Courtney Aquilla:

Thank you, Darrell. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden’s President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the investor relations section of our website at darden.com. Today's discussion and presentation include non-GAAP measurements and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2025 first quarter earnings on Thursday, September 19th before the market opens followed by a conference call. During today's call any reference to pre-COVID when discussing fourth quarter performance is a comparison to the fourth quarter of fiscal 2019 and any reference to annual pre-COVID performance is the trailing 12-months ending February of fiscal year 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence's casual dining benchmark, excluding Darden's casual dining brands. During our fiscal fourth quarter, industry same restaurant sales decreased 0.8% and industry same restaurant guest counts decreased 3.5%. And during our full fiscal year 2024, industry same restaurant sales decreased 1.4% and industry same restaurant guest counts decreased 4.7%. This morning Rick will share some brief remarks recapping the fiscal year. Raj will provide details on the fourth quarter and full-year financial results and share our fiscal 2025 financial outlook. And then Rick will close with some final comments. Now I will turn it over to Rick.

Raj Vennam:

Thank you, Rick. And good morning, everyone. Fiscal 2024 was another strong year for Darden, and I am proud of the results our teams achieved. Despite sales results that were weaker than we anticipated, earnings exceeded our initial expectations for the year. Strong cost management by our teams and easing commodities and labor inflation drove this earnings outperformance. Now looking at the fourth quarter, we generated $3 billion of total sales, 6.8% higher than last year, driven by the addition of 80 company-owned Ruth's Chris Steak House restaurants and 37 net new restaurants from our legacy brands. Our same restaurant sales were flat for the quarter, outpacing the industry by 80 basis points and same restaurant guest counts exceeded the industry by 130 basis points. Throughout the quarter our casual dining brands maintained their relative share of guest visits. Olive Garden guest count growth was near the top quartile of the industry and Long Horn Stake House was at the top decile of the industry. This is impressive when you consider the increased levels of discounting and promotional activity by some competitors within casual dining. Our same restaurant guest count or performance to the industry exceeded our same restaurant sales out performance due to our lower levels of pricing relative to the industry this quarter. Adjusted diluted net earnings per share from continuing operations increased 2.7% to $2.65. We generated $523 million in adjusted EBITDA and returned $254 million to shareholders through $156 million in dividends and $97 million of share repurchases. Turning to the fourth quarter P&L, compared to last year, food and beverage expenses were 20 basis points better as commodities inflation was better-than-expected at approximately 2%. Seafood deflation this quarter helped partially offset mid-single-digit beef and produce inflation. Restaurant labor was 10 basis points better, driven by productivity improvements and favorability and other benefits, which more than offset the impact of pricing below labor inflation, which was approximately 4%. Restaurant expenses were 10 basis points better than last year driven by strong cost management and lower pre-opening expenses. Marketing expense was 1.3% of sales, consistent with our expectations and 20 basis points higher than last year. This all resulted in restaurant-level EBITDA improving 20 basis points to 20.9%. Adjusted G&A expenses were 40 basis points lower and the total expense was slightly favorable to our previous guidance. This was driven by ongoing synergies from the integration of Ruth's Chris and favorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this favorability is largely offset on the tax line. Interest expense increased 40 basis points due to the financing expenses related to the Ruth’s Chris acquisition. Our adjusted effective tax rate for the quarter was 13.4%, 40 basis points higher, driven by the mark-to-market hedge impact I referenced earlier. And we generated $318 million in adjusted earnings from continuing operations, which was 10.8% of sales. Looking at our segments for the quarter, Olive Garden increased total sales 0.7%, driven by new restaurant growth partially offset by negative same restaurant sales of 1.5%. While Olive Garden same restaurant sales were below the industry, same restaurant guest counts outperformed the industry benchmark by 60 basis points. This dynamic was due to our decision to minimize pricing. For the quarter, Olive Garden pricing was approximately 1%. Olive Garden segment profit margin of 22.8% continues to be industry leading. At LongHorn, total sales increased 7.2%, driven by same restaurant sales growth of 4% and new restaurant growth. LongHorn same restaurant sales outperformed the industry by 480 basis points. Segment profit margin of 19.1% was 50 basis points above last year. Strong cost management, including improved labor productivity drove LongHorn's margin growth this quarter as pricing was below inflation. Total sales at the fine dining segment increased with the addition of Ruth’s Chris company-owned restaurants. And despite negative same restaurant sales at Capital Grille and Eddie V's, the fine dining segment's profit margin expanded in the fourth quarter, driven by improvement in our cost base. The other business segment sales increased with the addition of Ruth’s Chris franchise and managed location revenue. This was partially offset by combined negative same restaurant sales of 1.1% for the brands in the other segment. Segment profit margin of 17.4% was 160 basis points better than last year, driven by the sales leverage from the additional royalty revenue. As we look at our annual results for fiscal 2024, we had same restaurant sales growth of 1.6%, outperforming the industry in same restaurant sales and traffic by about 300 basis points. And this is on top of 500 basis points of outperformance in traffic last year. We delivered $1.8 billion in adjusted EBITDA from continuing operations. This is an increase of over 50%, compared to five years ago. Additionally, we returned $1.1 billion to shareholders with $628 million in dividends and $454 million in share repurchases. Looking at our fiscal 2024 full-year P&L, we had restaurant-level EBITDA growth of 120 basis points driven by strong cost management by our teams and pricing leverage. This favorability was partially offset by increased depreciation and amortization expense and the impairment expense related to eight permanent closures that occurred during the year. This resulted in operating income margin that was 50 basis points higher than last year. Additional financing expenses primarily related to the Ruth’s Chris acquisition drove adjusted interest expense 40 basis points higher than last year. This all resulted in adjusted earnings from continuing operations of 9.4% flat to last year. Looking at our performance since 2019 relative to our long-term framework, we generated annualized EAT growth of 8% and cash returns of 3.7%, culminating in total shareholder returns of 11.7% as measured by EPS growth plus dividend yield. This is well within our targeted range despite the issuance of 9 million shares of common stock in fiscal 2020 and other business disruptions from COVID. A strong operating model generates significant and durable cash flows. Since 2019, we have delivered 9% annualized adjusted EBITDA growth. Our balance sheet at the end of fiscal 2024 is well positioned with adjusted debt to EBITDAR at 1.9 times. This is below our targeted range of 2 times to 2.5 times, even with the additional debt related to Ruth's Chris acquisition. Now turning to our financial outlook for fiscal 2025, we expect total sales of $11.8 billion to $11.9 billion, driven by same restaurant sales growth of 1% to 2% and 45 to 50 gross new restaurants. Capital spending of $550 million to $600 million, total inflation of approximately 3%, which includes commodities inflation of approximately 2% and labor inflation of approximately 4%. An annual effective tax rate of approximately 13% and approximately 119 million diluted average shares outstanding for the year. All of this results in diluted net earnings per share between $9.40 and $9.60. Finally, our board approved a 7% increase to our regular quarterly dividend to $1.40 per share, implying an annual dividend of $5.60. And with that, I'll turn it back to Rick.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Brian Harbour with Morgan Stanley. Please proceed with your questions.

Raj Vennam:

Hey, Brian, this is Raj. Good morning. So let's just start with the guidance at a high level from a sales outlook, right? Before we get into the brand level. So when we take a look at the upcoming year, we look at the information that's out there and where the macro is expected to be. And as you all know, most economists are expecting weakening GDP growth. So that's taken into consideration. Then we're also taking into consideration what we're cycling through, right? We started to see a little bit more weakness in the back half of this fiscal year, so we're taking that into consideration as we look at next year. So when we look at how we built this estimate and guidance, we are -- we expect underlying traffic trends to gradually improve throughout the year. And so that's really how we built it. I don't want to get into the exact details on the brands, but at a blended level, we're thinking 1% to 2% same restaurant sales growth for the full-year. And as I said, gradual improvement through the year on the underlying trends. And then there's just one callout is Thanksgiving shifts out of Q2 into Q3. So Q2 print might look better than the underlying trends, and Q3 will be the opposite. So that's typically about somewhere around 80 to 100 basis points impact on sales in the quarter. Positive for Q2, negative for Q3. And so all that said, in this current environment, there's more variability around our sales guide, but we have higher levels of confidence in our earnings outlook. And so, that's kind of where we are.

Raj Vennam:

Yes, Brian, the good news on pricing is we've actually kept pricing very modest over the last five years, right? So we do expect pricing for this year to be more in line with inflation, so in that 2.5% to 3% range probably. But as we think about how that's going to be spread, we expect it to be more consistent quarter-to-quarter. Now, there may be a 10, 20 basis points movement between quarters. But if you look at over the last five years, we've only priced a lot and that gives us some flexibility and we've talked about that before. So we've underpriced about 20% over the last five years, compared to where the overall CPI is, which I think was close to 23% on the same five-year basis and then full services at 28%. And underpriced grocery as well. So we feel like we've done a lot of work on keeping prices low and we're going to continue to do that. And as you saw that in the fourth quarter too. We talked about Olive Garden closer to 1% pricing in the fourth quarter.

Operator:

Thank you. Our next questions come from the line of Lauren Silberman with Deutsche Bank. Please proceed with your questions.

Rick Cardenas:

Yes, Lauren. In regards to marketing, we've said in the past that we'd probably tick it up a couple of tenths a year and that's probably what we'll do in fiscal ‘25. But we're going to continue to focus in our marketing efforts on our filters, which we've talked about many times. And we're not going to do things to buy sales, even with the increasing discounting our competitors are doing. You know, our best way to drive sales is our focus on a back to basics operating philosophy and our guests telling others what a great value they have when they come to our restaurants. And just remember, we do have levers to pull. We do have more marketing to pull if we want to, but our focus is on profitable sales growth.

Rick Cardenas:

Yes, Lauren. It is mostly at the income -- at the consumer below the median household income, which is about $75,000. Consumers are generally concerned about inflation, and they're becoming more concerned about the job market. And what we're seeing are some behavior shifts that we had already started to see. So for Q4, transactions from households below -- with incomes below the median were lower than last year. So -- and that's more pronounced with consumers below $50,000 in income. And these impacts were even greater in our fine dining brands. So that's why you saw fine dining had a little bit more negative comp than others. But at the same time, our guests aren't managing their check like we've seen in prior quarters. And so, you know, we continue to tell you what this means for our brands. Operators that deliver their brand promise and value will continue to appeal to consumers despite economic challenges, and that's what we're focused on doing. We're focusing on giving the consumers that are coming to our restaurants and spending their hard-earned money a great value and a great experience and have them tell others to come back.

Operator:

Thank you. Our next questions come from the line of Eric Gonzalez with KeyBanc Capital Markets. Please proceed with your questions.

Raj Vennam:

Hey, Eric. So yes, we did. So if you think back to what we said earlier in the fiscal year, we were seeing a big negative mix on the check and we talked about that, especially both at casual brands and fine dining. And last quarter we said we started to see some moderation. And as we look at this year, this quarter, if we look at Olive Garden and LongHorn, basically the mix was flat. So basically there was no negative mix at all, which is a significant improvement. And then when you look at fine dining, you know, we saw some moderation in Q3 and that continues to moderate into Q4. I think we're now down into the 80, 90 basis points range in the negative mix versus the 200 or so that we were seeing a couple quarters ago. So we're just starting to see the ones that come to us are not managing the check as much as they used to.

Raj Vennam:

Eric, the way we are looking at it is most brands are going to be within the range we provide it. We are providing a 1% to 2%. I'm not going to get into the comments about the range between Olive Garden and LongHorn specifically, but when we look at 1% to 2%, we expect most brands to be in that range. And obviously Olive Garden being over 50% of the portfolio, they'll have -- they weigh the Darden average too. And if you look back at last year, fiscal ‘24, we delivered 1.6% in same restaurant sales for Darden, and Olive Garden was right on top at 1.6%. So we'll see how this plays out, but we don't want to comment on Olive Garden versus LongHorn specifically.

Operator:

Thank you. Our next questions come from the line of Andrew Charles with TD Cowan. Please proceed with your questions.

Rick Cardenas:

Hey, Andrew. Yes to all. Now, remember, Raj said we did exceed industry benchmarks. Olive Garden has taken much lower pricing than Darden over the year and the industries over the years. And we're really proud of their team. We're really proud of Dan and the team and what they've done. You know, they're going to continue to focus their marketing on their key equity of never-ending, craveable, abundant Italian food, specifically focusing on ensuring every guest is offered a refill with their first course. That's something that's not provided in other competitors. So that refill is a pretty big part of what we do and a big part of their value equation. But we're also going to continue to innovate over in our menu. What you see right now on television if you haven't is our Create Your Own pasta at $12.99. You know, consumers in more challenging times are looking for more price certainty, and that is an amazing value to create your own pasta at $12.99 with unlimited first course. And we'll continue to focus our marketing efforts there. And we have digital marketing that we can pull as well. So without getting into all the details, we do have levers to pull, but I want to remind everybody we're focused on profitable sales growth, not just buying sales to show a top line number. And we've been very consistent over the years with that. That profitable sales growth is what matters and Raj talked about our EBITDA growth over the last five years, how strong it was. And so we'll continue to focus there.

Rick Cardenas:

Yes, let me start by saying the franchisees at Ruth's Chris are really valued partners to us. And our focus was on integrating our company on restaurants into Darden. You know, this one restaurant franchise was an opportunistic purchase. So, you know, we're going to continue as is and speak with our franchisees if they want to speak with us, but right now we're going to continue to focus on making sure our team gets acclimated to the systems that we've implemented. And so it's not necessarily a change in strategy. It was an opportunistic purchase for us.

Operator:

Thank you. Our next questions come from the line of David Tarantino with Baird. Please proceed with your questions.

Raj Vennam:

David, it's primarily driven by the comparables, but the underlying trends have held up pretty well. I mean, even if you look at our fourth quarter that we just came off, month-to-month underlying trends were actually held up pretty steady, and it was an improvement from Q3. And you know, we talked about what we're seeing on the check side, that's also a positive sign. So we think there is, you know, just as we cycle through some of the weakness, that should help us gradually get better through the year.

Rick Cardenas:

Yes, David and that's exactly what we're doing right now. You know, on TV right now, we've got our Create Your Own Pasta at $12.99 with the price point on the television. And, you know, we do believe that Olive Garden has a great everyday value. And so what we -- the things that we can do to continue to highlight that versus discounting is what we'll continue to do.

Operator:

Thank you. Our next questions come from the line of Jim Salera with Stephens. Please proceed with your questions.

Raj Vennam:

Yes, Jim. So this is Raj. So on the food basket, we're basically assuming commodities to be around 2%. I think the biggest driver within the food basket is beef. We still expect beef to be in the mid-single-digits. And then we actually expect low-single-digit deflation in chicken. And then pretty much all other categories are probably going to be in that low-single-digit inflation. And so that's how we're getting to commodities being around 2%. From a labor perspective, we are actually expecting labor to be more like a 4% overall. So if you think about where we've been and what the hourly wage inflation is expected to be closer to 4% and then total labor to be around 4%. So those are the two big things. And then from all other restaurant expenses are probably going to be more in that 2.5% to 3%. And that's how we're getting to that overall being closer to 3%.

Rick Cardenas:

Yes, Jim, The consumer is really focused on what price they're paying in everywhere, not just in restaurants. And if you think about the cost that they have on the non-discretionary costs, they've been growing faster than wages for quite a few years, and that eats into discretionary spending. So if inflation in the non-discretionary gets better, that may give them a little bit more discretionary. And if you're considering food at the grocery store or food a non-discretionary, then yes, that should help. But we'd like to see some lower inflation in things like things that people have to buy. Rent, utilities, child care, all of those things would help on the non-discretionary side, help discretionary spend.

Operator:

Thank you. Our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your questions.

