Darden Restaurants Confernce Call Highlights
Darden Restaurants (NYSE: DRI) reported its third quarter earnings on Friday, March 21, 2014.
Shares of the company are up 2.76 percent or $1.44 per share to $50.66. Below are some key takeaways from its conference call:
Comments from C. Bradford Richmond, Darden's Chief Financial Officer:
• Our third quarter earnings were in line with our expectation, excluding the impact of the more severe winter weather and the legal, financial advisory, and other advisory costs related to the implementation of the strategic plan we announced in December 2013.
• Together these unusual items totaled approximately $0.13 in earnings per share. We estimate that the severe winter weather adversely affected earnings by approximately $0.07; and that legal, financial advisory, and other costs associated with the strategic plan adversely affected earnings by approximately $0.06.
• Now focusing more specifically on the results for the quarter, Darden's total sales from continuing operations decreased 1.1% to $2.23 billion. On a blended same-restaurant sales basis, the results for Red Lobster,
• Excluding these impacts, same-restaurant sales for the third quarter would have been up approximately 2.9% at LongHorn Steakhouse, down approximately 2.8% at Olive Garden, down approximately 6.2% at Red Lobster, and up approximately 1.9% at the Specialty Restaurant Group.
• Food and beverage expenses for the third quarter were approximately 40 basis points higher than last year on a percentage of sales basis.
• The unfavorability was driven by higher shrimp and land-based protein costs. Given the pending separation of Red Lobster, I will call out their results on each line item.
• From a food and beverage perspective, Red Lobster's expenses for the third quarter were approximately 110 basis points higher than last year on a percentage of sales basis, due primarily to very significant shrimp inflation.
• At Red Lobster, restaurant labor expenses for the third quarter were approximately 100 basis points higher than last year on a percentage of sales basis due to sales deleverage, wage rate inflation, and some decrease in productivity.
• As we previously announced we're on track to realize $60 million of annual cost savings by the end of fiscal 2015, as a result of the actions we announced in September. In the third quarter, we realized $10 million of cost savings from these actions, and we should realize a similar amount in the fourth quarter. For fiscal 2014, we're on track for approximately $28 million in gross savings that are offset by $11 million in up-front implementation costs for net savings of approximately $17 million.
• Current earnings expectations for the year also reflect the opening of approximately 70 net new restaurants, and the net impact of the September support expense reduction efforts, as well as the legal, financial advisory and other costs incurred in the second quarter in connection with our strategic review and related actions.
• The earnings forecast for fiscal 2014 does not include costs we have incurred in the third quarter or are likely to incur in the fourth quarter in connection with the separation of Red Lobster and other strategic actions announced in December.
Eugene l. Lee, Darden's President and Chief Operating Officer:
• On absolute basis, December is always a very strong month for both brands. In the planning process this year, however, we did make some very important adjustments to our promotion and advertising plans for the month.
• Additionally, we decreased the number of incentives in circulation compared to last year. These significant changes in marketing tactics were made to return us to more sustainable and healthy management of our business.
• We also reduced our media spending during this time period, so Olive Garden was only on air three out of the five weeks this year, versus four out of the five weeks last year, and Red Lobster reduced the total rating points they purchased by 20%.
• Beyond that, as we have been communicating, the Olive Garden team is executing a brand renaissance plan. The plan includes a focus on a holistic core menu and promotional plans designed to deliver superior value, choice and variety and convenience.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.