Q3 Results and Cheddar's Scratch Kitchen Acquisition
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Q3 Results and Cheddar’s Scratch Kitchen Acquisition
Disclaimer / Non-GAAP Information
IMPORTANT NOTICE
The following slides are part of a presentation by Darden Restaurants, Inc. (the "Company") and are intended to be
viewed as part of that presentation (the "Presentation"). No representation is made that the Presentation is complete.
Forward-looking statements in this communication regarding our expected earnings performance and all other statements that are not historical
facts, including without limitation statements concerning our future economic performance and expenses, are made under the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of the date on which such
statements are first made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date.
We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature, forward-looking statements
involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of
these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports. These risks and uncertainties include technology
failures including failure to maintain a secure cyber network, food safety and food-borne illness concerns, litigation, unfavorable publicity, risks
relating to public policy changes and federal, state and local regulation of our business, labor and insurance costs, failure to execute a business
continuity plan following a disaster, health concerns including food-related pandemics or virus outbreaks, intense competition, failure to drive
profitable sales growth, our plans to expand our smaller brands Bahama Breeze, Seasons 52 and Eddie V's, a lack of availability of suitable
locations for new restaurants, higher-than-anticipated costs to open, close, relocate or remodel restaurants, a failure to execute innovative
marketing tactics, a failure to develop and recruit effective leaders, a failure to address cost pressures, shortages or interruptions in the delivery of
food and other products and services, adverse weather conditions and natural disasters, volatility in the market value of derivatives, economic
factors specific to the restaurant industry and general macroeconomic factors including interest rates, disruptions in the financial markets, risks of
doing business with franchisees and vendors in foreign markets, failure to protect our intellectual property, impairment in the carrying value of our
goodwill or other intangible assets, failure of our internal controls over financial reporting, an inability or failure to manage the accelerated impact
of social media, our ability to successfully complete our acquisition of Cheddar’s Scratch Kitchen and integrate it into our business, including our
ability to realize anticipated synergies and tax benefits arising from the acquisition and other factors and uncertainties discussed from time to time
in reports filed by Darden with the Securities and Exchange Commission.
The information in this communication includes financial information determined by methods other than in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), such as adjusted net earnings per diluted share from continuing operations. The
Company’s management uses these non-GAAP measures in its analysis of the Company’s performance. The Company believes that the
presentation of certain non-GAAP measures provides useful supplemental information that is essential to a proper understanding of the operating
results of the Company’s businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in
accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Fiscal Third Quarter Highlights
Darden Sales ($bn) Same-Restaurant Sales Growth
2.6%
1.7%
$1.75 $1.79 $1.69 $1.71 $1.85 $1.88 1.3%
$1.61 $1.64
0.9%
FY15 FY16 FY16 FY17 FY16 FY17 FY16 FY17
Q41 Q1 Q2 Q3 Q4 FY16
2
Q1 FY17 Q2 FY17 Q3 FY17
Darden Adjusted EPS3
$1.21 $1.32
$1.01 $1.10
$0.88
$0.68 $0.64
$0.54
FY15 FY16 FY16 FY17 FY16 FY17 FY16 FY17
Q41 Q1 Q2 Q3
1 FY15 Q4 adjusted to exclude $0.13bn in sales and $0.07 in adjusted diluted earnings per share due to the 53rd week.
2 Comparable Calendar Basis. A schedule of comparable calendar dates can be found in the additional information section of this presentation.
3 EPS values, except for FY17 Q1, Q2 & Q3, are adjusted for special items. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.
Fiscal Third Quarter Highlights
1.4% 0.2%
Same-Restaurant Sales Same-Restaurant Sales
560 bps 440 bps
Same-Restaurant Sales Same-Restaurant Sales
Industry Outperformance1 Industry Outperformance1
1 Industry excluding Darden brands.
A full-service restaurant company with …
1
Mission
Be financially successful through great people
consistently delivering outstanding food, drinks and
service in an inviting atmosphere making every guest loyal.
4
Competitive
Significant
Scale
Extensive
Data & Insights
Rigorous
Strategic Planning
Results-
Oriented Culture
Advantages
Back-To-Basics Operating Philosophy
1
Driving Philosophy
Culinary
Innovation
& Execution
Attentive
Service
Engaging
Atmosphere
Integrated
Marketing
7
Iconic Brands
Shared Operating Philosophy
Culinary Innovation & Execution Attentive Service
Scratch prepared modern Team Members as real and genuine
classics & American favorites as our scratch cooking
Engaging Atmosphere Integrated Marketing
Timeless restaurant design Targeted local marketing brings
& décor with character the “scratch” positioning to life
Strategic Portfolio Fit
Differentiated “scratch” kitchen concept complements portfolio
Allows Darden to compete as an undisputed value leader in the
full-service, varied menu category
Experienced management team with shared values
Attractive Restaurant-Level Economics
$617M $4.4M
Total Revenue Avg. Restaurant Volume
~6,300 ~$13.50
Avg. Wkly. Guest Count Average Check
~17% $72M
Average REBITDA1 Adjusted EBITDA1
1 Trailing twelve months ended December 2016
Significant Room for Growth
Currently: 165 Locations Across 28 States*
Company-Owned Restaurants
Franchisee Restaurants
Pipeline: 3 under construction,
6 signed leases, 3 additional LOIs
* Represents company-owned and franchised restaurants.