Raj Vennam:

Yes, Sara. Good morning. So when we look at the fourth quarter, yes, our pricing was across Darden was below inflation. I think our pricing was closer to 2.5, inflation was around 3. So there is a board. I think the delta was almost 70 basis points. But that, again, goes back to the testament of our teams and our ability to manage through different cycles, right, through different environments. We've talked about how in a slow growth environment, we should see costs get better, but also we should see our own -- the controllables be even more -- come in even better. So ultimately, it's just a testament to our teams, how well they manage the business, with the focus on getting to the returns we need to get for the business.

Raj Vennam:

There is some, yes.

Rick Cardenas:

Hey, Sara. This is Rick. When we acquired Ruth's, we think about an acquisition over a long, long period of time. We're not as worried about the next quarter or the quarter after the acquisition. Now, would we have liked the consumer at the below-median income to continue to go to fine dining? Absolutely, but any time we make an acquisition, there could be a chance that it's because we're going into a slowdown and maybe there's a little bit of a better opportunity for price discovery there. So, I would never read into when we make an acquisition into a certain category or not. Remember, we have criteria for our M&A and Ruth's met every one of that criteria, and we were able to agree on our price. So that's why it happened at the time it happened. And generally, that's when any of our M&A will happen, as long as we find the brands that meet the criteria and we get price discovery and we agree on a price and we'll do that deal, we're not worried about the environment that we're going into or that we're coming out of because these are long, long-term investments for us.

Operator:

Thank you. Our next questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Rick Cardenas:

Sure, Jeff. I'm not going to talk about the trends into fiscal ‘25 where we are. And I think Raj had mentioned that the quarterly -- fourth quarter, we were pretty consistent month-over-month, month to month to month. So -- but I will say for Olive Garden, in prior slowdowns, Olive Garden outperformed. They outperformed at the same restaurant sales and at that time they were taking more pricing than everybody else. We outperformed this quarter in traffic and we've continued to outperform the industry in traffic for the last many years and we only took 1% pricing. What I would tell you is that if we would have taken the pricing that the industry took in the third quarter or in the fourth quarter, I'm sorry, Olive Garden would have been positive and would have performed even more. And so this is a long game for us. The other thing that we aren't -- that we're not pulling are things that everybody or not everybody, but people used to pull in slowdowns, couponing, deep discounting and all those other things and we're not doing that even at a time that our competitors have ramped up discounting, deep discounting on television and, you know, Olive Garden still outperformed in traffic, didn't outperform in comp sales, but as I said, we only took 1% pricing. And so we're really, really proud of that and we'll continue to do that. And maybe that's why we didn't outperform on the sales side, but we did continue to outperform on the traffic side. And I just want to say their gap in fiscal Q4 was 60 basis points in traffic, and their two-year gap is 530 basis points in traffic. So we feel pretty good with where they are.

Raj Vennam:

Hey, Jeff. So I don't want to get into the exact details, but let me say a high level and talk about how we think about philosophically, right? If the environment is such that the sales continue to be weaker, that also implies the demand is weaker and the inflation should be a little bit better. So let's start with that. And in fact, if you look at last year, that was part of the reason we were able to exceed the earnings guidance even with the sales off. That's not all of it, but that's partial. The other part of it is how we manage through the -- through how our teams manage through the cycle. So as I said earlier, our restaurant teams and our teams at the support center work very hard to kind of, you know, have these targets and we work towards them and we're always trying to get better. And there's just even more push on that when things are a little bit softer on the top line. So that's kind of how I talk about it. I don't want to get into the specifics because, you know, this is a big business. It's very complex. There are a lot of nuances. There's a lot of -- but there's a lot that goes in to get to where we need to get to. And we feel, I think if you just look back, it shows that we have the ability to get there to a different base.

Operator:

Thank you. Our next questions come from the line of David Palmer with Evercore ISI. Please proceed with your questions.

Rick Cardenas:

Yes, David, I won't comment on how they're doing versus their competition, but I can tell you as Olive Garden, both internally and externally, their value ratings have increased over this last year. And they're pretty close to the top end of the value and overall in the measures we look at. I also mentioned they were kind of at the highest levels of guest satisfaction in this fiscal year. But again, they continue in all of our brands. Most of our brands -- I think all of our brands were at or above their value perceptions externally versus last year?

Rick Cardenas:

Well, there may be interaction trade down to at-home because of the median income consumer, it's not necessarily the Italian. But I can tell you where we compete in the full service base, Olive Garden was at 75th percentile in their traffic. So -- and again, when you're comparing how they're doing in full service. And then we're putting in this at-home, everybody is dealing with the at-home as well, not just Italian. And then finally, the competitors had ramped up very deep discounting and while we had -- we didn't see that actually impacting Olive Garden or our other brands, because the trends kind of stayed similar. What we did see, interestingly, is a little bit of a shift from QSR to some of those competitors. And so that might be where they're trying to take some share from. But we did see that and that lifted the industry index in some of those -- and maybe one of those competitors, which is a big part of the index. So there's a little bit of a nuance in how the index works, especially when you're taking share from another category -- another part of the index.

Operator:

Our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.

Rick Cardenas:

Yes, Dennis. I will -- let me start by saying that the new restaurant projection we have for next year is within our long-term framework. So while it's lower than we like it to be, it's still within our long-term framework. And recall, the new restaurants also include M&A. So we bought about 80 restaurants from Ruth’s Chris that were part of last year. Now that's not impacting this year, but it is part of our framework construction costs are still quite a bit higher than they were before COVID, but the levels are normalizing more and it's still taking a little longer to get construction starts. We're just trying to figure out ways to improve our process to potentially get starts moving a little bit faster. And maybe there is some things that we can do to help municipalities with kind of working on permitting and other things, But we feel pretty good about our pipeline for next year. We'd like to see it higher for the years after, but we're not going to just build restaurants and put a number out there that we don't think that we can hit, and we feel pretty good about where we are. And again, Raj showed you where we were for the last five years in our new unit growth. It was almost 3%. It was 2.9%, which is at the high-end of our framework. So we don't necessarily think year-to-year, we think long-term.

Rick Cardenas:

Yes, Dennis, I think my perspective is -- we like what we're doing better, right? We don't think that we think that everyday low value and continue to focus on our core equities is more sustainable than deep discounting to try to drive people in. Others can do that, and we'll continue to play this long game. And over time, you have to keep wrapping on that. If you do a deep discount and it stays the same way, you have to do even more the next year, you have to do more television. And we just think we'd rather do more great food, more great service, and let's wrap that. And so again, I can't comment on what other people think is sustainable or not. We just think our business, the way we do it is more sustainable.

Operator:

Thank you. Our next questions come from the line of Peter Saleh with BTIG. Please proceed with your question.

Raj Vennam:

Hey Peter. Yes, just to start, that was specifically at Olive Garden and LongHorn. And so when we look at -- and it's different for both brands. So when you look at LongHorn the mix was driven by some add-ons, increased add-ons. They had a great -- they also had a new Lamb Entree that actually was that did really well. There was parmesan crusting, people wanted to get more of that. So there were things like that were helpful with the mix. What we -- alcohol is kind of fairly stabilized. So it's not necessarily a headwind anymore. And so that's probably helping but when you look at Olive Garden, the same thing where people are not -- we're not seeing as much trade down within the -- whether it's the entree trade down or not getting add-ons. So just in general, more stabilization and so maybe this is -- the guest that's coming in today is not managing the check as much. And so that's different from maybe some of the guests that were coming in earlier in the fiscal year.

Operator:

Thank you. Our next questions come from the line of Jeff Farmer with Gordon Haskett. Please proceed with your questions.

Raj Vennam:

Yes, I think it's fair to assume that our check is probably going to be in that range of 2.5% to 3%. So you can back into the implied traffic. So we do expect the mix to be fairly flat.

Raj Vennam:

You did not miss it. We haven't talked about it. The G&A for this year, we should be closer to $450 million for fiscal '21, it should be closer to $450 million. And I think that's going to be spread fairly evenly from second to the fourth quarter, with the first quarter to be $20 million higher than those three quarters. It's just typical that we have a little bit more in the first half.

Raj Vennam:

Yes.

Jon Tower:

Great, thanks. I appreciate you taking. Going to the cost side of the equation, it was pretty impressive 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.

Jon Tower:

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.

Jon Tower:

Thank you.

Chris O'Cull:

Yes 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.

Chris O'Cull:

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.

Chris O'Cull:

Perfect. Thanks, guys.

Danilo Gargiulo:

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?

Danilo Gargiulo:

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.

Danilo Gargiulo:

Great. Thank you.

Andy Barish:

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?

Andy Barish:

Yes. No. Just if the to-go trend had or decline if that was impacting any of the components of same-store sales, but it doesn't sound like that.

Andy Barish:

Okay, thank you.

Operator:

Thank you. Our next questions come from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.

Raj Vennam:

Yes, Brian, the blended -- let me start with the later question first. Yes, the blended in the 2.5% to 3%. We have taken some pricing -- we are -- yes, typically, we take some in June, so there's some pricing. So you should start to see some of that in the quarter. For the fourth quarter, our total check growth was 2.2% at Darden level, I think Olive Garden was more like a one-third, and LongHorn was probably in the 3-ish percent, LongHorn has positive traffic. The traffic growth, I think, in the quarter was 0.8%. So in the total SRS is 4%, so the check growth was at on 3.2%.

Operator:

Thank you. Our next questions come from the line of Jake Bartlett with Truist Securities. Please proceed with your questions.

Raj Vennam:

I'm sorry, I was on mute. If you look at Olive Garden's pricing for the year, fiscal year, they were actually close to mid-3s. And so that's pretty consistent, not all the way to where Darden blended was 4. So they're about 50 or 70, 80 basis points below Darden. As we think about next year, they're not going to -- we would expect them to be maybe in the 30, 40 basis points range of where Darden might end up. So I don't expect this to be as big of a gap. But we're still -- we're not talking about huge pricing actions, right? We talked about -- there is always some timing of the quarter-to-quarter. But on the year, if we think 2.5% to 3%, Olive Garden is probably closer to 2.5%

Rick Cardenas:

Hey Jake, this is Rick. I'm going to start on the fact act with saying that our employment proposition is great in California. So we've got a great one there. On average, our team members earn well over $20 an hour. And California only represents about 5% of our restaurants. So it's not like it's an over-index for us. We haven't seen a real impact in wages. And since the FAST Act came about, but unfortunately, we have seen many closures of fast food restaurants in that time. And so our California performance for the quarter was still not as strong as the company, as you said. But as Raj said, we did see some softness in California, but I think that was more related to some weather there than anything else. But again, we haven't seen a whole lot of change in our wages. Our employment proposition is great in California. But we have seen some fast food restaurants, unfortunately, have to close because of the act.

Raj Vennam:

So Jake, I'll go back to the pricing actions, some of this is timing of when you take actions. Every year, there's a little bit of pricing action, right? And this year, or in fiscal '24, we did not have any pricing action until pretty late into maybe Q4, middle of Q4. So that's just already there. It's not a lot of pricing on top. Some of that is also moving to years, right, some restaurants in different markets as things change with the environment and minimum wage, we make some adjustments. But nothing crazy. If you look at -- I mentioned earlier and in response to a different question, we have taken a lot less pricing at Olive Garden. So we're not worried about where they are. I mean if you look at over the five years, cumulatively, their CAGR is probably more in the 3.5% range when the industry is closer to 5% plus. So we feel like there's a better -- great value proposition at Olive Garden, and we try to keep prices as low as we can, and you've seen that.

Operator:

Thank you. Our next questions come from the line of Gregory Francfort with Guggenheim Securities. Please proceed with your questions.

Rick Cardenas:

Greg, let me start by saying every time we come up with a target for Olive Garden, we blow past it. So we haven't really talked about a target for Olive Garden for a lot of years. What we have found over the last five or 10 years is that we can open more Olive Gardens in markets that Olive Gardens are already in, where prior to that, we weren't doing that as much. Convenience is important to consumers, and we'd rather be a little closer where they live. And so we do believe there's opportunities to open Olive Gardens for the foreseeable future, and we don't think we're near the top of the Olive Garden limit yet. Greg, did you have any other questions?

Rick Cardenas:

Thank you so much.

Andrew Strelzick:

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.

Andrew Strelzick:

Great. Thank you very much.

Courtney Aquilla:

That concludes our call. I want to remind you that we plan to release first quarter results on Thursday, September 19, before the market opens with the conference call to follow. Thank you for participating in today's call.

Kevin Kalicak:

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during the call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation includes certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 fourth quarter earnings on Thursday, June 20, before the market opens, followed by a conference call. During today's call, any reference to pre-COVID when discussing third quarter performance is a comparison to the third quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence, casual dining benchmark, excluding Darden, specifically Olive Garden, LongHorn Steakhouse, and Cheddar's Scratch Kitchen. During our fiscal third quarter, industry same-restaurant sales decreased 4.2% and industry same-restaurant guest counts decreased 6.5%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our financial results and an update to our fiscal 2024 financial outlook. Now, I'll turn the call over to Rick.

Raj Vennam:

Thank you, Rick, and good morning, everyone. Third quarter earnings were in line with our expectations, although our sales were softer than we anticipated. We were pleased with December's strong holiday performance as the month's same-restaurant sales were in line with our second quarter results. However, winter weather in January negatively impacted traffic results by approximately 100 basis points for the quarter. As we moved into February, sales trends improved, but were below our expectations, exposing some underlying consumer weakness. Despite the unexpected variability in our sales trends, our teams did a great job managing their businesses. In the third quarter, we generated $3 billion of total sales, 6.8% higher than last year, driven by the acquisition of Ruth's Chris Steak House and 55 net new restaurants, which was partially offset by negative same-restaurant sales of 1%. We outperformed the industry again this quarter with same-restaurant sales that were 320 basis points better than the industry and same-restaurant guest counts that were 270 basis points better. And on a two-year basis, we have outperformed on same-restaurant sales by 770 basis points and by 970 basis points on same-restaurant guest counts. Our focus on managing the business and controlling costs resulted in adjusted diluted net earnings per share from continuing operations of $2.62 in the quarter, an increase of 12% from last year's reported earnings per share. We generated $512 million of adjusted EBITDA and returned approximately $190 million of capital to our shareholders through $157 million in dividends and $33 million of share repurchases. Now looking at our adjusted margin analysis, compared to last year, food and beverage expenses were 90 basis points better, driven by pricing leverage. Total commodities inflation of approximately 1.5% was below our total pricing of approximately 3.5%. Restaurant labor was 10 basis points unfavorable to last year due to total labor inflation of approximately 4.5%, partially offset by pricing and productivity improvements at our brand. Restaurant expenses were 10 basis points higher as sales deal average was partially offset by strong cost management by our teams. Marketing expenses were 10 basis points higher than last year, consistent with our expectations. All of this resulted in restaurant-level EBITDA of 20.6%, 70 basis points better than last year. G&A as a percent of sales was 40 basis points lower than last year, and total expense was slightly favorable to our previous guidance related to lower incentive compensation and ongoing synergies from the integration of Ruth's Chris. Interest expense increased 50 basis points versus last year, due to the financing expenses related to the Ruth's Chris acquisition. And for the quarter, adjusted earnings from continuing operations was 10.6% of sales, 30 basis points better than last year. Looking at our segments, Olive Garden increased total sales by 0.7%, driven by new restaurant growth, partially offset by negative same-restaurant sales of 1.8%. Olive Garden same-restaurant sales outperformed the industry benchmark by 240 basis points, and their traffic outperformed the industry by 270 basis points. Despite the negative same-restaurant sales, Olive Garden segment profit margin of 22.5% was flat to last year. At LongHorn, total sales increased 5.1%, driven by new restaurant growth and same-restaurant sales growth of 2.3%. LongHorn same-restaurant sales outperformed the industry by 650 basis points. Segment profit margin of 18.7% was 130 basis points above last year, driven by pricing leverage and improved labor productivity. Total sales at fine dining segment increased with the addition of Ruth's Chris company-owned restaurants. Same-restaurant sales at both Capital Grille and Eddie V’s were negative as the fine dining category continued to be challenged year-over-year. Fine dining segment profit margin was flat year-over-year at 21.8%. The other business segment sales increased with the addition of Ruth's Chris franchise and managed location revenue, but was partially offset by combined negative same-restaurant sales of 2.6% for the brands in the other segment. However, this was still 160 basis points above the industry benchmark. Segment profit margin of 14.9% was 90 basis points better than last year, driven by the additional royalty revenues and higher overall pricing relative to inflation. Turning to our financial outlook for fiscal 2024, we have updated our guidance to reflect our year-to-date results and expectations for the fourth quarter. We now expect total sales of approximately $11.4 billion, same-restaurant sales growth of 1.5% to 2%, 50 to 55 new restaurants, capital spending of approximately $600 million, total inflation of approximately 3%, including commodities inflation of approximately 1.5%, an annual effective tax rate of 12% to 12.5%, and approximately 121 million diluted average share outstanding for the year. This results in an increased or adjusted diluted net earnings per share outlook of $8.80 to $8.90, which excludes approximately $55 million of pre-tax transaction and integration related costs. For the fourth quarter specifically, our annual outlook implies sales of $2.95 billion to $2.99 billion, same-restaurant sales between negative 0.5% and positive 1%, and adjusted diluted net earnings per share between $2.58 and $2.68. Now looking forward into fiscal 2025, we plan on opening between 45 and 50 new restaurants and spending between $250 million and $300 million of capital for those new restaurants. Additionally, we anticipate approximately $300 million of capital spending related to ongoing restaurant maintenance, refresh, and technology. And finally, we anticipated effective tax rate of approximately 13% for fiscal 2025. And now I'd like to close by saying that we continue to be very proud of how our teams are managing their businesses to deliver strong results in this dynamic environment. With that, we'll open the call for questions.

