Earnings Call Fiscal 2016 Q3 - s2.q4cdn.com · PDF file2 Non-GAAP Information The information...

Earnings CallFiscal 2016 Q3April 5, 2016

1

Disclaimer

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 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, technology failures including a failure to maintain a secure

cyber network, failure to execute a business continuity plan following a disaster, health concerns including 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 and other factors and uncertainties discussed

from time to time in reports filed by Darden with the Securities and Exchange Commission.

IMPORTANT NOTICE

2

Non-GAAP Information

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.

Earnings CallFiscal 2016 Q3April 5, 2016

4

$0.54$0.32

$0.28

$0.99$1.08

$0.68$0.54

$1.21

FY14 FY15 FY15 FY16 FY15 FY16 FY15 FY16

Darden Adjusted EPS3

Q41 Q1 Q22 Q32

$1.65 $1.60 $1.56$1.73

$1.88$1.69 $1.61

$1.85

FY14 FY15 FY15 FY16 FY15 FY16 FY15 FY16

Darden Sales ($bn)

Q41 Q1 Q22 Q32

Fiscal Third Quarter Highlights

1 FY15 Q4 includes the impact of the additional week due to a 53 week fiscal year. 2 FY16 Q2 includes the negative impact of the Thanksgiving holiday shift, which occurred in Q3 of FY15.3 EPS values adjusted for special items. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of this

presentation.

3.8%

3.4%

2.9%

4.2%

Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16

Same-Restaurant Sales Growth - Comparable Calendar Basis

5

Positive Sales and Earnings Momentum

4.9%Calendar

Same-Restaurant Sales

+600bpsSame-Restaurant Sales

Industry Outperformance1

6th

Consecutive Qtr. of Same-

Restaurant Sales Growth

3.0%Calendar Same-

Restaurant Guest Count

Launched

Catering Delivery

Nationwide

42%OG To Go

2-Year Growth

Same-Restaurant Sales1

OG To Go Sales

Q3 Highlights

0.5%

2.2%

3.4%

2.5%2.8%

4.9%

FY15 Q2 FY15 Q3 FY15 Q4 FY16 Q1 FY16 Q2 FY16 Q3

1 FY16 Same-Restaurant Sales on a comparable calendar basis. Industry excluding Darden brands.

14% 15%22% 23%

18% 17%

20%

Q1 Q2 Q3 Q4

FY15 FY16

6

Strong Segment Profit Growth

2.7%Calendar


2.6%

5.4% 5.2%4.8%

3.6%

2.7%



Q3 Highlights

+400bpsSame-Restaurant Sales

Industry Outperformance1

12th

Consecutive Qtr. of Same-

Restaurant Sales Growth

-0.7%Calendar Same-

Restaurant Guest Count

2nd YearBrand of the Year

Ace Metrix

29%Segment Profit Growth

1 FY16 Same-Restaurant Sales on a comparable calendar basis. Industry excluding Darden brands.

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Same-Restaurant Sales Growth at all Brands

1 FY16 Same-Restaurant Sales on a comparable calendar basis

3.1%

4.3%5.0%

6.1%4.4%

6.4%

0.9%

4.3%


5.3% 1.2%

5.2%

3.1% 3.8% 3.8%5.3%


1.3%4.9% 5.2%

3.9% 3.2%

1.3%


6.3%-0.6%

3.2%1.7% 2.5%

5.8% 6.3%


3.7%5.4%

3.2% 3.6%2.4% 3.1%


3.1%

9.6%

Financial Update

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Fiscal Third Quarter Highlights

6.2%Fiscal Calendar


$1.21*

Adjusted Diluted EPS from

Continuing Operations

$64 millionDividends Paid

22%Adjusted Diluted EPS Growth vs

Last Year

6Straight Quarters of Double Digit

Adjusted EPS growth

2.3 millionShares Repurchased

* EPS values adjusted for special items. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of this presentation.

10

Fiscal Third Quarter Adjusted Earnings

Fiscal 2016 Q3 Adjusted Earnings Growth Drivers1

Fiscal 2016 Q3 Diluted Net EPS from Continuing Operations $0.84

Debt Retirement Costs 0.34

Real Estate Plan Implementation 0.03

Fiscal 2016 Q3 Adjusted Diluted Net EPS from Continuing Operations $1.21

Fiscal 2016 Q3 Adjusted Diluted EPS vs. Fiscal 2015 Q3 Adjusted Diluted EPS $0.22

Growth % 22.2%

Net Incremental Ongoing Impact for Real Estate Transactions

Three Months Ended

($ millions, except per share) 02/28/2016

GAAP Rent and Other Taxes (Restaurant Expense & G&A) $32

Depreciation & Amortization (15)

