
Speaker Change #138: Eliminating and streamlining the processes, not but but getting giving guests a great experience and so we'll continue to do that.
Speaker Change #139: Great and then and then the follow up was on the selling.
Speaker Change #139: As a percentage of sales I think the past commentary that I have here.
Speaker Change #140: You would expect a couple of tenths higher 25, it was about 30 basis points higher as a percentage of sales in the second quarter. I'm wondering is that being we thought should we think about 30 to 40 basis points versus maybe 20 basis points of.
Speaker Change #140: <unk> 25 at this point.
Speaker Change #140: Yeah, Jackie again, it's also a function of things I've mentioned on the call. One was we had more weeks of now earning possible and then also we shifted Thanksgiving shifting out would not would mean that we were still on air and extra week than what we would have been a year ago and so those are a couple of things that drove but when we look at the full year.
Speaker Change #140: We still expect to be not.
Speaker Change #140: Call. It 10 to 20 basis points higher again, if we find that we can we can deploy marketing dollars in gross sales and gross profit like we did this quarter, we will do that.
Speaker Change #140: Yeah.
Speaker Change #141: Great I appreciate it.
Speaker Change #142: Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Phil for any further or closing comments.
Speaker Change #143: That concludes our call I want to remind you that we plan to release third quarter results on Thursday March 20th before the market opens with a conference call to follow thank you for participating on today's call.
Speaker Change #144: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.