Eric Gonzalez:

Hey, thanks for taking the question. Maybe if you could unpack the comments about the low-income consumer pulling back? And maybe specifically talking about what behaviors you're seeing that lead you to that conclusion? And how the brands are differing from all of Darden Cheddar’s to maybe some of the higher-end brands, how that low-income consumer is changing their usage of those brands? Thanks.

Eric Gonzalez:

Great. And then may be just a follow-up, if you could just talk about from a margin perspective, this year has been pretty strong. I'm wondering if you could maybe tease out how much that margin improvement is related to commodities versus what you've achieved from a productivity perspective? And if you look to next year, do you see that being a year of additional productivity gains or is some of that pulled forward into this year?

Operator:

Thank you. Our next question is coming from Brian Bittner from Oppenheimer. Your line is now live.

Rick Cardenas:

Hey, Brian. Yes, we can't determine whether it's going to be impacting the rest of the year. What we can say -- what I can say is that impact to the low-end consumer was a year-over-year phenomenon. And now we're back to our pre-COVID mix. And so if you think about where we were before COVID, what percent of our guests were below 50,000, what percent of our below 75%, et cetera, across all of our segments, all of our brands, it's almost exactly the same as it was before COVID. So at least that makes us feel like we know how to operate in this environment. The other thing is if you look at Black Box, according to Black Box, every segment in the industry, from QSR and up was negative in same-restaurant traffic in our third quarter, every one of them. So that's also a year-over-year phenomenon. And so we'll continue to monitor what we see with the guest and what we see on that lower end consumer. But we're pleased that it's back to our normal or normal pre-COVID levels. And in respect to marketing, as we've talked about often, we're focused on profitable sales growth. And our brands, all of our segments improved sales and profits for the quarter year-over-year. And we, even with the increase in competitive activity, we expected -- we exceeded, I'm sorry, industry traffic by 270 basis points on top of the 700 basis point gap we had in Q3 last year, so almost 1,000 points, so 970-point gap in two years. So we're going to stick to our strategy of everyday value to our guests and continue to use our filters to evaluate any marketing activity. If that means that we're going to spend a little bit more in a quarter or a little bit less in a quarter, that's what we'll do. But we're going to focus on our strategy and stick to it as long as we can. Thanks.

Rick Cardenas:

Brian, I'll start with how we manage labor and productivity, and then I'll let Raj answer the question on the pricing. So if you think about what we've been doing over the years, we've been improving our technology on guest count forecasting by using machine learning and AI tools to help the brands write better schedules and manage their business better and we're able to react quicker to impacts that we see in our restaurants, but we're also continuing to find ways to improve productivity. And one of the ways and the benefit that we had this quarter is continued improvement in turnover. And so we've had less training expense for new team members. And we've got better retention, team members know how to do their job better. In the turnover ranks, where we are today across Darden, our turnover went down by about 20 basis point -- 20 percentage points versus last year and almost 30 percentage points better than the industry. And now our turnover is much closer to pre-COVID levels, except for Yard House and Cheddar's, which actually we believe are at a level lower than they've ever had in their history. So those things help with labor and food costs and other parts of the P&L. And I'll let Raj answer the other part about inflation.

Operator:

Thank you. Next question is coming from Dennis Geiger from UBS. Your line is now live.

Raj Vennam:

Yes. We're actually -- for the check for the third quarter, we actually saw the mix moderate the levels we saw -- in terms of what we saw in Q2. So if you look at our casual brands, the negative mix was around 40 basis points. In Q2, it was closer to 60 basis points. And then from the Fine Dining, we saw a huge improvement. I think Fine Dining in the second quarter was north of 200 basis points negative mix. We're now seeing in the low 100 basis points negative mix. So that's almost half. So we are seeing some improvement in terms of check mix. And part of that could be a wrap, but also the holidays were pretty strong. And so that -- on that front, we're actually seeing a positive momentum, I guess, quarter-to-quarter.

Raj Vennam:

Yes. From an off-premise perspective, our sales as a percent of sales was slightly below last year, but not a lot. This is typically a high season for Olive Garden off-premise. So Q3 was closer to 26%. Last year was also in that range. We were probably 40, 50 basis points lower, but not a lot. And LongHorn was around 13%, which was also about 40 or 30 basis points lower. But overall, I think it goes back to the execution. Our focus has been staying on just ensuring that we executed the highest levels for off-premise, and that's helped contribute to maintaining the stability.

Jon Tower:

Great, thanks, I appreciate that. I guess the first one is -- and I understand you, guys, want to stay true to the operating philosophy. But how do you keep your brands top of mind and visible in front of consumers when the industry is getting more aggressive with getting in front of them by spending a lot more dollars than they have in the past several years on marketing?

Jon Tower:

Okay. I appreciate that. And then just on the '25 outlook for the unit growth, I was surprised it was lower than at least this year from a gross opening or a planned opening perspective. Can you speak to why as of right now, you're expecting kind of 45 to 50 versus what we've been seeing in the past several years?

Operator:

Thank you. Next question today is coming from David Tarantino from Baird. Your line is now live.

Rick Cardenas:

Yes, David, as we think about the levers we can pull, we have -- as we've talked over the years, we brought our marketing down. We've actually focused more on our core equities. And every year, we might take marketing up a little bit, but we're not going to strategic -- we're not going to change our strategy. We're not going to become a discount kind of heavily promotional brand. We worked really hard through COVID and before to get to what we think is a better, stable, stronger business for us for the long-term. And we would be willing to deal with short-term pressures to not change our strategy to get to the long-term. Now again, we have some tactics that we can do, which would still stick to our strategy, but we're not going to -- we don't plan on getting to be a promotional deep discounting brand. Again, Olive Garden, which had less marketing in Q3 than it did in Q2, while they had less marketing than last year and in the second quarter, our competitors had more, Olive Garden still gained share. And that's what our focus is, is to share gain, sales and profit growth over the time. We're going to continue to focus on execution, our food, our service and our atmosphere to increase frequency with our core guests. And we love our core guests. We think they're great for us, and we'll continue to build over time. We're just not going to fight gravity on what's going on in the environment. We're going to stick to what we want to do. And then on the pricing side, we -- our strategy is to continue to price below inflation over time. And we've taken a lot less pricing than the competitive set. We've taken a lot less pricing than CPI, a lot less pricing than full service, limited service over the last four years. So it gives us some room to continue to price if we need to. But our still -- our plan is still over the long term to price below inflation.

Operator:

Thank you. Next question today is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Rick Cardenas:

Yes, Jeff, I think it's a broader market versus any specific missteps we had. Our gap increased from January to February, our traffic and sales gap increased, both of those increased between January and February. And as I said, every category in the industry from QSR and up had negative traffic in the quarter. And so I think there's a little bit of a bigger challenge, at least a year-over-year challenge for our consumer. And we're going to see how that plays out over the next couple of quarters and see if there's anything we need to change, but it won't be a dramatic change.

Rick Cardenas:

Yes. I would say, first of all, our guidance contemplates everything we know about March. I don't want to get into March. We have a lot of challenges forecasting three weeks in the month, when you've got spring break shifts and those kind of things happen. And so we're going to continue to watch. I think I've read a little bit on tax returns being a little bit delayed. But we're not going to read too much into that. Our -- we improved our gap between January and February. And so that's what we feel good about. We're not going to talk about March yet.

Jeff Farmer:

Great. Thanks. Just following up on Jeff's question there. So again, you had made some reference to the lower income consumer, but in terms of thinking about just maybe a little bit softer trends than you had expected. How much of that would you put at the feet of the lower income consumer as opposed to the balance of potential drivers?

Jeffrey Farmer:

And then the second question, you just touched on, you gave me a pretty good segue there. But in terms of your more conservative pricing strategy relative to your peers, from what you've seen, has that driven traffic outperformance, market share outperformance? Is that strategy actually pay dividends to these customers, casual dining customers, appreciate that the Darden brand portfolio is actually a better price value than a lot of other concepts from what you've seen?

Jeffrey Farmer:

All right, thank you.

Andrew Strelzik:

Hey, good morning, thanks for taking the question. I wanted to ask about industry capacity, particularly given what you're talking about with more challenged kind of traffic backdrop. And I think initially, during COVID, Darden talked about maybe a 10% decline in locations because of closures. And it feels like from a lot of the public companies we hear from, there's a desire to accelerate unit growth or has been. And I'm not exactly sure what's going on, on the independent side. So I guess I'm just curious, if you have a sense where capacity is now versus that 10% reduction? Are you seeing it come back in any of your markets or any specific regions? And maybe if you could touch on the independent side as well? Thanks.

Andrew Strelzik:

Okay, great. And then maybe on your unit growth, expectations for next year. Just curious where we should expect a few openings to come from, I guess, does it just match based on the size of the portfolio or any of the brands in particular? Thanks.

Operator:

Thank you. Next question is coming from John Ivankoe from JPMorgan. Your line is now live.

Rick Cardenas:

Hey, John. Yes, that was -- the deep discounting, couponing, a lot of promotions was kind of a Darden pre-COVID. This is the Darden post-COVID, which is when we're talking about marketing, being things that elevate brand equity that are easy to execute and they're not at a deep discount. It doesn't mean that we won't have price points on things over time, but that's kind of more of our everyday low price or around that price. You think about Never Ending Pasta Bowl, we ran that this year at $13.99. It was a great promotion for us. And that was at $13.99. So we can think about doing those things again next year with Never Ending Pasta Bowl. We already have buy one take one on our menu basically, with the $6 take homes. So there's a lot of everyday value already. In terms of kind of talking to the higher-end consumer, as I mentioned, we actually grew at the higher end consumer at all of our segments. The 200,000-plus, 150-plus was up year-over-year. But I think you could see a little -- a few signs of some consumers trading down within our brands. When you think about LongHorn did really well with -- as they grew even at a little bit -- at the high-end consumer at a little bit lower, the 150, 125, and they had actually positive check. And so we're seeing some of that shift in some ways. And so we think as long as we execute great and we have great word of mouth, that will get that higher-end consumer maybe to trade to one of our brands from someone else, even if it trades from one of our current brands to one of our brands, that's fine with us, too. But again, long-term, every day, talk about what our core equities are, execute better than the restaurant next door, and we'll win, and we'll deal with short-term challenges.

Rick Cardenas:

We're happy with the current approach. If you think about loyalty and full-service restaurants, frequency isn't super high. And we've learned that when we did loyalty before. And so it's a little bit less valuable for a consumer, we believe. Now there's other ways to get that data. The value of loyalty is the data that you get, and we have other ways to grab that data. Doesn't mean that we won't think about loyalty in the future. We're just focusing on what we can do right now to continue to execute better to drive results and not to drive something that's just buying sales, because we'll have to keep buying it next year and the year after that. We don't want to go out and buy sales. We want to go out and earn those sales.

Danilo Gargiulo:

Great, thank you. So first of all, it appears the LongHorn, whether these challenges of this tough operating environment better than other brands. So I'm wondering what cost and what learnings could be applied to the other brands?

Danilo Gargiulo:

Great, thank you, Raj. And I want to follow-up on one of the comments that Rick was just making on, the level of attraction of your customers over the long period of time. And I wonder if you can provide some update on your customer trends with regards to the frequency at which they are spending in your brand? And maybe if you can offer also some insight on the size of your eClub member say versus the past and the total addressable market that you have? So how many customers you're seeing on a monthly basis at any of your brands?

Operator:

Thank you. Next question is coming from Sara Senatore from Bank of America. Your line is now live.

Raj Vennam:

Okay. Let's start with the gap itself. So if you look at the gap in January, the gap narrowed a bit, we think primarily because of the geography and the footprint we have that has disproportionately impacted by weather. If you look at the concentration of where the weather was, that was a higher concentration of our restaurants. And we think that's part of the reason the gap was not as strong. Now the other part of this gap narrowing this quarter related to the last quarter was the fact that we're wrapping on huge gap from a year ago. We had a very strong performance a year ago. So that's really how we would kind of frame that. We're not -- look, we've been clear that it's very hard to maintain multiple hundreds of basis points of gap forever. We're going to have that narrow over time. But things we've done with our pricing and our value equation have helped us continue to take share, and we're happy with that. And as Rick said earlier, in an environment when there was intensity -- in promotional intensity, more so than ever, we still outperformed, and we were able to gain share. So that's the piece on the industry. Now as you look at the income mix, yes, we -- so this has been an ongoing shift. So we've talked about in Q2 that we're starting to see a shift a little bit more towards the pre-COVID mix. So we are -- so as we wrap -- as we looked at Q4 now, Q3 that just ended, we were right essentially where we were before COVID. So yes, the next three quarters, there's a little bit of moderation of getting that, but it's not as big as it was this quarter. If you think about -- we don't think. I mean we'll have to see. But based on the data we have, what we are seeing, it should be -- it should moderate. But we would expect the next two to three quarters to kind of back to those levels. From a mix perspective, though, that mix, we actually think mix is going to get better. We expect mix to continue to moderate. I think I mentioned earlier that Q2, Q3, we saw an improvement. As we get into Q4, we should see that get better. And as we get into next year, we expect this to be not a huge headwind. And we'll see how that plays out, but that's our best thinking at this point.

Operator:

Thank you. Next question today is coming from Gregory Francfort from Guggenheim Securities. Your line is now live.

Raj Vennam:

Hey Greg, sorry. As far as -- on the commodity side, if you look at where -- what we expect, we expect third quarter to be around -- the implied guidance would be around 3% for commodities inflation. And part of the reason it's going up relative to where we've been is that everything except for seafood is inflationary as we move into the fourth quarter. Now not huge, but as you look at beef and produce are more in the mid-single to high single-digit inflation. And then most other categories are in low single digits. So a little bit of that is just a comparison to last year, a function of the levels last year. But from a coverage point, we're at 75% covered for Q4 which is consistent with historical average levels. And I think on beef, we're actually 80% covered for Q4. As far as we look into '25, we're, as I said earlier, we're in the middle of planning process for next year. So we'll be able to share more in the June call. But I think at this point, we are working through some contracts for next year. So I would hesitate to share a lot at this point.

Operator:

Thank you. Next question is coming from Patrick Johnson from Stifel. Your line is now live.