Reduction in Interest Expense (11)

Net Incremental Expense $6

Net Incremental Reduction to EPS $0.03

1 EPS values adjusted for special items. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of this presentation.

11

Adjusted EBIT Margins increased 200 basis points

As

Reported

As Adjusted

Q3 2016 Q3 2016($ millions)

Q3 2016 vs. Q3 2015 (bps)Favorable/(Unfavorable)

Food & Beverage 29.1% $537.8 29.1% 160

Restaurant Labor 31.0% $572.5 31.0% (10)

Restaurant Expenses 16.5% $305.2 16.5% (60)

Marketing 2.7% $50.7 2.7% 30

Restaurant-Level EBITDA 20.6% $381.3 20.6% 120

G&A 5.2% $89.2 4.8% (30)

Depreciation & Amortization 3.6% $67.0 3.6% 100

Impairments (0.1)% ($2.1) (0.1%) 10

EBIT 12.0% $227.2 12.3% 200

Interest Expense 4.5% $11.8 0.6% 70

EBT 7.5% $215.4 11.7% 270

Income Tax ExpenseNote: Effective Tax Rate

1.6%21.7%

$58.4 3.2%27.1%

(150)

EAT 5.9% $157.0 8.5% 130

Note: Continuing operations, values may not tie due to rounding. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of this presentation.

121 Segment profit calculated as sales less costs of food & beverage, restaurant labor, restaurant expenses and marketing expenses.

All of our segments had positive sales growth… ($ millions)

…coupled with significant Segment Profit1 growth ($ millions)

$201.4 $220.1

FY15 Q3 FY16 Q3

$65.9

$85.0

FY15 Q3 FY16 Q3

$30.9 $33.9

FY15 Q3 FY16 Q3

21.0% 21.6% 16.3% 20.0% 22.3% 23.2%

$39.0 $42.3

FY15 Q3 FY16 Q3

16.8% 16.5%

Sales and profit increased in all segments

$957 $1,020

FY15 Q3 FY16 Q3

$404 $425

FY15 Q3 FY16 Q3

$139 $146

FY15 Q3 FY16 Q3

$232 $256

FY15 Q3 FY16 Q3

Segment Profit

Margin %

Fine Dining Other

Fine Dining Other

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Restaurant Openings New Restaurant Openings 18 to 22

Same-Restaurant

SalesTotal +3.0 to +3.5%

Tax Rate Annual Effective Rate 23% to 25%

Capital Expenditures

($ millions)

Total $230 - $255

New Restaurants $85

Refresh/Maintenance/Other $145 - $170

Adjusted Earnings

per Diluted Share1

Total $3.48 to $3.52

Growth2 36% to 38%

1 Excludes real estate implementation and debt retirement costs.2 Assumes a 52 week fiscal year for 2015. Non-GAAP number. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of

this presentation.

Fiscal 2016 Annual Outlook

14

Fiscal 2017 Capital Expenditures Outlook

Restaurant Openings New Restaurant Openings 24 to 28

Capital Expenditures

($ millions)

Total $310 - $350

New Restaurants $110 - $130

Remodel/Maintenance/Other $200 - $220

Remodel/Refresh

Olive Garden

Remodel ~250k-$450k ea. At Least 60

Bar Refresh ~$20k ea. Up to 150

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Long-Term Value Creation Framework

Annual Target, Over Time

Business

Performance

(EAT Growth)

Same-Restaurant Sales 1% - 3%

New Restaurant Growth 2% - 3% 7% - 10%

EBIT Margin Expansion 10 - 40bps

Return of

Cash

Dividend Payout Ratio 50% - 60%3% - 5%

Share Repurchase ($ millions) $100 - $200

Total Shareholder Return (EPS Growth + Dividend Yield) 10% - 15%

Note: Growth in the individual components will vary year-to-year.

Additional Information

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Reported to Adjusted Earnings Reconciliations

Note: For Fiscal 2015, the sum of the quarterly Diluted EPS amounts do not total the annual EPS amounts due to the impact of the Accelerated Share Repurchase program on the weighted average share count. Values may not tie due to rounding.

