Darden Restaurants, Inc. (NYSE:DRI) Q3 2023 Earnings Call Transcript

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Brian Bittner: And then just a follow-up, the labor margin leverage for the consolidated model was incredibly strong this quarter relative to any recent quarters in the past, and I realize your sales were strong this quarter, above average. But was there anything else going on within the execution of the labor margin this quarter outside of strong sales that you can point to that help that leverage amplify this quarter, so we can think about how labor can potentially be executed moving forward?

Raj Vennam: Yes. Brian, I think that’s — so obviously, as you mentioned, sales is the biggest part, but we are seeing turnover get better. And I think we called out last year, we had a lot of sick pay and some inefficiencies in labor last year because of Omicron. And so that’s actually also helping. But you do see a quarter-to-quarter improvement, right? I mean, I think we progressed by over 100 basis points from second quarter to third quarter. And that’s really the function of sales delta. We had almost $300 million more in sales, and that helps with a lot of leverage. And then the last piece, as I said earlier, is the retention is getting better, and that helps with improved productivity.

Operator: Our next question comes from Gregory Francfort with Guggenheim Securities.

Gregory Francfort: Rick, my question is just on your — maybe how to think about margins, not necessarily in ’24, but the next few years. Just because within your long-term framework of 10 to 30 basis points, when I look at this year, you had a big step down and a lot of that was food cost pressure. And I’m just wondering if you think that 10 to 30 basis points is the right way to think about it, and maybe does more of that come on the store-level margin side versus the G&A in the next several years? Any updated thoughts on that would be helpful. Thanks.

Rick Cardenas: Hey Greg, thanks for the question. What I would say, first of all, is we’ve got that long-term framework of 10 to 30 basis points of margin expansion. We had significant margin expansion during COVID. And we talked about it last year that we’d probably give some of that back this year. So, we had significant expansion during COVID of over 200 basis points, I think to 250, and now we’re closer to 150 pre-COVID. And so, as we think about going forward, as we get to our long-term framework and we still think our long-term framework will hold over time. And some of that will come probably at maybe a third to half of that will come below the restaurant level as we think about leveraging other costs. But as traffic grows and same-restaurant sales grow, we should still get some from the restaurant. But G&A should be some of that savings going forward.

Operator: Our next question comes from Brian Vaccaro with Raymond James.

Brian Vaccaro: My question was just on labor and operations. There’s obviously been a lot of new hires across the industry in the past 6 to 12 months. Are there any metrics you can share that speak to the proficiency of your staff and how that’s benefiting operations? And just kind of to what degree you think that that could be driving your widening performance gap to the industry? And then also, would you be willing to share kind of where your manager and hourly turnover is currently running?

Rick Cardenas: Yes. Brian, let me start by saying we’ve had a reduction in turnover, which has been helping us. Our team members are starting to learn more about what they do, especially the newer team members. And as I mentioned earlier, our manager staffing is at pretty high levels. And so, they can spend more time teaching their team and getting more productivity out of their team. Without getting into too much detail on turnover, our turnover is closer to pre-COVID levels than COVID levels. And we would intend to get it back towards those levels. What I would also say is our gap to pre-COVID isn’t that different than it was. So, as the industry gets better, we’re getting better. And so, we feel like we’ll continue to improve.

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