Darden Restaurants Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Harbour - Morgan Stanley & Co LLC - Analyst : Yeah, thank you. Good morning, guys. Maybe first, just on your sales outlook for the year, could you comment on how you see the different brands feeding into that? And you obviously have very different comparisons as we think about, the start of the year versus the end of the year, what -- presumably there's kind of some pickup in Olive Garden, how do you think about the drivers of that?

Question: Brian Harbour - Morgan Stanley & Co LLC - Analyst : Okay, thank you. And maybe could you just comment on your pricing thoughts at this point within that? Is there anything we should keep in mind with respect to timing? Is there perhaps some that you would delay in an effort to keep it more modest at start of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Lauren Silberman - Deutsche Bank AG - Analyst : Great. Thank you. Just first on your approach to marketing, so Olive Garden comps have been weak over the last couple of quarters, some share loss this quarter. I understand on a traffic basis, you outperformed. But as you think about your approach to marketing and promos, how does that influence your decision to increase marketing? And what are you expecting for fiscal '25?

Question: Lauren Silberman - Deutsche Bank AG - Analyst : Great. Thank you for that. And just a follow-up on the consumer environment. Is this mostly related to the low-income consumer? Just what are you seeing across the middle income, high income across the breadth of your brands? Thanks so much.

Question: Eric Gonzalez - KeyBanc Capital Markets Inc. - Analyst : Hi. Thanks for the question. I think I just heard you say that your guests aren't managing the check the way you've seen in prior quarters. Can you make a comment on why you think that's the case?

Question: Eric Gonzalez - KeyBanc Capital Markets Inc. - Analyst : Okay. And then just maybe on the guidance, you know, there was a fairly wide gap in comp performance between Olive Garden and LongHorn this quarter. You know, you have that 1% to 2% guidance for next year. If you're not willing to break it out by brand in terms of guidance, but maybe you can comment on whether you'd expect that performance gap to widen or stay as wide as it is, or do you think it's going to converge in FY20 cuts?

Question: Andrew Charles - TD Cowen - Analyst : Great, thanks. Rick, the question is on Olive Garden. You called out multiple levers at your disposal to help properly go traffic beyond marketing. Can you expand more on those opportunities? Is it menu innovation? Is it the to-go business, the catering business? Just to welcome more thoughts on how to sustain the traffic gap versus the industry.

Question: Andrew Charles - TD Cowen - Analyst : Okay, great. And my final question is about the Ruth's acquisition for franchisee. Curious if this leaves you open-minded for more franchise acquisitions in 2025 or if this one was perhaps more one-off?

Question: David Tarantino - Robert W. Baird & Co. Incorporated - Analyst : Hi, good morning. Raj, I just wanted to come back to the guidance for the year. And I think you mentioned that you have assumed that you expect underlying traffic to improve as the year moves on. So I just wanted to ask if you could elaborate on what factors you think will drive that improvement? Is it mostly just comparisons related or are you thinking there's something inside the business that will improve on a sequential basis as the year moves on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: David Tarantino - Robert W. Baird & Co. Incorporated - Analyst : Got it. And then, Rick, on Olive Garden, I guess a question I would have is on the advertising approach. Do you see an opportunity to better highlight the value you're already offering? Not necessarily provide a new discount or something different than what you're adding, but it seems like that brand has a great value proposition. I'm just wondering if you think there's an opportunity to emphasize that a bit more in the advertising.

Question: Jim Salera - Stephens Inc. - Analyst : Hi guys, good morning. Thanks for taking our question. Can you just give us some of the puts and takes on the 3% inflation guide for 2025, particularly what you're thinking around the food basket and labor?

Question: Jim Salera - Stephens Inc. - Analyst : Okay, great. Thanks for the detail on that. And then if I could maybe try to tie that to the consumer. You mentioned earlier one of the concerns or chief concerns for the consumer is just kind of overall inflation. If we see inflation maybe come in at the lower end of your expectations, is it possible that, that could also provide better-than-expected lift on the comp side, given that consumers maybe feel a little bit better about how far their dollar goes? Just trying to think of kind of the catalyst path for the consumer into 2025, what might make the results from the consumer be better than what you're anticipating? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Sara Senatore - BofA Securities, Inc. - Analyst : Great, thank you. I guess, I wanted one clarification and then a question, please. The clarification is just, you mentioned pricing, like 1% in Olive Garden and pricing below inflation, but your food margins were better than we had expected. So I just wanted to understand like what the dynamic might have been across brands, whether there was any mix. I mean, presumably all of them are actually some of the best food margins. So if you could just help me unpack that a little bit. And then I do have a question about the demand environment.

Question: Sara Senatore - BofA Securities, Inc. - Analyst : Okay, and those controllables sit in even in the cog line?