Rick Cardenas:

Yes, Patrick. There's always room for menu innovation. We've got to balance innovation and new items with improving our existing items and making sure our menu stay compact and simpler than they were before COVID. And there's also always room for kind of limited time, not necessarily promotional offers. So currently, LongHorn has lamb on their menu, and it does really well. It's doing a lot better than it did last year. And with brands like Cheddar's, we use opportunity buys to put some items on the menu, but at really great values. And Olive Garden is continuing to look at ways to improve some of their items and maybe introduce an item but take off an item. So yes, we still have a lot of work that we do with innovation. But most of our guests come to us for what we have on our menu today and we're not going to alienate the core guest by completely changing those menus around and we don't plan on getting back to a six or seven-week promotion where an item is great. It does great for six weeks and then the guest comes back in week 10, and it's not there anymore. And so we'll continue to innovate but we'll continue to invade a lot more on improvements, but we'll introduce new items here and there.

Operator:

Thank you. Next question is coming from Lauren Silberman from Deutsche Bank. Your line is now live.

Raj Vennam:

Yes, Lauren, so from a regional perspective, we continue to see softness in Texas and California. I think Texas pretty much throughout the year, we had seen weakness, and that continues to be the case. Florida was a little weaker, but nothing crazy. But you also had the weather impact that probably disproportionately impacted both Texas and California during Q3. Different types of events, but weather there, so that's regional. From a marketing perspective, we've been very clear that, look, we're going to be prudent, we're going to be very deliberate in how we bring back marketing. We've learned a lot in terms of the effectiveness of marketing in different channels, how we deploy it. And we've talked about bringing it back at a level that's more methodical in terms of 10 to 20 basis points increase over time in a way that's margin neutral, all else being equal. So that's kind of really what -- how we're thinking about it. And we have done a lot of work. We continue to do a lot of work on marketing mix analysis and we got our teams of data scientists internally and work with some external partners to ensure that we're getting the appropriate return, and it's actually being effective the way we want it to be, which is to elevate brand equity and build long-term guest loyalty.

Raj Vennam:

Yes. Let me start with the G&A. We expect G&A to be pretty similar to what we said last time, $440 million, I think, is what we said for last -- in the last quarter. So call it roughly $100 million for Q4. Look, I think the big things are we've obviously brought down some sales expectation but inflation is better. And then our teams are doing a better job managing our business. So there is some improvement in productivity, improvement in other waste and other types of inefficiencies. But outside of that, nothing that's not outside of those few items that I've just mentioned. But if you just step back and look at what we -- where we started the year, right? If we look at the beginning of the year, we said earnings guidance was $8.55 to $8.85. And we said, to the extent sales slowdown or we see weakness in sales, we should see inflation come down and our cost management continue to help us get us closer to that. And today, we're talking about earnings guidance of $8.80 to $8.90, now with a lot lower sales, but we got there through other wins. So again, I don't want to say what we said, we told you, but it's just -- that is reality. That's what happened.

Operator:

Thank you. Next question is coming from Peter Saleh from BTIG. Your line is now live.

Raj Vennam:

Yes. Interestingly, from a check management perspective, it's not as much driven by income. The gap is more driven by older consumers, especially 65 plus is managing the check a little bit more. It's not -- irrespective of their income is what we're seeing. And they are also, I think Rick mentioned earlier, they're shifting more to lunch. So we're seeing a couple of things. They're getting a little bit less add-ons, but also managing the check. But also, like I said earlier, from Q2 to Q3, it's actually less management of check. Now with a little bit less traffic, but that's -- but what's happening is check management is actually getting better. In terms of negative mix, it's not as big as it was in Q2.

Operator:

Thank you. Next question is coming from Brian Vaccaro from Raymond James. Your line is now live.

Raj Vennam:

Yes, sure. Olive Garden check was 2% in the quarter. So basically, traffic would be negative 3.8%. And then LongHorn traffic was in the mid-negative 2s.

Rick Cardenas:

Yes, Brian. If you think about Olive Garden. So as Raj said, Olive Garden exceeded the industry benchmark for same-restaurant traffic by 270 basis points. They spent less in media at a time when many of their competitors ramped up discounts on television. So they exceeded by 270 with less media and when others were ramping up. Their two-year gap is 830 basis points, so that's a big share gain over two years. So I'm really proud of the work that Dan and his team have done to improve the guest experience. They continue to focus on their key equity of never-ending, craveable, abundant Italian food, specifically focusing on ensuring every guest is offered a refill on their never-ending first course. And that's a huge value. I can't tell you if our -- if an Olive Garden guest has shifted over to one of those competitors, but I can tell you that we trade guests all the time. Some of our biggest -- Olive Garden's biggest competitors are the ones that are doing some of the discounting today. And so we're really proud of the 270 basis point gap on top of the gap they had before. And if we're seeding a profitable guest, I don't think it's a seed forever. It's just because people shift and they move around. And so we're going to keep focusing on what we can do to keep our guests coming back for one visit.

Kevin Kalicak:

Thank you. That concludes our call. I'd like to remind you that we plan to release fourth quarter results on Thursday, June 20, before the market opens with the conference call to follow. Thanks again for participating in today's call, and have a great day.

Kevin Kalicak:

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during the call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation includes certain non-GAAP measurements, and reconciliations of these measurements are included in that presentation. Looking ahead, we plan to release fiscal 2024 third quarter earnings on Thursday, March 21st, before the market opens, followed by a conference call. During today's call, any reference to pre-COVID when discussing second quarter performance is a comparison to the second quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence, casual dining benchmark, excluding Darden, specifically Olive Garden, LongHorn Steakhouse, and Cheddar's Scratch Kitchen. During our second fiscal quarter, industry same-restaurant sales decreased 1.3% and industry same-restaurant guest counts decreased 4.8%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our financial results and an update to our fiscal 2024 financial outlook. Now, I'll turn the call over to Rick.

Raj Vennam:

Thank you, Rick. And good morning, everyone. Our teams did a great job managing their businesses again this quarter, resulting in meaningful restaurant level and total margin growth. This margin growth was driven by positive same-restaurant sales growth, strong labor management and lower than anticipated restaurant and commodities' expenses. We generated $2.7 billion of total sales for the second quarter, 9.7% higher than last year, driven by the addition of 78 company-owned Ruth's Chris Steak House restaurants, 45 legacy Darden new restaurants, and same-restaurant sales growth of 2.8%. Our same-restaurant sales for the quarter outpaced the industry by 410 basis points and same-restaurant guest counts exceeded the industry by 370 basis points. Our focus on managing the business and controlling costs resulted in adjusted diluted net earnings per share from continuing operations of $1.84 in the second quarter, an increase of 21% from last year's reported earnings per share. We generated $403 million of adjusted EBITDA and returned approximately $340 million of capital to our shareholders through $158 million in dividends and $181 million of share repurchases. Now, looking at our adjusted margin analysis compared to last year, food and beverage expenses were 190 basis points better, driven by pricing leverage. Total commodities inflation was flat to prior year for the quarter and slightly better than our expectations, while beef inflation continues to track in line with our expectations, most other categories are seeing some favorability. Restaurant labor was 20 basis points better than last year, driven by productivity improvements at our brands as pricing and inflation were roughly equal at 5%. Restaurant expenses were 30 basis points favorable, primarily due to lower workers' compensation expense and deflation in utilities. Marketing expenses were 10 basis points higher than last year, consistent with our expectations. All of these factors resulted in restaurant level EBITDA of 18.8%, 230 basis points higher than last year. G&A expenses were $109 million, which was consistent with what we previously communicated. G&A as a percent of sales was unfavorable 40 basis points to last year. This unfavorability is primarily driven by higher incentive compensation expense due to the strong growth in sales and EPS for the quarter and wrapping a low incentive accrual in the second quarter of last year. Impairments were 40 basis points unfavorable to last year as we are wrapping on a $9 million gain from the sale of restaurant assets. Interest expense increased 50 basis points versus last year due to the financing expenses related to Ruth's Chris acquisition and the increase in short term debt as the second quarter is typically our peak funding need period for the year. And for the quarter, adjusted earnings from continuing operations were 8.1% of sales, 60 basis points better than last year. Looking at our segments, Olive Garden increased total sales by 6.3%, driven by same-restaurant sales growth of 4.1%, outperforming the industry benchmark by 540 basis points. The strength of Never Ending Pasta Bowl contributed to flat same-restaurant guest counts for the quarter, 480 basis points above the industry. This sales growth, along with improved labor productivity and higher pricing related with inflation drove segment profit margin increase of 240 basis points at Olive Garden. At LongHorn, total sales increased 7.1%, driven by same-restaurant sales growth of 4.9%, outperforming the industry by 620 basis points. Segment profit margin of 17.4% was 310 basis points above last year. Pricing leverage, favorable menu mix and improved labor productivity drove LongHorn's strong margin growth this quarter. Total sales at Fine Dining segment increased with the addition of Ruth's Chris company-owned restaurants. Same-restaurant sales at both The Capital Grille and Eddie V's were negative as the Fine Dining category as a whole continues to be challenged year-over-year. This resulted in lower segment profit margin than last year. The other business segment sales increased slightly with the addition of Ruth's Chris franchised and managed location revenue. This was mostly offset by combined negative same-restaurant sales of 1.1% for the brands in the other segment. However, this was still 20 basis points above the industry benchmark. Segment profit margin of 12.9% was 130 basis points better than last year, driven by the additional royalty revenues and pricing relative to inflation. Now, turning to our financial outlook for fiscal 2024. We've updated our guidance to reflect our year-to-date results and expectations for the back half of the year. We now expect total sales of approximately $11.5 billion, same-restaurant sales growth of 2.5% to 3%, 50 to 55 new restaurants, capital spending of approximately $600 million, total inflation of 3% to 3.5% including commodities inflation of approximately 2%, an annual effective tax rate of 12% to 12.5%, and approximately 121 million diluted average shares outstanding for the year. This results in an increased or adjusted diluted net earnings per share outlook of $8.75 to $8.90. It excludes approximately $55 million of pretax transaction and integration related costs. Looking at the third and fourth quarters, we expect the EPS growth rate to be consistent with what we previously shared. We expect third quarter growth rate to be similar to the first quarter and the fourth quarter to have the lowest EPS growth rate for the year. This is primarily a function of the pricing cadence we communicated at the beginning of the year. We anticipate pricing and inflation to be relatively equal in the third quarter, and we expect to price significantly below inflation in the fourth quarter. So, to wrap up, we continue to be very pleased with how our teams are managing their businesses and delivering strong results. We remain disciplined in adhering to our strategy and we're confident in the strength of our business model. And, with that, we'll take your questions.

Jon Tower:

Great. Thanks. I appreciate you taking the question. I guess, maybe starting off, I'm curious to get your thoughts. It seems as if obviously the consumer backdrop has weakened a little bit as we've moved here through your fiscal second quarter and perhaps into this fiscal third quarter. And I know obviously Never Ending Pasta Bowl seem to work exceptionally well, driving traffic on a relative basis throughout the quarter. So, I'm curious how you're thinking about promotions for the balance of the year? And I know the Never Ending Pasta Bowl has traditionally been once a year type of timing, but given the weakness we're starting to see broadly across the category, does that alter your thinking either with promotions at Olive Garden or any of the other brands for the balance of fiscal 2024?

Operator:

Thank you. Next question is coming from Chris Carril from RBC Capital Markets. Your line is now live.

Raj Vennam:

All right, Chris. Let's start with the guidance at high level. From a sales guide perspective, if you just go back to the time we provided our original guidance, we mentioned that there is -- obviously the consumer background was a little tough but not too -- not terribly bad for us. And we thought if things slow down a little bit, we should expect inflation environment to improve a little bit. And halfway through our fiscal year, that's really the dynamic we're seeing. We've seen some check softness that's being offset by lower inflation, which is why we went to the lower end of our sales range, while increasing our earnings outlook. In fact, if you're looking at our underlying traffic assumption, it still implies flat to slightly negative traffic for the full year. It's really that check is coming down by about 50 basis points. And so, in the grand scheme of things, we're talking about the midpoint moving by 25 basis points from where we started the year. Now, as you look -- to the questionnaire on quarter-to-date in December, we're really only two full weeks into the quarter, and so holidays are still in front of us. And as I think Rick mentioned in his prepared remarks, we're encouraged by the strong holiday bookings we're seeing at our reservation brands. And so, our guidance contemplates everything we know.

Raj Vennam:

Sure, Chris. I'll say -- let's start with our pricing. I think, we mentioned at the beginning of the year, the pricing carryover from actions last year is about 3% on the full year, and our guidance talks about 3.5% to 4%. So, you can imagine there's not a lot of actions this fiscal year. I can tell you that, for example, at Olive Garden, we haven't taken any pricing this fiscal year. And we don't -- at least at this point, don't expect to take any more -- or any additional action in the near term. And so, as you look at that check growth, check growth is likely going to moderate into mid-2s to -- into the third quarter and closer to 2% in the fourth quarter. That's kind of the assumption we have in here.

Operator:

Thank you. Next question is coming from Brian Bittner from Oppenheimer. Your line is now live.

Rick Cardenas:

Hey, Brian. Yes, it's still off the table for us. As we mentioned, we eliminated it at Ruth's Chris. And it's not all about the price and the profit, and it is profitable sales growth we're looking for, but it is also the execution of the restaurant, what it does to our teams, and how we can execute our existing to-go business. And we've made investments over the last few years to make that experience even better for our consumer, and we continue to do that. We have had third-party delivery in a few restaurants for quite a while, and the performance in those restaurants isn't significantly different than the ones that don't have it. So, we still feel really confident about our decision to stay out of the third-party delivery. Even if we had to price more to cover that, our consumer would see that as our price, not necessarily the price for delivery. So, as of now, we're still steadfast in our resolve to stay out of third-party delivery.

Raj Vennam:

Yes. Brian, I'd say we're looking at somewhere in the 150 to 200 basis point range in the fourth quarter, because we do expect pretty low price in the fourth quarter, and we expect inflation to be a little bit higher. Just for a function of wrap, I think, really on the inflation, the first half of the year benefited from chicken deflation. Chicken is about 8% of our sales, and we don't have that tailwind going into the back half.

Operator:

Thank you. Next question today is coming from Eric Gonzalez from KeyBanc Capital Markets. Your line is now live.

Raj Vennam:

Yes. Let me start with the other segment and maybe I'll turn it over to Rick to talk about the consumer in general. So, let's start. When we look at our other segment, we're actually pretty happy with the performance overall when you look at the business as a total topline and bottom line, because as much as they had negative same-restaurant sales, they were still above the industry by 20 basis points as a segment. Now, there is -- there -- I don't want to get into exactly the details, but there are some things on a year-over-year dynamics, especially at one of our southeast brands that's primarily weather-bound and patio related, all that stuff, we don't want to get into those. But, by the way, when we look at traffic for the quarter at the other segment, it was actually very strong at north of 100 basis points gap to the industry positive gap. So, we feel really good about that. And then other segment was also more profitable this quarter. Even when you exclude the franchise income from Ruth's, their segment profit was higher than last year. So, I'd say, all-in-all, that's a pretty good outcome. And then, I'll have Rick talk about consumer.

Eric Gonzalez:

That's really helpful. And as a follow up, while we're on the topic of the smaller divisions, can you maybe comment on Fine Dining and talk about whether are we out of the woods when it -- as it relates to the abnormal seasonality and the post-COVID lapse? Should we start to see positive comps in the back half in that part of the business?

Eric Gonzalez:

Thanks.

Andrew Charles:

Great. Thank you. Rick, does the early access to Never Ending Pasta Bowl for eClub members this quarter leave you encouraged to lean more into the 15 million or so Olive Garden eClub member database in the back half of the year, recognizing this won't be an avenue for discounting, obviously, as you're focused on profitable growth. Or is it that it was an immaterial impact just for that extra week of early access in the quarter?

Andrew Charles:

Great. And then, Raj, just curious, with the inflation guidance, how does that break down between COGS and labor as we think about the back half of the year?

Andrew Charles:

Great. Thank you very much.

Brian Harbour:

Yes. Thank you. Good morning, guys. Raj, just on your comment about maybe a little bit lower check versus what you'd previously expected, is that specific to any brand? Is it more than non-Olive Garden brands or is it something you're seeing in Olive Garden as well?

