Darden Q4 Conference Call Summary: Loss of Investors Appetite
Darden Restaurants (NYSE: DRI) hosted its fourth quarter conference call Friday morning.
The multi-brand restaurant chain strikes concerns of weak restaurant volume, low discretionary income with the restaurant's main demographic, and declines in operating profits.
Some positive forward guidance was given for the near term in regards to the sale of Red Lobster and innovations with its current subsidiaries. Shares of Darden opened over three percent lower at $47.53 a share.
- Longhorn Steakhouse same-restaurants sales beat the industry average, increasing by 2.4 percent in the quarter.
- Stock repurchase program up to $700 million, with available share repurchase authorization totals 15.5 million shares, approximately 12 percent of the 132.3 million shares the Company had outstanding at the end of Q4 FY 2014.
- Sales up 6.2 percent for the fourth quarter, exclude red lobster.
- Slower growth in baby boomer population (consumers between the age of 50-60 years old).
- On track to close sale of Red Lobster in July.
- Total sales growth from the fiscal years of 2009 to 2014 excluding Red Lobster equals 40 percent and 2.5 percent higher with Red Lobster.
- Restaurant volume is roughly 4.4 million.
- Take out sales including online orders grew by 10%.
- Lunch volume decrease by 80 basis points. With Consumer time constraints at lunch time, Darden launched its pronto lunch menu and guarantee time promotion during its restaurant lunch hours.
- Improve quality of proteins in restaurants (chicken,steak,and salmon).
- Fiscal 2014 re-imaging with Olive Garden, most changes will come to life in 2015. Restaurants that are not remodeled lag by about 2 percent compared to those that have renovated. Darden hopes new remodel improve sales revenue by 3 to 4 percent.
- Same restaurant sales olive gar plus 1 percent flat and Longhorn plus 2 percent in the quarter.
- Margins expect olive garden to expand 20-25 basis points
Highlights from Press Release:
- Olive Garden's operating profit and operating profit as a percentage of sales decreased for the quarter. Total sales were $3.64 billion, a 1.1 percent decrease from last year, average annual sales per restaurant were $4.4 million and U.S. same-restaurant sales plummeted by 3.4 percent.
- Longhorn Steakhouse's operating profit and operating profit as a percentage of sales decreased for the quarter. Total sales were $1.38 billion, a 12.4 percent increase from last year, average annual sales per restaurant were $3.1 million and U.S. same-restaurant sales increased 2.7 percent.
- Darden's specialty restaurant segment sales were $342 million for the quarter, 15.9 percent higher than the prior year, influenced by Bahama Breeze's same-restaurant sales increasing by 4.1 percent, 4.0 percent at The Capital Grille, 0.8 percent at Yard House, 0.3 percent at Eddie, and a 1.6 percent decrease at Seasons 52. Sales growth for the group also reflected revenue from five new restaurants at The Capital Grille, four at Bahama Breeze, seven at Seasons 52, three at Eddie V's and eight at Yard House.
Short Term Guidance:
- Darden estimates to receive net cash proceeds from the sale of Red Lobster, after tax and transaction costs, of approximately $1.6 billion, of which about $1.0 billion will be used to retire outstanding debt.
- Expect to maintain $2.20 dividend, supported by reduction in CAPEX. Dividends will continue after red lobster deal complete.
- Expect to have higher sales growth rate and margins.
- Goal to minimize complexity and maximize appeal in its restaurants.
- Expect general and administrative expenses to be about 5 percent relatively soon after sale of Red Lobster.
- Anticipate low to mid teen operating growth.
- Darden experiencing slight comity inflation and sea food inflation, expect to be reduced closer to 2015.
- Debt coverage expected to be above their range from 2 to 2.5 percent in the quarter.
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