Question: Sara Senatore - BofA Securities, Inc. - Analyst : Okay, got it. Thank you. And then just the question on demand is, to some of the earlier comments you've made, perhaps the demand environment is softer-than-expected in so far as the issue with your comps is you're still taking share, but I'm interpreting it to mean perhaps versus where we expected, given the low-income consumer primarily, I think. I'm trying to, I guess, ask when you think about where that expectation was when you acquired Ruth and kind of doubled down on fine dining, had you anticipated something more robust or there was always an expectation of normalization and even in that context the acquisition makes sense? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Jeffrey Bernstein - Barclays Capital Inc. - Analyst : Great. Thank you. Rick, my first question is just on the weakening conditions you mentioned in the back half, it does seem like within your portfolio, at least, Olive Garden was hit harder, and I guess relative to the industry as well, which I think is contrary to past economic slowdowns when most people look at Olive Garden as the more defensive value brand. So I'm just wondering, as you take a step back. What do you think has changed this go-around? How much of it is maybe internally what you're doing versus maybe what the competition is doing and if you can give any sequential color on the trends through the quarter or into June just to kind of get a sense of how we're starting fiscal '25, that would be great. And then I had one follow-up.

Question: Jeffrey Bernstein - Barclays Capital Inc. - Analyst : Absolutely. And then my follow-up, Raj, as you think about -- well, as you're setting up a guidance for fiscal '25, you mentioned how in fiscal '24, you beat your initial EPS guidance despite seemingly falling short on the initial fiscal '24 comp guidance and as you look at '25 wondering as we enter the year it seems like maybe if there was a risk that it's the same scenario where I mean just looking at the fourth quarter your comps were below the fiscal '25 guide. So what leverage do you have on the margin and earnings side to maybe beat the comps -- if the comps would again fall short as we move through fiscal '25? It would seem like you don't have as much opportunity with inflation easing as maybe you had this past year. So how do you think about the outlook for fiscal '25 if the comps were to fall short? Thank you.

Question: David Palmer - Evercore Group L.L.C. - Analyst : Thanks. Good morning. Olive Garden's strategy has been to sort of set itself up as a well-positioned everyday value and a strong consumer service. Do you see the consumer recognizing this? Like are the consumer satisfaction scores at Olive Garden doing as well versus the peer group in Italian as say LongHorn or Texas Roadhouse are doing in steak?

Question: David Palmer - Evercore Group L.L.C. - Analyst : Yeah. I guess, I'm wondering why you think the traffic share gains are not stronger. Is it just simply the consumer awareness of the value that's at Olive Garden? Or is it perhaps something about the Italian category, such as the ease of trading down to at-home posts a little easier we're seeing REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call very strong growth in, for instance, Rayo's Sauces lately. So we're seeing scratch cooking really picking up in at-home. We're not seeing a strong stake demand at-home. So I'm wondering if there's sort of an interaction index with at-home trade down that's stronger in the Italian category. Do you have any thoughts on that?

Question: Dennis Geiger - UBS Securities LLC - Analyst : Great. Thanks, guys. Just wondering if you could speak to the development environment a bit more. It seems like consistent expectations as it relates to new builds. But anything you're seeing there sort of on timing, thinking about build cost, et cetera?

Question: Dennis Geiger - UBS Securities LLC - Analyst : Thanks, Rick. And one more, just curious if you could comment a little more on sort of what your expectation is for the industry promotional environment for the year. Is what we're seeing sustainable? Can it increase? I know there's a million factors that go into this. but just getting your REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call perspective. Would love any thoughts on what over the next three quarters or so, what the industry environment on promo discounting, et cetera, looks like in your opinion? Thank you.

Question: Jeff Farmer - Gordon, Haskett Capital Corporation - Analyst : Great. Good morning and thank you. Just a couple of quick follow-ups. With the 1% to 2% FY25 same-store sales guidance, you pointed to the 2.5% to 3% menu pricing. But can you give us a little bit of color as it relates to both traffic and mix assumptions for FY25 guidance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Jeff Farmer - Gordon, Haskett Capital Corporation - Analyst : Okay. And then I might have missed it, but G&A dollars in FY25, did you provide that guidance?

Question: Jon Tower - Citigroup, Inc. - Analyst : Great, thanks. I appreciate you taking. Going to the cost side of the equation, it was pretty impressive that even with the comp that you put up in the fourth quarter, how you were able to manage labor and the other op expense line very well. And I'm just curious if you could dig into how you expect those lines to play out in fiscal '24 or better said, do you think a lot of the management that you're able to put in across labor as well as the other OpEx can carry forward into fiscal '25 kind of offsetting some of that inflation that you're seeing.

Question: Jon Tower - Citigroup, Inc. - Analyst : Got it. Thank you. And I know a lot has been talked about today on the marketing side. So I'm just curious, one more, I guess, on the topic. In terms of the way that you're speaking to the consumer, I know you're using traditional television as a primary means to communicate Olive Garden's message. But I'm just curious if you could dig into what you're doing on social and how you might be changing the brand's perception on those platforms or even in traditional media, are you going after different day parts in terms of where you're advertising even platforms where you're advertising through linear media. Maybe just more information there would be great. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Chris O'Cull - Stifel Financial Corp. - Analyst : Yeah, thanks. Rick, you mentioned several sales building opportunities earlier. But I was wondering if you think there are any opportunities to improve throughput during high demand peak periods at Olive Garden. I'm assuming the restaurants are still in a way during traditional peak periods like Friday and Saturday nights.