Brian Harbour:

Okay. Yes, it makes sense. And just a question on the food cost side as well. Were there any specific items that have kind of come in more favorable than you expected, or is there also maybe just kind of some scale benefits that you've been able to lean to recently?

Operator:

Thank you. Next question is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Rick Cardenas:

Jeff, we're seeing what you see, an increase in television advertising, sometimes at a discount. But we're, as I said, focused on profitable sales growth. Even with the increase in competitive activity we saw in Q2, we exceeded the industry by 410 basis points and that was -- which was the same as second quarter. We exceeded by 410 in the second quarter, I'm sorry last quarter as well. This is on top of the 370 basis point gap we had last year. So, we feel like what we're doing is working, even with competitive and a little bit of an increase in competitive intensity. By the way, we also improved our segment profit margin by 230 basis points from last year. And so, we're going to stick to our strategy, providing everyday value to our guests, and continue to use our filters, which we've talked about many times, to evaluate any marketing activity.

Raj Vennam:

Sure. Jeff. Let me start with the comment around the uptick in the openings for the year. We were able to open some restaurants that we thought would be after the holidays, before the holidays. And, frankly, I think our team was a little burned. We got burned the last two years in terms of having some rosy projections. And so, we probably were a little bit more conservative in terms of how we thought about the timeline. That was built based on the actuals last two years. And so, that timeline is getting a little bit better. So, that's helping us deliver a little bit more, and that's really what's showing up. Look, our focus is continuing to want to grow, but cost effectively. We are going to focus on balancing the two, and so -- and our teams understand that and we're working towards that. And to your point about CapEx, yes, that CapEx is driven by the uptick in the NROs.

Operator:

Thank you. Next question today is coming from Joshua Long from Stephens. Your line is now live.

Raj Vennam:

Yes. I'd say, look, the biggest growth in the segment profit this year is really coming from COGS, which was a big unfavorability over the last two years. So, we're starting to -- kind of as commodities moderate, that's really drive -- helping drive food costs get better on a year-over-year basis. So, that's one of the drivers of segment profit growth. We also talked about the difference in pricing versus inflation. We do have a little bit more pricing versus inflation in the first half. That also helped. But, I think, if you look at overall segment profits, as we got to fourth quarter of last year, it was very strong. I think at the Darden level, we were over 20%. And so, we are -- we had some -- we felt like there was probably more opportunity to get a little bit more in the first half than the back half. But, in general, all of our segments, all of our teams are focused on the right things. One of the things we talked about at the beginning of the year with our teams is focusing on controlling what we can control and our teams rally around that and focused on managing our costs better. And that's showing throughout the P&L. And so, there's no one specific thing I would pick on. In general, we're very happy with the progress our teams have made, and we'll continue to be disciplined.

Operator:

Thank you. Next question today is coming from Peter Saleh from BTIG. Your line is now live.

Raj Vennam:

Yes. Let me start with the costs. Costs in general on the development are in line with where we thought on average. We obviously have some unique deals, one-offs here and there where the costs are coming in more than we thought. But going into this year, we had embedded some higher costs into the openings based on the experience we have had over the last couple of years. And so, what I would say at this point is, we believe that the inflation has peaked. And we are -- we may have said this last call, too, we are starting to receive more bids that are kind of in line with our projected -- our project budgets. And so, that's a good thing. From an independent standpoint, I think it's hard for us, the data that we're seeing, to say that there's actually lot of excitement from independence on building new restaurants, given the way the interest rate environment is. So, the financing costs have gone up. And, in fact, to some extent that's also impacting some developers from what we hear. So, the macro -- you guys know the macro better than I do. But I would say, overall, we're still happy with our overall development, the number of restaurants we're opening and how we're thinking about it. And as I mentioned in my prior comments earlier today about we're going to cost effectively build our -- build these restaurants. That's the focus. We want to get growth, but we're going to do it cost effectively.

Operator:

Thank you. Next question is coming from David Palmer from Evercore ISI. Your line is now live.

Rick Cardenas:

Hey, David. Yes. We've had a history of discipline and improvement in productivity enhancements. This year is no different. We're getting more of it, because we've had lower turnover than we've had over the last few years. We're still investing in training to get those team members up to speed quicker. We also are spending training dollars on getting our existing team members even more productive. So, our productivity enhancements were the difference between our wage inflation and our labor inflation. I will also say our teams continue to get better with forecasting our business. We've added some AI tools to their tool belt to be able to forecast their restaurant business by -- in 15 minutes increments, even better than they did before, and we're seeing added benefit, as I said, from lower turnover.

Rick Cardenas:

Yes. David, our total labor outlook isn't that -- necessarily that different than where it's been in the first half of the year. I think, we're still having wage inflations at around the mid-single digits, which is pretty much back to pre-COVID levels. We do anticipate that as turnover continues to tick down, which we expect it should, to get us closer to pre-COVID levels. That will continue to have some productivity enhancements. In regards to the FAST Act in California, we're monitoring that. Everything that we have contemplated is contemplated in our guidance. I will say we have an amazing employment proposition and across all of our states and all of our brands, but in California, an even better employment proposition. Our turnover is lower in California than it is in most places and our wages are higher. So, we feel pretty confident that we're okay in California. But if something changes, we'll react to it.

Operator:

Thank you. Next question today is coming from Sara Senatore from Bank of America. Your line is now live.

Raj Vennam:

Hey, Sarah. So let me start with just grounding us on where we are with respect to pricing over the last four years. If you think about our price for the last four years, our pricing has basically been around -- at the Darden level has been closer to 17% cumulatively, just under 17%. For the same time frame, if you look at where full-service restaurant CPI is, that's 24%. So, we have basically created a gap of 700 basis points to full-service restaurant CPI over that time, in the four years cumulatively. In fact, if you look at limited service, they're at 29%. So, that's a 1,200 basis point gap to them. So, over the last four years, we've been very prudent, and we've talked about it multiple times about how we're going to price very thoughtfully and deliberately and wanted to make sure we're creating this gap. And, by the way, that overall pricing we have is below the overall CPI over that time frame by 300 basis points. So, from all aspects, we've actually stuck to our strategy of pricing below inflation, which is one of the drivers of our traffic outperformance. But I would say the other big driver is the execution, consistently executing and providing the greatest experience we can to our guests, and that's what our teams are focused on. That combined with the strategy of pricing under inflation is what we believe helps us separate ourselves from the industry, and we'll continue to do that.

Rick Cardenas:

Yes, Sarah. The check management in Fine Dining is coming more from the lower income cohorts than it is from the higher income cohorts. I think, they were splurging, as we've talked about before, a little bit of euphoria in the last few years, and we're getting back to a more normal level. And in regards to pricing, your point on the follow up, recall, Raj said we don't really have a whole lot of pricing in the back half. Most of what we have is wrap. So, when you think about how much pricing we have versus inflation, most of our pricing is already embedded. And so, that's really where the delta is. So, the consumer isn't going to see a whole lot more price than they are seeing today. They might see a little bit in a couple of brands. So, we still feel really good about where we are, and we don't think it's going to really make a big change in our traffic patterns.

Patrick Johnson:

Thanks. Good morning, guys. This is Patrick on for Chris. But, Raj, I was curious on the traffic at LongHorn, if you could just dig into that a little bit more, whether relative to last quarter or relative to the industry? And then also just check management specifically at LongHorn. And are you guys seeing any different trends there than maybe what you mentioned in some of the other segments?

Patrick Johnson:

Great. Thanks. That's helpful. And then, Rick, I was just curious, as you step back from the business, and you think about strategically how you continue to exploit the scale advantages that you have. I mean, what are the biggest opportunities over the next 12 months when you think about potentially competing in a softer environment, what you can leverage? Is it supply chain, is it technology? Or just curious to get your overall thoughts on where some of those opportunities might lie to increase the gap between you and your competitors?

Patrick Johnson:

Understood. Thanks, guys.

Dennis Geiger:

Great. Thanks, guys. Just wondering if you could talk a little bit more on off premise, what it was in the quarter, and any thoughts on the go-forward there?

Dennis Geiger:

That's great. Thanks, Raj. Just one quick one then, just on any regional, and I know you talked a little bit earlier for some of the segments about some regional things to be thinking about, anything broadly across brands, cross portfolio regionally that you've seen?

Dennis Geiger:

Great. Thanks, guys. Thanks, Raj.

Lauren Silberman:

Thank you. Congrats. I think, you've talked about before, you generally see changes in check before traffic in a more challenging environment. Do you see this check management as a precursor to traffic step down, or more of a return to normal behaviors? How are you monitoring that? Thank you.

Lauren Silberman:

Great. Thank you. And then just a quick one from marketing. The $35 million to $40 million range that you're currently running, is that the right run rate, or should we expect a pickup? Thank you.

Lauren Silberman:

Thank you very much.

Andrew Barish:

Hey, guys. Good morning. Just one clarification. On the unit side, you used the term reopens. Were those relocated units? And then, I've got one other follow-up question, please.

Andrew Barish:

Okay. And just a quick update. Last quarter, you talked about more synergy realization potential at Ruth's Chris, but some of that going to be reinvested. Has that reinvestment started in earnest, or is it more going to come kind of in the back half of the year as supply chain gets integrated and things like that?

Andrew Barish:

Thank you.

Operator:

Thank you. Next question today is coming from Gregory Francfort from Guggenheim. Your line is now live.

Rick Cardenas:

Hey, Greg. Yes. Versus pre-COVID, we're a bit more digital, partly because LongHorn really came off of television when we were on -- before COVID LongHorn was on TV. So, we are a bit more digital in overall mix. Olive Garden's mix isn't substantially different than before. They did come off a little bit of television, but they also came off a little bit on the digital side. We have pretty good analytics to tell us the returns on each of those things. And the good news is, during COVID we tested some more digital, and we were able to because we didn't have much media on at one time. When we started turning it on, we were actually able to see what those returns are. And that was one of the benefits of the COVID. We were able to test a little bit more, and we're testing other things on the digital front now to see if there's some things that we'll add in the future.

Operator:

Thank you. Next question today is coming from Andrew Strelzik from BMO. Your line is now live.

Rick Cardenas:

A couple of things. As we've mentioned before, dining out is really more than just about the sustenance. It's about getting together with your family and friends to enjoy a meal. And, as Raj mentioned earlier, we still have a very big gap in the pricing that we have taken over the last four years versus what's happening in retail. I mean, I would say, if retail starts to do discounts or other deals, it's probably because they're not moving product. And so, that helps us on the -- on our cost side. So, we don't really look very much at the difference between food at home and food away from home, partly because, as I said, people think about, I want to go out to eat, and then they determine where they want to go out to eat. And so, we haven't really seen correlations in the difference in food at home, food away from home over the long, long term.

Rick Cardenas:

Let me start by saying we're really pleased with the integration and the transition that we've had. We're six months from the close of the transaction. We still have a few changes we have to make at the restaurants, and they have to absorb them over this next six months. But that doesn't preclude us from other things. And we'll continue to talk to our Board and determine what the right use of our capital is. As you mentioned, we do have a strong balance sheet, but we're going to continue to work on this until something else comes along.

Operator:

Thank you. Next question today is coming from John Ivankoe from JP Morgan. Your line is now live.

Raj Vennam:

All right, John. Let me try to answer in a way that I make sense, because, obviously, when you look at the seasonal situation, third quarter last year was wrapping on Omicron from the year before. It was just a whole different in terms of dynamic. But as you pointed out, the weather -- the winter weather in that quarter for us, third quarter, which is December, January, February in aggregate was favorable to five year -- to the historical averages. And so we do expect winter weather in the third quarter to be essentially a headwind in the Q3 just based on historical averages. If the weather this year is anything like what it would have been historically that it is a headwind for us. I would expect it's the same for the industry, but I can't -- I don't want to speak confidently about the industry, but I can tell you that's how we are looking at it. In fact, we -- that's part of the reason, we didn't get into this earlier, but that's part of the reason our internal estimates have comps, the same restaurant sales for the Q3 being the lowest for the fiscal -- within this year, primarily because of that weather headwind. And now, I'll have -- maybe Rick can talk about the presidential years and how we think about it.

John Ivankoe:

Thank you.

Brian Vaccaro:

Hi. Just a quick one from me. Thank you. Following up on your private dining bookings comments, could you help frame the degree to which you're up year-on-year or any perspective on how that might compare looking back to pre-COVID levels? Thank you.

Brian Vaccaro:

Fair enough. Thank you.

Nick Setyan:

Thank you. I just wanted to follow-up on the pricing below inflation in Q4. Historically, you've always priced below inflation. I guess, is there really a big change in terms of the magnitude of the pricing below inflation? And then beyond Q4, is -- are there enough operating initiatives to kind of maintain four wall margins? Or are you willing to give up some margin in the medium term?

Nick Setyan:

Thank you.

Danilo Gargiulo:

Thank you. Raj, I want to build on the -- last statement that you made on the margin expansion over time. So if we think about kind of the long run, and given the solid results that you already had in the restaurant level margins, can you help us understand the path for the incremental margin expansion? Meaning, why do you see the biggest upside over the long run as you continue to scale?

Danilo Gargiulo:

Thank you. And then can you comment on the technology road map, and what excites you the most about it? You recently mentioned about kind of the AI implementation to improve the level of staffing in the stores. What do you think is going to be unfolding in the next few years? Thank you.

Danilo Gargiulo:

Thank you. [indiscernible]

Kevin Kalicak:

Thank you. That concludes our call. Remind you that we plan to release third quarter results on Thursday, March 21 before the market opens with a conference call to follow. Thanks again for your participation and have a happy holiday.

Kevin Kalicak:

Thank you, Daryl. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 second quarter earnings on Friday, December 15, before the market opens, followed by a conference call. During today's call, any reference to pre-COVID when discussing first quarter performance as a comparison to the first quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence’s, casual dining benchmark, excluding Darden, specifically Olive Garden, LongHorn Steakhouse and Cheddar's Scratch Kitchen. During our first fiscal quarter, industry same-restaurant sales increased 0.9% and industry same-restaurant guest counts decreased 4.2%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our financial results. Now, I'll turn the call over to Rick.

Raj Vennam:

Thank you, Rick, and good morning, everyone. Total sales for the first quarter were $2.7 billion, 11.6% higher than last year, driven by the addition of 77 company-owned Ruth's Chris Steakhouse restaurants, same restaurant sales growth of 5% and 46 legacy Darden net new restaurants. Our same-restaurant sales for the quarter outpaced the industry by 410 basis points and same-restaurant guest counts exceeded the industry by 430 basis points. First quarter adjusted diluted net earnings per share from continuing operations were $1.78, an increase of 14.1% from last year's reported net earnings per share. We generated $388 million of adjusted EBITDA and returned approximately $300 million of capital to our shareholders with $159 million in dividends and $143 million of share repurchases. As we look at pricing and inflation during the quarter, we had total pricing of approximately 6%, which was 300 basis points above total inflation of roughly 3%. Now looking at our margin analysis compared to last year. Food and beverage expenses were 130 basis points lower, driven by pricing leverage. While beef inflation continues to track in line with our expectations, most other categories are seeing slight favorability. As a result, total commodities inflation of approximately 1% was better than our expectations. Restaurant labor was 40 basis points better than last year, driven by productivity improvements. We expected these productivity improvements to start materializing in the second quarter, but we began realizing them sooner. Pricing and labor inflation were roughly equal at 6%. Restaurant expenses were 10 basis points favorable as leverage from higher sales more than offset elevated repairs and maintenance expense. Marketing expenses were 20 basis points higher than last year consistent with our plan and including impacts from Ruth's Chris. All of this resulted in restaurant level EBITDA of 19%, 170 basis points higher than last year. G&A expenses were 110 basis points above last year, driven by three primary factors

Andrew Charles:

Great. Thank you. Your Olive Garden and LongHorn showed impressive performance in 1Q, while fine dining saw headwinds as you previously warned. And I guess I'm curious, what led the decision to keep full year same-store sales guidance despite 1Q strong result. And are you perhaps seeing something in September that gives you pause on the outlook for the balance of the year? I know restaurant investors have been keen that industry data seems to be taking a breather? Thanks.