Fiscal 2015

Q1 Q2 Q3 Q4* Annual*

Reported Diluted Net EPS from Continuing Operations ($0.14) ($0.24) $1.01 $0.92 $1.51

Debt Retirement Costs 0.37 0.05 0.00 0.00 0.42

Strategic Action Plan and Other Costs 0.09 0.47 (0.02) 0.16 0.70

Adjusted Diluted Net EPS from Continuing Operations $0.32 $0.28 $0.99 $1.08 $2.63

* Reflects the additional operating week vs Fiscal 2014

Fiscal 2014

Q1 Q2 Q3 Q4 Annual

Reported Diluted Net EPS from Continuing Operations $0.32 $0.05 $0.65 $0.36 $1.38

Red Lobster-Related Shared Support Costs 0.04 0.04 0.04 0.04 $0.15

Other Strategic Action Plan Costs - 0.03 0.01 0.09 $0.13

Asset Impairments and Other Costs - 0.00 0.01 0.04 $0.05

Adjusted Diluted Net EPS from Continuing Operations $0.36 $0.12 $0.71 $0.54 $1.71

Fiscal 2016

Q1 Q2 Q3

Reported Diluted Net EPS from Continuing Operations $0.63 $0.23 $0.84

Real Estate Plan Implementation 0.05 0.16 0.03

Debt Retirement Costs - 0.17 0.34

Strategic Action Plan and Other Costs - (0.02) -

Adjusted Diluted Net EPS from Continuing Operations $0.68 $0.54 $1.21

Fiscal 2016 Adj. Diluted EPS vs. Fiscal 2015 Adj. Diluted EPS $0.36 $0.26 $0.22

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Reported to Adjusted EBIT Margin and Earnings Reconciliations

Change

(in millions) 2/28/2016 2/22/2015 (bps)

Sales - as reported 1,847.5$ 1,730.9$

Earnings from continuing operations - as reported 108.2$ 128.4$

Interest, net - as reported 83.1 23.3

Income taxes - as reported 29.9 18.7

EBIT from continuing operations 221.2$ 170.4$

EBIT Margin from continuing operations 12.0% 9.8% 220

EBIT Impacts 6.0 (1) 8.0 (2)

Adjusted EBIT from continuing operations 227.2 178.4 Adjusted EBIT Margin from continuing operations 12.3% 10.3% 200

Earnings from continuing operations - as reported 108.2$ 128.4$

EBIT Impacts 6.0 (1) 8.0 (2)

Interest expense impacts 71.3 (3) -

Income tax impacts of adjustments (28.5) (11.0) (4)

Adjusted earnings from continuing operations 157.0 125.4 Adjusted earnings Margin from continuing operations 8.5% 7.2% 130

(1) Represents costs associated with real estate implementation

(2) Represents costs associated with strategic action plan

(3) Represents costs associated with debt retirement

(4) Includes the tax benefit related to exiting from our lobster aquaculture project

Quarter Ended

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Product Breakdown and Contract Coverage For Fiscal 2016 Fourth Quarter

¹ Includes cheese, cream, butter, and shortening

² Includes breadsticks and pasta

Commodities Outlook

Mar-May

FY2016

Spend by

Category Coverage Outlook

Beef 19% 80% Low Single Digit Deflation

Produce 13% 80% Low Single Digit Inflation

Dairy / Oil1 12% 65% Mid Single Digit Inflation

Seafood 11% 90% Mid Single Digit Deflation

Wheat2 7% 90% Flat

Chicken 6% 95% Mid Single Digit Deflation

Non-Perishable / Other 32% 80% Low Single Digit Inflation

Weighted Average

Coverage100% 80%

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Updated FY2016 Annual Earnings Growth Outlook

Update

1 Represents non-GAAP measure. A reconciliation of GAAP to non-GAAP numbers can be found in the additional information section of this presentation.2 Estimated

Per Share % Growth

Fiscal 2015 Adjusted Diluted Net EPS from Continuing Operations1 $2.63

Remove 53rd Week Impact in Fiscal 2015 (In Q4) (0.07)

Fiscal 2015 52 Week Adjusted Diluted Net EPS from Continuing Operations1 $2.56

Growth from Fiscal 2015 (52 Week Year) to Fiscal 20162

Operating Performance $0.96 – 1.00 37 – 39%

Net Incremental Ongoing Real Estate Expenses (0.08) (3)%

Reduced Interest Expense related to FY15 Debt Retirement (FY16 Q1) 0.04 2%

Total Growth From Fiscal 2015 (52 Week Year) to Fiscal 2016 $0.92 - $0.96 36% - 38%

Fiscal 2016 Adjusted Diluted Net EPS from Continuing Operations Outlook $3.48 - $3.52

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Fiscal and Comparable Calendar Dates

Fiscal Calendar Comparable Calendar

Q1

June 1, 2015 – August 30, 2015

vs.

May 26, 2014 – August 24, 2014

June 1, 2015 – August 30, 2015

vs.

June 2, 2014 – August 31, 2014

Q2

August 31, 2015 - November 29, 2015

vs.



vs.

September 1, 2014 - November 30, 2014

Q3

November 30, 2015 – February 28, 2016

vs.



vs.

December 1, 2014 – March 1,2015

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