Question: Chris O'Cull - Stifel Financial Corp. - Analyst : Okay. And then, Raj, Olive Garden segment margin contracted, I think, 70 basis points this quarter, while the other segments or the other segments saw some considerable year-over-year expansion. Can you help us understand what drove that pressure? And do you see other -- those factors putting pressure on Olive Garden this going into fiscal '25.

Question: Danilo Gargiulo - Sanford C. Bernstein & Co., LLC. - Analyst : Raj, given your focus on more profitable traffic and cost control, cost management in this environment, can you help us understand the flow-through of the marginal dollar today and how it compares with the marginal dollar flow-through back in, say, 2019?

Question: Danilo Gargiulo - Sanford C. Bernstein & Co., LLC. - Analyst : Okay, thank you. And Rick, just from a long-term perspective, can you share maybe the rationale and timing behind these recent executive changes? And in particular, what you're expecting from your team in their newly created roles and specifically, if you can comment on kind of post promotion and kind of the role of the Chief Business Development Officer, what are you expecting out of that? Thank you.

Question: Andy Barish - Jefferies LLC - Analyst : Hey guys, two quick ones. Just hearing some commentary on the softer Florida market where you guys kind of over index, any thoughts there? And then if you could give us the Olive Garden to-go mix for the fiscal year '24 versus '23? And is there any trends you're seeing there, any impact on maybe some of the same-store sales components, just not remembering how you guys calculate that fully?

Question: Andy Barish - Jefferies LLC - Analyst : Yeah. No. Just if the to-go trend had changed or decline if that was impacting any of the components of same-store sales, but it doesn't sound like that.

Question: Brian Vaccaro - Raymond James & Associates, Inc. - Analyst : Hey, thanks. And good morning. I know we're running off. So just two quick ones for me. Can you provide traffic and check for Olive Garden and LongHorn in the fourth quarter? And then, Raj, did I hear correctly blended price up 2.5% to 3% for the fiscal '25 and that seems stable. So does that suggest you've taken price recently? And could see that range as early as the first quarter? Thank you.

Question: Jake Bartlett - Truist Securities, Inc. - Analyst : Great, thanks for taking the question. I want to dig in on that last question and answer a little bit more, and that's pricing at Olive Garden. Pricing decelerated to 1% in the fourth quarter. You talked about comps being similar across the brand in '25 and pretty stable pricing throughout the year. Does that imply that you're going to see a pretty big step-up in menu price at Olive Garden? Or should we expect kind of a similar, much more cautious pricing at Olive Garden throughout the whole year?

Question: Jake Bartlett - Truist Securities, Inc. - Analyst : Got it. But I think that would imply that in the near-term, you'd be taking up pricing in Olive Garden in this environment, in macro environment. I'm wondering whether you think that creates a little bit of risk to traffic even from where we started. If you can maybe answer that, but then I also just had a follow-up on the Fast Recovery Act in California, and you guys have a decent presence there, and I think we haven't gotten a lot of commentary about the impact. It seems like some pretty seismic impacts in California impact on labor, but also shift in demand maybe from limited service into casual dining. So any comment there on what you've seen over the last few months as the Fast Recovery actually implemented? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, DRI.N - Q4 2024 Darden Restaurants Inc Earnings Call

Question: Jake Bartlett - Truist Securities, Inc. - Analyst : Thank you. (technical difficulty) can you price at Olive Garden now in this environment?

Question: Gregory Francfort - Guggenheim Securities, LLC - Analyst : Hey. Thanks for the question. My question is just -- I think it was asked on unit growth earlier in the call, and you guys were suggesting it makes sense to look at the long term. I think you're opening up 15 to 20 or so Olive Gardens a year, which is one of the faster paces of growth we've seen in a long time. How many stores do you think Olive Garden could have on a long-term basis? You have a lot of competitors that are up at 1,200, [1,700] stores with a lot lower AUVs. Just sort of curious how you come up with the long-term target for Olive Garden. Thanks.

Question: Gregory Francfort - Guggenheim Securities, LLC - Analyst : No, no, that was it. I appreciate the perspective. Thanks.

Question: Andrew Strelzik - BMO Capital Markets Corp. - Analyst : Hey, good morning. Thanks for taking the questions. I just had two quick ones for me. There's been a lot of discussion about the low-income consumer. I think last quarter, you said that you saw growth with the higher-end consumer at all of your segments. So I was hoping we could get an update there on how that is trending, if that's still what you're realizing. And then my second question is about the balance sheet, and you mentioned leverage being below the target. It's been that way for a bit now. So I'm just curious how you're thinking about what might narrow that gap or how you're thinking about leverage on the balance sheet going forward? Thanks.