Andrew Charles:

Thank you.

Brian Bittner:

Thanks and congrats on strong results. I just want to follow-up with Andrew's question a little bit. There is a lot of anxiety, I think, out there regarding how the evolving macro could impact industry sales trends moving forward, specifically for casual dining as the benefits of pricing normalize. Just based on all your insights, do you believe that the current health of the consumer remains strongly intact? And can you help us understand what weapons you do have to keep traffic within your full year guidance range of flat to down 1.5% if the macro does deteriorate relative to your original expectations?

Brian Bittner:

Thanks for that Rick. And Raj, just my follow-up is, on the commodity costs. They were up 1% in the first quarter, which is obviously below your full year guidance of up 2.5%. And you did suggest that some non-beef items have been a bit more favorable. What's driving the reiteration of the 2.5% commodity guide? Is it just conservatism after one quarter? Is there anything offsetting the recent favorability as we move throughout the rest of the year?

Brian Bittner:

Okay. Hey, thanks, guys.

Eric Gonzalez:

Thanks and good morning. My question is about the guidance as it relates to Olive Garden. And specifically, I'm curious how you're thinking about the second quarter, which is typically a seasonal low volume period for the industry. Historically, there's been a bit of a step down in revenue in Olive Garden from 1Q to 2Q, but last year was a little bit different with the return of the possible. So perhaps you can help us think about how to model that second quarter relative to your guidance and your own expectations, whether you see that fiscal second quarter revenue increasing or decreasing sequentially? Thanks.

Eric Gonzalez:

Fair enough. Thanks.

Brian Harbour:

Yeah. Thank you. Maybe just on the risk synergies, what were some of the additional things that you found? And then when you talk about reinvesting, would that primarily kind of be in staffing or are you also referring to kind of food and menu? Where would we kind of see that impact?

Brian Harbour:

Okay. Thank you. Raj, also just with your prior comments about kind of G&A for the year and kind of the quarterly progression. Is that still kind of valid? It sounds like maybe that piece -- some piece of stock-based comp was one-time in the first quarter, but could you just comment on kind of the G&A outlook?

Brian Harbour:

Okay. Thank you.

David Tarantino:

Hi. Good morning. I was wondering, Rick, if you could talk about how you're thinking about unit growth for the next several years. And I know at one point, you were trying to push unit growth towards the high end of your annual targets. And I'm wondering, if that's still your desire and perhaps, Raj, if you could give us an update on what you're seeing on returns and build costs, that would be helpful. Thanks.

Raj Vennam:

And David, on the returns, we are -- our returns are still pretty strong. We are -- any project we approve has to be net present value accretive to us. And as Rick mentioned, we generally like to have a little bit of headroom within our margin of error as we approve projects. Maybe that buffer is not as high as it used to be. But when we look at actual performance on average, we exceed our internal hurdles by quite a bit.

David Tarantino:

Great. Thank you.

David Palmer:

Thanks. Just a follow-up, this was asked before, but I'm not sure I quite got the answer. Given where food costs and route synergies are coming in, we were surprised that you're not also increasing the low end of your EPS guidance for the year -- fiscal year. What are the potential offsets to what we're seeing in terms of what looks like upside to your plan on the EPS and the EBITDA line?

David Palmer:

Thank you for that. I know you're not going to give the game plan for the company in terms of marketing in ways that you might pivot. But I'm wondering, just generally speaking, if we're seeing the industry trend worse than the flattish type trend that would be consistent with your guidance given your current [indiscernible]. If your traffic is down more than just modestly or you see it going that way. How -- can -- how would you adjust? I mean, what are the ways and Rick said, you're not going to go deep discount route, but what ways do you think you would adjust with your major brands? Thank you.

David Palmer:

Okay. Thank you.

Jeffrey Bernstein:

Great. Thank you very much. Two questions. One, just on the competition. Rick, I know you were pretty clear that you're not keen to start being more aggressive with discounting, doesn't benefit you long term. But are you seeing any changes in the broader competitive behavior? I think there are some that are concerned of an uptick in promos and discounting to drive traffic, especially with the commodity inflation easing. So contrary to your strategy, just wondering what you're seeing across the broader landscape. And then I had one follow-up.

Jeffrey Bernstein:

Got you. And then just a follow-up. I know earlier you mentioned something about seasonality. I know you're referring specifically to fine dining relative to last year. But as you think about broader casual dining historically, I get the feeling right sales slow in September post maybe a stronger summer and battling now back-to-school. But I feel like the past couple of years, there was a lot of pent-up demand post-COVID and therefore, maybe there was no seasonality. People are willing to go out even during this time frame, and therefore, less seasonality. I'm just wondering, should we now expect to return to seasonality that maybe could explain if you were to see a slowdown in coming weeks. I'm just wondering how you kind of think about that if seasonality were to return, how you decipher whether it's traditional seasonality or slow in consumer? Any thoughts there around that would be great. Thanks.

Jeffrey Bernstein:

Thank you.

Operator:

Thank you. Our next questions come from the line of Joshua Long with Stephens. Please proceed with your question.

Raj Vennam:

Yeah, Josh. I think from a geography perspective, we're seeing more strength in New England, Northeast, we're seeing some softness or at least below company average in California, Texas and Florida when we look at the entire portfolio. Now brand by brand, there's a little bit of variability. But when you look at across our portfolio, that's the areas where we're seeing in terms of regional differences. Most others are kind of in between, and so kind of closer to the company average, if you will. But definitely seeing strength in the Northeast and especially New England area overall. From a daypart perspective, we are seeing some lunch getting better at casual brands. And so that's really it. Outside of that, I don't know that there's any additional color we can provide on the sales detail.

Raj Vennam:

Okay. So let me -- yeah, you're right on the year over. It's really driven by a function of last year on the softness I'm talking about in those markets or the strength because last year, they were in a different place. So that's a one year -- truly a one-year thing, and then I'll let Rick comment on the marketing.

Joshua Long:

Thank you.

Dennis Geiger:

Great. Thanks, guys. Wondering if you could speak a bit more or a bit to the dining room traffic levels broadly across the portfolio or even an Olive Garden specifically. And sort of how you think about where those dine-in traffic levels are currently, where they can go relative to the to-go business? Have we normalized or is there still an opportunity to see more dine-in recovery gains on the traffic side at this point?

Dennis Geiger:

Helpful, Raj. And then just one quick one, just on the quarter itself. Anything to notable to call out either traffic or on the mix side of things at Olive Garden or LongHorn?

Dennis Geiger:

Great. Appreciate it, Raj. Thank you.

Danilo Gargiulo:

Good morning. Can you comment on the level of absolute pricing you're facing versus your local peers? And why is a prudent strategy for Darden to be increasing prices above inflation. I know that you spoke several times about how you might deviate from pricing below inflation in specific period, but why now? Is it a prudent strategy?

Danilo Gargiulo:

Extremely clear. Thank you, Raj. And one more question, if you don't mind. So can you comment on the pace of integration efforts, especially in the light of the new synergies that you have found, do you think there is a potential to accelerate the full integration? And if so, is there any timing upside to the EPS accretion in fiscal '24 and '25?

Danilo Gargiulo:

Great. Thank you very much.

Jeffrey Farmer:

Great. Thank you. Some big picture casual dining questions. So some of the NAP data, some of the other traffic source data, so that casual lining traffic growth slowed in August, has slow it into early September. You guys are obviously taking a lot of market share. But again, bigger picture from your perspective, what sort of consumer or macro factors are contributing most to that softening traffic trend for that casual dining consumer?

Jeffrey Farmer:

All right. That's very helpful. And then just a follow-up on pricing. So pricing 6% in 1Q. You guys are guiding to that 3.5% to 4% for the full year ‘24. But what is that -- how should we be thinking about pricing moving forward, just sort of the cadence. So it's 1% -- or 6% in 1Q. What theoretically would Darden blended pricing look like in 2Q, 3Q, et cetera?

Jeffrey Farmer:

All right. Appreciate it. Thank you.

Jon Tower:

Great. Thanks for taking the question. I guess going a little bit authorization here, but curious to get your thoughts. California is changing or potentially changing the way that it pays its employees in the fast food side, I would argue it's going to have some implications for the broader industry in California and perhaps beyond that. So I'm curious to get your thoughts, one, on how you handle an environment where aggregate labor inflation starts taking off pretty dramatically in one state, perhaps spilling elsewhere? And then two, be curious to get your thinking around how the industry evolves either in that market or more broadly? And do you see this as an opportunity to accelerate share in that market even though costs might be moving a little bit higher? I would think that some independents in that market, in particular, might have to shut down given the cost to operate will be a little bit beyond reasonable levels?

Jon Tower:

Got it. So the idea of taking potentially more price in that market later this year is not off the table given that inflationary pressure.

Jon Tower:

Got it. Thanks for taking the questions.

Operator:

Thank you. Our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your questions.

Raj Vennam:

Yes, Sara. So let me try to make sure I answer all the aspects of that question. So let's start with the margins. So from a margin perspective, yes, you're right. If you just look at absolute pricing and commodities inflation or overall inflation and you could say, well, you didn't get the full delta between the pricing and inflation. The things we have to think about are a few things. One, there is a negative mix. First of all, let's start with the brand mix. When you have negative comps at our -- some of our high-margin brands that has a negative impact on our overall blended margin. And you saw that LongHorn and Olive Garden had 230 basis points each of segment profit margin, which is really what -- where you're seeing the most strength. The decline in fine dining, part of that is driven by incremental costs they have year-over-year. Their pricing is starting to catch up. But also, there was some negative mix, on a one-year basis, there was a lot of negative mix on alcohol. When we look at what's happening with -- at Fine Dining, there is trading down to lower-priced wines and other alcohols on a one-year basis. However, when we look at it versus where we were pre-COVID, we don't see a big fall-off. So this feels like there was -- clearly goes back to that exuberance that existed a year ago that we're wrapping on. And so part of that margin impact is from that. And then, the last piece I'd say is, some of the restaurant expenses still have high inflation, whether it's repairs and maintenance, we're running mid-single digit inflation on those lines and so that's part of that. Last piece is utilities. We had a record summer -- record heat. So that caused tremendous usage, much -- we've ever seen historically in terms of electric usage and that translated into some incremental cost to.

Rick Cardenas:

Yes, Sara. Our marketing versus prior year was up 20 basis points, about half of that was just roots mix. So bringing roots into the mix. Our marketing was a little bit higher. And the other 10% was already in our plan. So the planned performance included the tenth in marketing. So we believe we're getting an ROI on that. And we've learned over during the COVID times how to -- we've been able to analyze marketing better because when you completely eliminate it and you start adding back, you can really see the impact of it versus when you have a lot of it and you add a little bit, it's harder to see. So we're able to read the marketing much better in the ROIs and marketing, and we believe there is one.

Operator:

Thank you. Our next questions come from the line of Peter Saleh with BTIG. Please proceed with your question.

Raj Vennam:

Yeah, Peter. I would say on the casual brands, we're only seeing it at Olive Garden and LongHorn and it's not alarming. What we're talking about is tens of basis points of negative mix. So it's not at a point where we're like, hey, we're missing check by quite a bit. But it's about -- in an environment where you have a pricing in that 6% range in the -- take an example, the last quarter, to have maybe 50 basis points of negative mix. It doesn't feel like it's a huge impact, but it was a little bit worse than we expected. But we're not reading too much into that, primarily because when we look at what's happening at Cheddar's, we're not seeing a negative mix there. So -- and the other part of it is we have introduced some menu items that are more -- at LongHorn, for an example, we have some items that are better margin, pricing difference there might be causing people to trade down, but it's not hurting our margins. So we're actually okay with that some negative entree mix we're seeing. So it's too early to draw too much into the -- to kind of read too much into this negative mix that we're seeing on the check at the casual brands. From fine dining, yeah, we truly believe it is a function of exuberance last year. We were seeing a huge positive mix last year and that's going away. I mean we've actually had that for four or five quarters until -- I think until we got through to the second quarter of last year. And so now we're starting to things normalize. And this is -- that's why when we wanted to look at it versus pre-COVID and when we look at it through that lens, we did not see any big drop off at the fine dining.

Rick Cardenas:

Yeah. We're seeing it much easier to hire than we have in the last few years. We've gotten much more applicants for every job than we've had before. If you think about the employment proposition that we've mentioned, it includes a minimum wage of $12 an hour, including gratuities (ph). And as we're seeing, yes, wage inflation is up, but our starting wage inflation is lower than our overall inflation. So it seems like it's getting a little bit easier to hire people, and we don't have to hire at such a high rate, just to get people in the door. We're fully staffed. Our turnover is getting coming down. And so our starting wage inflation is much lower or our entry-level wage inflation when people come to work for us is lower than our overall inflation, which is a good time.

Operator:

Thank you. Our next questions come from the line of Gregory Francfort with Guggenheim Securities. Please proceed with your questions.

Rick Cardenas:

Yeah, Greg. I think a couple of things. One, if you look over the last few years, wage growth has been higher at the lower income level and at the higher income level and inflation while it impacts the lower income more, their wages had grown faster than inflation over time. And I kind of mentioned it. I think a little bit of it now is the exuberance from last year and actually this summer, there was a lot of international travel. You saw that when airlines talked about adding roots internationally, and that could have been part of the reason maybe our Florida and California markets weren't as strong because maybe people weren't traveling here, they were traveling outside the U.S. because they hadn't been able to do that for a few years. I know anecdotally, I've talked to quite a few folks that have had international travel plans in their sights for two or three years, but they were just not doing it because of COVID, and they did it this summer. So it could be because we've had a lot of that. We're not reading too much into it. That said, we're going to watch and monitor and see, and see if something dramatically changes, but we're not too concerned right now. We just wanted to make sure that you understood that the $125,000 and up is something that we're seeing a little softness in or at least we did in the first quarter.

Rick Cardenas:

Yeah, Greg. I want to start by saying, we're really -- our focus is integrating our current restaurants. We've got 81 company-operated restaurants into Darden. Our Ruth's Chris franchise, these are valued partners to us. If they have growth opportunities and they want to continue to grow and it makes sense, then we'll let them grow with us. But we expect to grow our own Ruth's restaurants as well. So I would anticipate that over time, the mix of Ruth's company-owned or company operated compared to franchise will go down. It doesn't necessarily mean that franchise -- number of franchises will get on, it's because we're going to open more restaurants at Ruth's. And so that's how we're going to stick to it.

Operator:

Thank you. Our next questions come from the line of John Ivankoe with JPMorgan. Please proceed with your questions.

Raj Vennam:

Yeah, John. Actually, what we are -- we are continuing to see actually the consumers below 35 be actually continuing to grow as a mix. In fact, when we look at versus last year versus last quarter and as well as versus pre-COVID, consumers below 35 are still trending better. In fact, and then 55 plus, especially 65-plus is still below pre-COVID and actually a slight decline from last quarter to this quarter. So we -- so it feels like from a mix perspective, we're seeing more younger consumer. And we're kind of seeing something along the lines of what Rick mentioned on the income spectrum too, where our lower income makes up a bigger percentage of our guest base today than it did before COVID. But we're not seeing any cracks in that those trends because we've been tracking that for a few quarters now and it seems to be holding up pretty well. Now if is something going to change in the future, we can -- and at this point, we don't have any insight to say whether that's going to change or not.

Rick Cardenas:

Hey, John. I think about reattracting any consumer. We're trying to add one more visit from our loyal guests and we had a lot of loyal guests above 65. I do believe that they were a little bit more spooked on the COVID side and they should have been. If COVID have impacted them a little bit more. And we're going to continue to focus our efforts. And if we can do some targeted marketing to them, we've got a big e-club. We can use our eClub to talk to them and say, hey, come back to Olive Garden. But I don't think we're going to do some dramatic things because we've actually seen a pretty big increase in our younger consumer. And I think if people would have asked us five years ago to say, hey, we don't have enough younger consumers, they would have thought, wow, I can't believe how many consumers you've had on the younger side. So we actually like that consumer. We think that consumer is going to be a strong consumer for us, but we value all of our customers, including those over 65 and we'd love to see them come back more frequently.