Powerful Brand Perception
Major CD Chains – Value vs. Intent to Recommend
53%
Intent to Recommend Top Box %
48%
43%
38%
33%
n= 700 for each brand
28%
38% 40% 42% 44% 46% 48% 50% 52% 54% 56%
Value Top Box %
Source: Technomic
Time Period 12 months ending Sep. '16Financial Discussion
Margin Analysis
Fiscal Q3 2017
vs. PY* (bps)
($ millions) % of Sales Favorable/(Unfavorable)
Sales $1,878.7
Food & Beverage $541.5 28.8% 30
Restaurant Labor $578.3 30.8% 20
Restaurant Expenses $320.4 17.1% (60)
Marketing $54.6 2.9% (20)
Restaurant-Level EBITDA $383.9 20.4% (20)
G&A $87.2 4.6% 20
Depreciation & Amortization $67.9 3.6% Flat
Impairments ($0.7) 0.0% (10)
EBIT $229.5 12.2% (10)
Interest Expense $9.3 0.5% 10
EBT $220.2 11.7% Flat
Income Tax Expense $53.9 2.9% 30
Note: Effective Tax Rate 24.5%
EAT $166.3 8.9% 40
Note: Percentages may not foot due to rounding.
* Compared to FY16 Q3 adjusted performance. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.Segment Performance
Segment Sales ($ millions)
Fine Dining Other
$1,020 $1,035
$426 $434
$256 $256
$146 $154
FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3
Segment Profit Margin1
Fine Dining Other
23.2% 23.7%
21.6% 21.0% 20.0% 19.6%
17.5%
16.5%
FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3
1 Segment profit margin calculated as (sales less costs of food & beverage, restaurant labor, restaurant expenses and marketing expenses) / sales.Fiscal 2017 Annual Outlook and Fiscal 2018 Capital Spending
Total Sales ~2.3%
Same-Restaurant Sales ~1.5%
Fiscal 2017 Total Inflation ~1.5%
Outlook
Effective Tax Rate 25% to 26%
Earnings per Diluted Share $3.95 to $4.00
New Restaurant Openings 30 to 35
Fiscal 2018
Capital
Spending Capital Expenditures $360 - $400
Outlook New Restaurants $150 - $175
($millions)
Remodels/Maintenance/Tech/Other $210 - $225
Note: Does not include the impact of Cheddar’s acquisition.Darden to acquire Cheddar's for $780 million
10.4x LTM EBITDA1 purchase multiple, net of certain tax benefits
estimated at approximately $30 million
Additional $10 million for certain Cheddar’s transaction-related
tax attributes
Reimburse equityholders for pre-closing capital expenditures on
new restaurants under development
Funded with new debt and cash-on-hand
Resulting in Adj. Debt to Adj. EBITDAR of 2.3x
Expected to close in fiscal 2017 fourth quarter
(1) Pro forma for Cheddar’s acquisition of the restaurants owned by its largest franchisee, Greer, for the
trailing twelve months ended December 2016. This acquisition occurred in January 2017.Darden to acquire Cheddar's for $780 million
Expected run-rate synergies of $20 to $25 million representing
approximately 4% of sales
Savings of >5% of sales in prior acquisitions
Accretive to Darden’s diluted net earnings per share, excluding
acquisition and integration-related expenses
Approximately 12 cents in fiscal 2018 and 20 to 25 cents by the end of
fiscal 2019
Total acquisition and integration-related expenses of approximately $25 to
$35 million
Strengthens Long-Term Value Creation Framework
Immediate focus on integrating Cheddar's and realizing
anticipated cost synergies
Committed to maintaining investment grade credit profileA full-service restaurant company with …
1
Mission
Be financially successful through great people
consistently delivering outstanding food, drinks and
service in an inviting atmosphere making every guest loyal.
