Darden Restaurants, Inc. (NYSE:DRI) Q1 2024 Earnings Call Transcript

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Restaurant expenses were 10 basis points favorable as leverage from higher sales more than offset elevated repairs and maintenance expense. Marketing expenses were 20 basis points higher than last year consistent with our plan and including impacts from Ruth’s Chris. All of this resulted in restaurant level EBITDA of 19%, 170 basis points higher than last year. G&A expenses were 110 basis points above last year, driven by three primary factors: first, higher incentive compensation due to significant growth in sales and EPS for the quarter and wrapping a very low incentive accrual in the first quarter of last year. Second, approximately $9 million of stock-based compensation expenses related to the immediate expensing of equity awards for retirement-eligible employees.

And third, the addition of Ruth’s Chris. Impairments were 30 basis points unfavorable to last year. We’re wrapping on a $5 million gain from last year and we incurred $3 million of impairments related to a handful of closings anticipated for this year. Interest expense increased 30 basis points versus last year due to the financing expenses related to the Ruth’s Chris acquisition. And for the quarter, adjusted earnings after tax was 7.9% of sales flat to last year. Now turning to our segments. Sales increased at Olive Garden and LongHorn driven by same-restaurant sales and traffic growth. This sales growth along with labor productivity and higher overall pricing related to inflation drove segment profit margin increases of 230 basis points at both Olive Garden and LongHorn.

Fine Dining segment total sales increased with the addition of Ruth’s Chris company-owned restaurants, but same-restaurant sales were negative at both Capital Grille and Eddie V’s consistent with what we indicated on our earnings call last quarter. This resulted in lower segment profit margin for fine dining than last year. As we anticipated, the year-over-year same-restaurant sales decline in our Fine Dining segment was the result of ramping on a resurgence of demand in the first quarter last year that drove traffic retention to 107% of pre-COVID levels. Fine dining traffic retention in the first quarter of this year was 100% of pre-COVID levels more in line with the retention levels for the prior three quarters. The other business segment increased sales driven by positive same-restaurant sales and the addition of Ruth’s Chris franchised and managed locations royalty revenue resulting in 140 basis points of segment profit margin growth.

As a reminder, all of our franchise operating results are included in the other business segments. Now, I’d like to provide an update on Ruth’s synergies. As Rick mentioned, we’ve identified more synergies than we had initially expected and are choosing to reinvest some of them in the guest and team member experience at Ruth’s Chris. Previously, we anticipated $20 million in annualized run rate synergies. We now expect approximately $35 million of gross run rate synergies and other cost savings and we anticipate investing approximately $10 million into the business, resulting in annualized net run rate synergies of approximately $25 million. And for fiscal 2024, we now expect approximately $12 million of net synergies. Finally, as shared in the press release distributed this morning, we are reiterating our full year financial outlook for fiscal 2024.

Our outlook still anticipates adjusted diluted net earnings per share from continuing operations of $8.55 to $8.85, including Ruth’s Chris operating results, but excludes approximately $55 million of pre-tax transaction and integration-related costs. And with that, we’ll take your questions.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Andrew Charles with TD Cowen. Please proceed with your questions.

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