A – Rick Cardenas:

Yeah. Sure. And I want to clarify something that I said to Greg, I said that our operated restaurants will be lower in mix for Ruth’s and not, it’s actually higher. So it should be higher in the future. Sorry about that.

Brian Vaccaro:

Hi. Thanks. Good morning. Just two quick data items, if you could. Could you share what off-premise mix was for Olive Garden and LongHorn in the quarter? And I know it will be in the 10-Q, but maybe also what was traffic for each of those brands in the quarter?

Brian Vaccaro:

Okay. Thank you. And then just following up quickly on the Ruth's acquisition. If you've had a chance to dig further in the customer segmentation, could you just elaborate on the differences you see in Ruth's customer base versus other fine dining brands? And I'm curious on the reinvestments you're making there. What are some of the key areas you see an opportunity to improve the guest experience? Thank you.

Brian Vaccaro:

Fair enough. Thank you.

Operator:

Thank you. Our next questions come from the line of Jake Bartlett with Truist. Please proceed with your questions.

Rick Cardenas:

Yeah, Jake. As we've said before, the restaurant industry is impacted really more about discretionary spending. We don't expect consumer repayment of student loans is going to be a material impact to Darden over time. And recall that a lot of these have already started being made. So I think in the month of August or -- month of August, it was about $1 billion a week. And that could be because some people are just deciding to pay off their entire student loan before the interest rate starts back up. And so the expectation was it's going to be about $80 billion or so a year in student loan repayment and we're almost at that run rate now. So -- and I also know I've read and seen, and I think you've all read that a lot of these student loan payments are the folks that are above $125,000. So maybe that's part of it as well. Maybe they've started to pay off their student loan. So we want to see how this progresses over time. But as we've said, we don't think it's going to be a meaningful impact to our business on the margins, it could be an impact, but it's not going to be a meaningful impact to our business. Discretionary spending is a bigger impact.

Rick Cardenas:

Yeah. I didn't mean to laugh. But when you talked about my BMI, I'm not going to get into that.

Rick Cardenas:

I don't know about that. Let me start by saying full-service dining occasions are driven by desire to connect with family and friends. Our -- if you think about the frequency of our full servers dining gas is a couple of times 2 times, 3 times a year for a good guess. So over the years, we have spent a lot of time designing our menus to ensure guests have a wide range of choices to suit their individual needs. And we're going to react to whatever happens, but we don't think it's going to be a meaningful impact to us because of the celebratory nature with for people, why people come out to eat. And if it suppresses appetite a little bit, they're still going to eat. So we're going to be there for them when they do.

Operator:

Thank you. Our next questions come from the line of John Parke with Wells Fargo. Please proceed with your questions.

Raj Vennam:

Hey, John. I think we -- what we talked about, if you recall, a year ago, was there was opportunity to get some margin back at LongHorn. Part of that was we had made -- LongHorn's team had made some strategic choices along the way to make investments in food quality and invest well below -- at pricing well below inflation as they were growing traffic. And LongHorn, by the way, does have significant -- actually positive traffic in the dining room relative to pre-COVID. And so we're at a place where we now can pivot a little bit back to getting some of the margin that we wanted to get and so LongHorn team has done a great job getting to some of that margin growth. And we feel like we're in a much better place from an overall business model perspective, especially given the top line momentum they have to be able to see the margins where they are. It's just -- it provides strong returns within our portfolio.

Operator:

Thank you. Our next questions come from the line of Andrew Strelzik with BMO. Please proceed with your questions.

Raj Vennam:

Okay. Let me first start with the coverage. So yeah, you pointed out, we have about 55% coverage for the next six months, which is actually the same as what we had a year ago, but a bit lower than what we would have had before COVID. In terms of the ability to get coverage, I would say at this point, it's still difficult to secure long-term coverage at the prices we like for beef and that's really the primary driver. If you look at our coverage, we don't have as much coverage in beef as we would have liked to at this point in time. And then the other point, as poultry, you see that we have about 65% covered, but normally, we're much more covered in that. Part of that is because we renewed -- we started a contract last year in December that actually just expires this December. So we're in the midst of trying to renegotiate that. And so that's kind of the reason why we're a little bit lower. But yeah, you’re right. I mean, we would like to have a little bit more coverage. But as I mentioned, beef is still not where it is, would like it to be, especially going past the holidays, it’s hard to lock out – getting into the holiday, December and pass, it’s hard to lock in at prices we like. So from a dining room perspective, both LongHorn and Olive Garden had traffic growth in the quarter, right? So that means that some of the guests this off-premise question you asked, it’s shifting to the dining room. So we’re not concerned because, yeah, off-premise was down a couple of points that Olive Garden gotten year-over-year, but that means the dining room grew by more than 2 points. And that’s -- we’re happy with that. We actually prefer to have guests in the dining room.

Operator:

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Kevin Kalicak for any closing comments.

Operator:

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Kevin Kalicak:

Thank you, Darryl. Good morning, everyone, and thank you for participating on today’s call. Joining me today are Rick Cardenas, Darden’s President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company’s press release which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call which is posted in the Investor Relations section of our website at darden.com. Today’s discussion and presentation include certain non-GAAP measurements and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 first quarter earnings on Thursday, September 21, before the market opens, followed by a conference call. During today’s call, any reference to pre-COVID when discussing fourth quarter performance is a comparison to the fourth quarter of fiscal 2019. And any reference to annual pre-COVID performance is a comparison to the trailing 12 months ending February of fiscal 2020. Additionally, all references to industry results today refer to Black Box Intelligence’s casual dining benchmark excluding Darden, specifically Olive Garden, LongHorn Steakhouse and Cheddar’s Scratch Kitchen. During our fourth fiscal quarter, industry same-restaurant sales decreased 0.7% and industry same-restaurant guest counts decreased 7%. And during our full fiscal year 2023, industry same-restaurant sales increased 2.7% and industry same-restaurant guest counts decreased 5.5%. This morning, Rick will share some brief remarks recapping the fiscal year, Raj will provide details on our fourth quarter and full year financial results and share our fiscal 2024 financial outlook and then, Rick will close with some final comments. Now I will turn the call over to Rick.

Raj Vennam:

Thank you, Rick, and good morning, everyone. Total sales for the fourth quarter were $2.8 billion, 6.4% higher than last year, driven by same-restaurant sales growth of 4% and the addition of 47 net new restaurants. Our same-restaurant sales for the quarter outpaced the industry by 470 basis points and same restaurant guest counts exceeded the industry by 540 basis points. Diluted net earnings per share from continuing operations increased 15.2% from last year to $2.58. We generated $472 million in EBITDA and returned $183 million to shareholders. Total inflation slowed meaningfully this quarter to 4.4%, 270 basis points less than the third quarter, while the rate of pricing decreased from last quarter to 5.9%. Turning to the fourth quarter P&L compared to last year, food and beverage expenses were 30 basis points better driven by pricing above commodities inflation of roughly 3%. Chicken and seafood experienced deflation this quarter, helping offset high-single digit beef and beat inflation. Restaurant labor was 40 basis points better driven by productivity improvements. Restaurant expenses were 30 basis points better than last year, driven by sales leverage. Marketing expense was 1% of sales, consistent with our expectations and 30 basis points higher than last year. This all resulted in restaurant level EBITDA improving 80 basis points to 20.7%. Our general and administrative expenses were 40 basis points higher than last year, driven by the timing of our incentive compensation accrual as well as unfavorable year-over-year mark-to-market expense on our deferred compensation. Due to the way we hedge this expense, this unfavorability is largely offset on the tax line. Our effective tax rate for the quarter was 10.4% and we generated $316 million in earnings from continuing operations, which was 11.4% of sales. Looking at our segments. Olive Garden, LongHorn and our other segment increased same-restaurant sales by 4.4%, 7.1% and 2.2%, respectively, each significantly outperformed the industry benchmark. The strong same restaurant sales performance drove segment profit margin at each of these segments higher than last year, especially at LongHorn, where segment profit margin of 18.6% was 70 basis points higher than last year. Same restaurant sales at our Fine Dining segment decreased by 1.9%, still outperforming the Black Box fine dining benchmark, excluding Darden, by more than 200 basis points. This resulted in segment profit margin below last year at the Fine Dining segment. This year-over-year sales decline was more the result of a wrapping on resurgence of demand in the fourth quarter of last year, which drove traffic retention to 108% of pre-COVID levels. Looking at traffic retention trends over the past three quarters, Fine Dining has been consistently between 101% to 102% of pre-COVID levels. We expect continued year-over-year traffic softness in our Fine Dining segment as we wrap on the first quarter traffic in fiscal 2023 that was at 107% of pre-COVID traffic levels. We expect traffic to stabilize on a year-over-year basis after the first quarter. As we look at our annual results for fiscal 2023, we had strong same-restaurant sales of 6.8% which outperformed the industry by 410 basis points and our same-restaurant traffic was 510 basis points above the industry. The strong top line performance drove $1.6 billion in EBITDA from continuing operations. We returned $1.1 billion to shareholders and ended the year with $368 million of cash. Looking at our fiscal 2023 full year results compared to pre-COVID, operating income margins have grown 140 basis points. Food and beverage as percent of sales increased 380 basis points driven by investments in food quality and pricing well below commodities inflation. Offsetting this unfavorability were improvements in labor productivity, reduced restaurant and marketing expenses and G&A efficiencies. Our strong operating model generates significant and durable cash flows. Since 2018 we have delivered approximately 8% annualized EBITDA growth. At the end of fiscal 2023, our balance sheet was well-positioned at just 1.8 times adjusted debt-to-EBITDAR well below our targeted range of 2 times to 2.5 times. And when we look at our performance compared to our long-term framework over the last five years, we've been achieved -- we've been able to achieve annualized total shareholder returns of 14.2% as measured by EPS growth plus dividend yield. This is near the high end of our target and was driven by annualized earnings after tax growth of 10.2% above the high end of our framework. Cash returns were 4% which is at the middle of our framework. As we look to the future, we still believe that over time our 10% to 15% target for total shareholder returns is appropriate. However, we're increasing the share repurchase range to better reflect the impact of our share price appreciation since we last updated the framework five years ago. The updated share repurchase range is $300 million to $500 million. Before we get into our outlook for fiscal 2024, I want to provide an update on the acquisition of Ruth's Chris which we completed last week. This was financed through a $600 million term loan and cash on our balance sheet, bringing our adjusted debt-to-EBITDAR to approximately 2 times. As we move forward into 2024, sales and profits from Ruth's Chris company-owned and operated locations will be included in our Fine Dining segment, while revenues and profits from the franchise locations will reside in our other segment, consistent with the treatment of our existing franchise locations. However, Fine Dining same-restaurant sales results will not include Ruth's Chris until they have been owned and operated by us for a period of 16 months. As we mentioned in our conference call in early May, we expect to achieve run rate synergies of approximately $20 million by the end of fiscal 2025 primarily through supply chain and G&A savings. We also expect Ruth's Chris will be accretive to our earnings per share by approximately $0.10 to $0.12 in fiscal 2024 and $0.20 to $0.25 in fiscal 2025. We anticipate total acquisition and integration-related expense of approximately $55 million pre-tax. Now turning to our financial outlook for fiscal 2024 which includes Ruth's Chris operating results, but excludes the aforementioned acquisition and integration related expense. We expect total sales of $11.5 billion to $11.6 billion driven by the addition of Ruth's Chris store portfolio, same-restaurant sales growth of 2.5% to 3.5% and approximately 50 gross new restaurant openings, including four relocations. Capital spending of $550 million to $600 million, total inflation of approximately 3% to 4% which includes commodities inflation of approximately 2.5% driven primarily by beef and produce, while most other categories are flat to deflationary and hourly labor inflation in the mid-single digits. And annual effective tax-rate of approximately 12% to 12.5% and approximately 121.5 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $8.55 and $8.85. And finally, our Board approved an 8% increase to our regular quarterly dividend to $1.31 per share, implying an annual dividend of $5.24. And with that, I will turn it back to Rick.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Jon Tower with Citigroup. Please proceed with your questions.

Rick Cardenas:

Hey, Jon. This is Rick. I mean as we've talked about the choppiness of Q4, it was really fine dining going up against last year's very strong bounce back from Omicron. And so this quarter, as we alluded to at the end of -- in the third quarter, was this quarter is going be a little bit tougher for fine dining because of how they bounced back. And actually, Raj already alluded to the Q1, will probably be the same kind of toughness because of the bounce back last year. But that said, the consumer seems pretty strong overall. And within the restaurant industry and based on our internal and external data sources, there appears to be only minimal switching between lower priced occasions at this point. Not all that is switching, but some. And overall, we're not seeing anything concerning. What I will say, as you think about mix, we've talked about this before, we're not seeing material changes in our check trends across our core casual brands. There is no negative mix at Cheddar's. And we are watching add-ons and trying to understand if there is some cracks there. But we don't see any real cracks there. And -- but one area we're seeing a little bit of check management is with alcohol sales primarily at our higher end brands. And we think part of this is because of the function of last year, similar to the guest count trends we saw in last year, there was probably a little bit of euphoria in check last year. So that's kind of where we think about the consumer. And we didn't really think the quarter was choppy. We expected that to happen and that's what happened.

Rick Cardenas:

Yeah. I think it's not necessarily integration of Ruth's. You think about what we're seeing on openings, CapEx was higher and where we wanted to be prudent as Raj said in the last call, we want to be prudent and making sure that we are earning a return that we really want to earn in our restaurants. And we've had some contractor starting to come back in and bid for sites that they stopped bidding for during the pandemic and even after the pandemic which should make bidding more competitive. We're starting to see that. And so we wanted to be prudent and make sure that we have the right returns and we still have great returns in all of our restaurants and that's kind of where it is. It's not really because of risks.

Operator:

Thank you. Our next questions come from the line of Chris O'Cull with Stifel. Please proceed with your questions.

Raj Vennam:

Yeah, Chris. I think, look, we're taking into consideration all the information we have, right. We think -- we build a plan based on all the information we have today. And if you look at what the consensus economic forecast is for the next year, it's flattish GDP and that -- in a -- if you look at last year where GDP was growing, the industry will still had negative traffic, right? So while we outperformed quite a bit and we expect to continue to outperform, we're taking that into consideration as we build a plan. But if you look at the midpoint of our guide, you do get to a decent base business growth and that's kind of how we build a plan and then the guidance range is to incorporate some variability around that and that's how we really think about it.

Raj Vennam:

Yeah. Well, I would say that it's not softening today. I mean if you look at the last few weeks, I think we're -- our GAAP to industry sale is fairly similar. But as we talked about, Q1, we do expect some softness in Fine Dining, that's just a function of wrap. But outside of that, no, we're not seeing any trends that would -- any recent trends that would indicate that there is a major change in the underlying environment for us.

Operator:

Thank you. Our next questions come from the line of Eric Gonzalez with KeyBanc Capital Markets. Please proceed with your questions.

Raj Vennam:

Yeah, Eric. So the way we think about it is, our comp guidance of 2.5% to 3.5%, we expect to have pricing in the 3.5% to 4%, which would imply a traffic of flat to negative 1.5% for the year for us. That range would imply that. You can extrapolate from that what the implied industry can be. We're not expecting our GAAP to be significantly different going into the year, but we focus a lot more on things we can control. And we look at all the factors we have year-over-year and taking into consideration the macroenvironment and then just build a plan that way. As far as comp -- exiting the pricing, yeah, we exited the quarter with closer to 6% as we said and but we expect that to tick down throughout the year. So start with that, call it, 6%, but by the end of the year, by Q4, we get closer to the 2%. Now, lot of the pricing actions we took last year already impact next year's by about 3%. So the carryover from prior year is probably close to 3% and so that's really where we are.