4
Competitive
Significant
Scale
Extensive
Data & Insights
Rigorous
Strategic Planning
Results-
Oriented Culture
Advantages
Back-To-Basics Operating Philosophy
1
Driving Philosophy
Culinary
Innovation
& Execution
Attentive
Service
Engaging
Atmosphere
Integrated
Marketing
8
Iconic BrandsAdditional Information
Commodities Outlook – Q4 of Fiscal 2017
Product Breakdown and Contract Coverage For Q4 of Fiscal 2017
Q4
FY2017
Spend by
Category Coverage Outlook
Beef 20% 80% Mid Single Digit Deflation
Produce 13% 80% Low Single Digit Inflation
Dairy / Oil1 10% 50% Low Single Digit Inflation
Seafood 10% 95% Mid Single Digit Inflation
Wheat2 7% 100% Flat
Chicken 7% 95% Low Single Digit Inflation
Non-Perishable / Other 33% 60% Flat
Weighted Average
100% 80%
Coverage
¹ Includes cheese, cream, butter, and shortening
² Includes breadsticks and pastaReported to Adjusted Earnings Reconciliations
Fiscal 2016
Q1 2016 Q2 2016 Q3 2016 Q4 2016
Earnings Diluted Earnings Diluted Earnings Diluted Earnings Diluted
Before Income Tax Net Before Income Tax Net Before Income Tax Net Before Income Tax Net
Income Expense Net Earnings Income Expense Net Earnings Income Expense Net Earnings Income Expense Net Earnings
$'s in millions, except EPS Tax (Benefit) Earnings Per Share Tax (Benefit) Earnings Per Share Tax (Benefit) Earnings Per Share Tax (Benefit) Earnings Per Share
Reported Earnings from Continuing
Operations $111.8 $30.8 $81.0 $0.63 $24.4 ($5.7) $30.1 $0.23 $138.1 $29.9 $108.2 $0.84 $175.4 $35.0 $140.4 $1.10
Adjustments:
Debt retirement costs - - - - $35.6 $13.6 $22.0 $0.17 $71.3 $27.3 $44.0 $0.34 - - - -
Real estate plan implementation $8.8 $2.2 $6.6 $0.05 $31.0 $9.6 $21.4 $0.16 $6.2 $1.3 $4.9 $0.03 $2.0 $1.8 $0.2 -
Strategic action plan and other costs - - - - - $3.0 ($3.0) ($0.02) - - - - - - - -
Adjusted Earnings from Continuing
Operations $120.6 $33.0 $87.6 $0.68 $91.0 $20.5 $70.5 $0.54 $215.6 $58.5 $157.1 $1.21 $177.4 $36.8 $140.6 $1.10
Fiscal 2015
Q4 2015
Earnings Diluted
Before Income Tax Net
Income Expense Net Earnings
$'s in millions, except EPS Tax (Benefit) Earnings Per Share
Reported Earnings from Continuing
Operations $126.5 $8.4 $118.1 $0.92
Adjustments:
Strategic action plan and other costs $35.1 $13.5 $21.6 $0.16
Adjusted Earnings from Continuing
Operations $161.6 $21.9 $139.7 $1.08
Remove 53rd week impact ($14.9) ($5.7) ($9.2) ($0.07)
Adjusted Earnings from Continuing
Operations (52-week basis) $146.7 $16.2 $130.5 $1.01
Note: The sum of the quarterly Diluted EPS amounts do not total the annual EPS amounts due to the impact of the timing of share repurchases
on the weighted average share count. Values may not foot due to rounding.Reported to Adjusted EBIT Margin and Earnings Reconciliations
Quarter Ended Change
(in millions) 2/26/2017 2/28/2016 (bps)
Sales - as reported $ 1,878.7 $ 1,847.5
Earnings from continuing operations - as reported $ 166.3 $ 108.2
Interest, net - as reported 9.3 83.1
Income taxes - as reported 53.9 29.9
EBIT from continuing operations $ 229.5 $ 221.2
EBIT Margin from continuing operations 12.2% 12.0% 20
EBIT Impacts - 6.0 (1)
Adjusted EBIT from continuing operations 229.5 227.2
Adjusted EBIT Margin from continuing operations 12.2% 12.3% (10)
Earnings from continuing operations - as reported $ 166.3 $ 108.2
EBIT Impacts - 6.0 (1)
Interest expense impacts - 71.3 (2)
Income tax impacts of adjustments - (28.5)
Adjusted earnings from continuing operations 166.3 157.0
Adjusted earnings Margin from continuing operations 8.9% 8.5% 40
(1) Represents costs associated with real estate implementation
(2) Represents costs associated with debt retirementFiscal and Comparable Calendar Dates
Same-Restaurant Sales Calculation Dates
Fiscal Calendar Basis Comparable Calendar Basis
Q4
February 29, 2016 - May 29, 2016 February 29, 2016 - May 29, 2016
vs. vs.
February 23, 2015 - May 24, 2015 March 2, 2015 - May 31, 2015You can also read