Rick Cardenas:

Hey, Eric, this is Rick. We look at what the competitor is doing. And you're seeing some promotional activity in competitors. We've got one major competitor that launched a little bit more TV or jumped back on to TV. But that said, our strategy remains the same on the marketing side. We're going to continue to be -- to have advertising Olive Garden because it's a big competitive advantage for Olive Garden, but we're going to continue to use our filters, first, elevating brand equity by bringing the brand's competitive advantages to life, it's simple to execute and it's not at a deep discount. So as we talked about in the last call, we're going to stick to our strategy of core guest count growth. We'll react accordingly if something really changes. But when we increase our marketing spend, if we do, we expect it to earn a return. So we don't necessarily expect us to go back into the deep discount craze and that's our strategy and we're going to try to stick to it.

Operator:

Thank you. Our next questions come from the line of Brian Bittner with Oppenheimer. Please proceed with your questions.

Raj Vennam:

Yeah, Brian. I think the way we look at it is, if you look at our framework or actually even excluding Ruth's -- the middle of the guidance for Ruth's is at $0.11 accretion. If you take that out, we're still in that -- a TSR that's north of 10% at the middle of -- at the middle of the guidance range. Now, one of the things I want to point out is, we haven't been able to buy back shares for almost three months now, because of trading blackout. And so that has an impact on EPS for next year. But even with that, like as we said, we still get to that double-digit TSR when you incorporate the dividend yield and the EPS growth.

Raj Vennam:

Yeah, Brian. It's really labor. I expect the hourly wage inflation to be in that call it mid-single digits. And then their salary to be also closer to that. And some of that is a function of how we choose to pay our people. We are -- our merit increases have been above the industry and we think that's prudent. We want to continue to do that. And that's the type of investment we make to help us sustain the types of performance that we've been able to deliver. You look at a 400 basis point, 500 basis point gap to the industry that doesn't happen, magically. They are lot of things that go into that. And we are very thoughtful about how we make those decisions.

Operator:

Thank you. Our next questions come from the line of David Palmer with Evercore. Please proceed with your questions.

Raj Vennam:

Yeah. The way we're thinking about -- in terms of how we build the plan is that we expect retentions levels to be fairly similar to moderate a little bit relative to pre-COVID from where we were this fiscal year. So not a significant drop-off, but a little bit. But then, I think from a same-restaurant sales perspective, it's going to be driven by the pricing differences. The fact that we're going to start off with the higher price and then the price moderates down to -- the rate of pricing goes down to 2% by -- closer to 2% by Q4. That will have an impact on same-restaurant sales. As we think about guest counts, as I mentioned, the retention, we expect it to be fairly consistent quarter-to-quarter relative to last year.

Raj Vennam:

We basically are assuming somewhere in that 10 basis points to 20 basis points more than what we spent last year in total marketing. So that's kind of not that different from what we did in fiscal '23.

Operator:

Thank you. Our next questions come from the line of Andrew Charles with TD Cowen. Please proceed with your questions.

Rick Cardenas:

Hey, Andrew. For competitive reasons, we're definitely not going to talk about plan details. We do believe the Never Ending Pasta Bowl is a really strong promotion for us, especially with the changes we made last year. And so we'll look at any PB and if there's things that we can do with it. But definitely not going to talk about if we're going to do it twice.

Raj Vennam:

Yeah. I think -- so, especially with Ruth's coming in, you should -- we ended the fiscal year with closer to $390 million. I'd say at this point, our best estimate is probably still maintaining closer to that 3.7% of total sales, which would get you closer to the call it $430 million for the year. Obviously, plus or minus 10 there. But that would be the number we would -- that is embedded in our guidance. Yeah.

Raj Vennam:

Hey. By the way, as we talk about G&A, I just want to clarify one other thing. We do expect the cadence to be a little different. So, Q1 is probably going to be the highest level, call it closer to $115 million and then kind of tick down $5 million a quarter throughout the -- for the next few quarters. It's how we think about it just from a cadence standpoint. So there are some things that -- sudden specific variables that are influencing Q1 to be higher.

Chris Carril:

Hi. Good morning. So, just returning to the same restaurant sales growth guidance for '24, can you provide any more detail on how you're thinking about your largest brands, Olive Garden and LongHorn and how they fit into this? We've been pretty clear so far on fine dining and how you expect comparisons to impact that segment in the very near term. But just curious if you could provide any additional thoughts in your largest brands and how they factor into the comp guide.

Chris Carril:

Okay. Great. That's really helpful. And then, you mentioned productivity improvements helped to drive the improvement and labor in the 4Q. So how are you thinking about productivity improvements from here maybe in the context of Ruth's and then ex-Ruth's and just how much of a tailwind that could be in '24? Thanks.

Chris Carril:

Great. Thanks so much.

David Tarantino:

Hi. Good morning. Rick, I wanted to ask your thoughts on the current macroenvironment. And I guess your comments that the consumer seems pretty strong right now, don't actually line up with what the industry is seeing in terms of traffic. I mean, traffic down 7%. We haven't seen those types of numbers since maybe '08 and '09. So I'm just kind of wondering what your thoughts on traffic? And I know Darden's been outperforming, but I think even your traffic was slightly negative in the quarter. So, I guess what's your thoughts on what's weighing on the traffic and the overall environment?

David Tarantino:

Great. Maybe just one follow-up on that. I mean, do you think pricing for the industry has become one of the issues as it relates to traffic? I know, you've priced a little less than the industry. But, I think, do you think that consumers are becoming more price-sensitive in today's economy?

David Tarantino:

Great. Thank you.

Operator:

Thank you. Our next questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Raj Vennam:

Yeah. Let me talk about the cash and then I'll turn it over to Rick for the M&A commentary. So as far as cash usage, if you look at our business, we generate somewhere around $1.7 billion to $1.8 billion, our guidance would imply in terms of cash -- operating cash flow. So between the dividend and the CapEx and with the share repurchase, we still would be building cash maybe at an -- if you take all the midpoints of all of those ranges we would still build a cash balance of call it may be close to $100 million. So we're really not tapping into any borrowings sort of that to meet these commitments we have embedded in here. As far as the long term framework share repurchase range, that is really to reflect the change in our share price from five years ago because we haven't updated the framework for five years. So all that change as much as it feels like it's double, that's basically reflecting that our share price has doubled during that timeframe. And so now, with that, I'll just turn it to Rick.

Jeffrey Bernstein:

Yeah. And then just a clarification, just wondering if you're going to provide pro-forma restated maybe Darden results for the quarters of fiscal '23 as if you owned Ruth's the entire year. I know it's tough for us to model with a different quarter and year-ends and with Ruth's operating a 50-50 company franchise model, just trying to get some color as to whether or not you'll provide any help from a modeling perspective or any pro-forma type results to give us better insight into the growth rate going forward. Thank you.

Operator:

Thank you. Our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your questions.

Raj Vennam:

Hey Sara. Great question. As we think about inflation, we don't expect the cadence to be significantly different. I think we have a little bit more in the first quarter, but not a huge difference. We're talking about 50 basis points to 60 basis points may be different from quarter-to-quarter. So that 3% to 4% range is what we provided for the overall. You can expect first quarter to be closer to 4% and then the other quarters might be close -- a little bit less than that. But then, there's really not a meaningful difference between quarters. So that would imply that year-over-year, there is a little bit of delta in pricing versus inflation, because we are starting with a higher price as we get out of Q4 -- where we exited the Q4 levels. So, I know you also said you had a second question. So I'll wait for that.

Raj Vennam:

Yeah. I think we do expect the gap to reverse by the time we get to the back half. In fact, the way we look at -- when we look at our quarterly earnings that are embedded in our guidance, the cadence, while it's more balanced than last year, we do see Q2 providing the highest-growth while Q4 providing the lowest from an earnings standpoint and Q1, Q3 more in line with the annual growth that we provided.

Rick Cardenas:

Well, we've said in the past that most of our G&A -- most of our synergies come from G&A and supply chain. So, when we have in the past that it's about half-and-half whenever we done acquisitions before. So yes, Ruth's should get in the long term benefits from cost-of-sales. Now that said, we may reinvest some of those cost-of-sales and our other brands will get some of the benefits too. So it won't all flow to Ruth's. I will say that there aren't many brands in the industry that we could acquire that actually improve our EBITDA margin at the restaurant-level and Ruth's does. So, across Darden. Now they might not be as high depending on how you look at it as Capital Grille, they might be higher, a little bit lower depending on your definition of restaurant margin. But they're pretty close. And so and because Capital Grille is higher than Darden's average margin, Ruth's helps Darden's margin. So that's a pretty good deal for us.

Rick Cardenas:

Sure.

Jeff Farmer:

Thank you. Just following up on modeling post-Ruth acquisition, you shared some information on G&A, but anything you can share as it relates to how we should be thinking about both interest expense and G&A moving forward?

Jeff Farmer:

Okay. And just one more. One of your named competitive advantages over the last several years has been this extensive data and insights. But can you share maybe one or two examples of how you were able to leverage that data in '23 and potentially some untapped opportunities as you move forward in terms of harnessing and really analyzing that data moving forward?

Jeff Farmer:

All right. Thank you.

Danilo Gargiulo:

Good morning. I'm wondering what is the integration timeline that you are embedding in your EPS accretion expectations. And how is the previous acquisition of Cheddar's impacting the timeline that you are expecting and what will it take for this integration to accelerate? And I'm talking even beyond the 2024 timeline that you set today.

Danilo Gargiulo:

Thank you. And what set of factors would prompt you to drive higher unit growth versus the data 50%? I know you mentioned more competitive bidding is actually starting to happen. But have there been any internal discussions on potentially international expansion given your recent quarter and also the recent acquisition of Ruth?

Danilo Gargiulo:

Perfect. Thank you.

Operator:

Thank you. Our next questions come from the line of Brian Harbour with Morgan Stanley. Please proceed with your question.

Raj Vennam:

Yeah, Brian. I'd say, first of all, as we said in the prepared remarks, we actually saw a fairly consistent retention related to pre-COVID for the last three quarters at fine dining. What we're seeing is we are seeing a little bit of pullback on the alcohol sales. And we still think that's also a function of wrapping on a significant increase a year ago. Now as we just generally speaking, what we're seeing with the demographics is consumers below 35 or above pre-COVID, but they're below last year. And then whereas 55-plus is still below pre-COVID, but they're similar to last year. So there's a different dynamic year-over-year where you're seeing the younger demographic pull back a little bit year-over-year. And then -- and similarly, on the income side, we're seeing that lower income is above pre-COVID but still below last -- but below last year, whereas higher income flattish to last year or similar to last year, but they are still below pre covert. So those are some of the insights I can share on fine dining.

Raj Vennam:

Yeah. Our labor did -- overall labor inflation ticked down about 100 basis points from Q3 to Q4. We were at 6% in Q4. That included wage inflation close to 7%. And -- so that's also a tick down from prior quarter, a meaningful step down. And that actually was a little bit better than we thought for the quarter. Now as we look to the future, as we said, so we ended the year with 6.9% total labor inflation and we said we expect that to step down by about 100 basis points as we go to next year. That’s why we talked about that mid-single-digit inflation.

Operator:

Thank you. Our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.

Raj Vennam:

Yes, Dennis. We do think that 10 to 30 is the way to think about it from where we are starting this fiscal year. So that's how we restated our framework. And the only change we made is to the share repurchase because we still believe that that 10 to 30 is a good target for us to have for the foreseeable future.

Raj Vennam:

Well, so our to-go sales are actually pretty consistent with where we were in Q3. So I think we’re still running at Olive Garden close to 25%, LongHorn on 14 and Cheddar at 12%, which is not that dissimilar to what we had a quarter ago. And we’re doing that without third-party delivery. And we continue to see that we’re able to kind of still get overall sales growth and outperformance versus the industry, while not tapping into these other channels and actually, we’re managing the experience better. We feel like we have continued to execute on that. As we’ve said before, this is higher than we would have expected a couple of years ago. But we’re very happy with it. And our teams are focused on executing at the highest level possible to make sure that we can sustain and grow from here.

Operator:

Thank you. Our next questions come from the line of John Ivankoe with JPMorgan. Please proceed with your questions.

Rick Cardenas:

Hey, John. Yeah. We think through that all the time. And we do still do those consumer segmentation studies, and we still do market structure studies. We don't necessarily talk about them externally because we don't want everybody else to see them. But thinking about the student loan impact, yes, they'll start being repaid in, I guess, September around there, but it shouldn't be a material headwind. It will be a headwind. Any time you take money out of consumers' pockets, it's a headwind, but it shouldn't be material because student loan payments are a very small component and it's probably already baked into the economic forecast for GDP growth that we use for our plan.

Rick Cardenas:

Sure. I think Raj talked about our consumer demographics a little bit ago. We're still above pre-COVID on our consumers in the 35 age range or below 35, which is probably the ones that are in their student loan repayment period. And the 55 plus or below pre-COVID last year. So there's probably still some room for some of those 55 plus to come back, and I'm doubting that they're paying student loans back unless they're paying it for their kids. And if you think about our population, we still have a high percentage of our of our consumers that are above $100,000. So hopefully, a student loan repayment wouldn’t impact them too much.

Rick Cardenas:

Sure.

Andrew Strelzik:

Hey. Good morning. Thanks for taking the question. Two for me. The first one is on the commodity side. I'm curious if you feel like your visibility into the food cost outlook is improving or the duration to which you have visibility is improving just as the rate of inflation is moderating here? And then the second question is on the unit growth side. You talked about the bidding side and some favorability potentially there. I'm just curious in terms of permitting supply chain equipment. Are there green shoots on that side? Or how are you seeing that evolve. Thanks.

Andrew Strelzik:

Great. Thank you very much.

Brian Vaccaro:

Hi. Thanks. Good morning. I just wanted to circle back on the strength at LongHorn -- it seems like the brand took another step up at least through the lens of average weekly sales volumes, which I think are now up in the mid-30s versus pre-COVID levels. I know the brain has gained a lot of share through the pandemic, but anything incremental worth highlighting that you think is driving this incremental uptick?

Brian Vaccaro:

All right. And then I also just wanted to circle back on the Roots acquisition and your customer segmentation work. Could you elaborate a little bit on the overlap or maybe more interestingly, the key differences between Roots customer base versus your other fine dining brands or any other differences you think are worth highlighting regarding the brand?

Brian Vaccaro:

All right. That’s great. I’ll pass it along. Thank you.

Jake Bartlett:

Great. Thanks for taking the question. Mine was on labor productivity. You mentioned that you expect some labor productivity improvements in '24, but not a whole lot. I guess my question is around turnover. I would have thought that just the improving labor environment, staffing is kind of, I think, back to pre-COVID levels, but turnover going down, so productivity should be going way up. In terms of -- at your brands, have you already benefited? I mean, I guess, maybe was your turnover not so bad before that's why you're not going to get much of an incremental benefit. If you could just talk about how the labor dynamics and what that could or couldn't do to labor productivity.

Jake Bartlett:

Great. And then I have a follow-up on unit growth and you gave guidance for 2024. A couple of years ago, you had mentioned your expectations kind of moved towards the higher end of the range. So closer to 3% from the 2% to 3% range. Is that still valid kind of going forward, and it's going to be lower in '24, but longer term, should we think of the higher end of the range is the right point or are we kind of getting back into maybe the middle of the range longer term?

Jake Bartlett:

Great. Thank you so much.

John Parke:

Hey. Good morning. I guess as we think about the segment profitability into '24, are there any segments that you guys see as outliers either in terms of improvement or pressure that you are expecting?

John Parke:

Got it. And then kind of just on the pricing side, so I guess in the beef inflation that you're seeing, is it fair to assume the LongHorn and find I think pricing is above that range and Olive Garden [indiscernible] is below?

John Parke:

Okay. Thank you.

Gregory Francfort:

Hey. Thank you. I just have two quick follow-up on labor. The first is, I guess, within that 5% labor inflation that you're expecting, how much of that's going to be statutory this year? And how much of it maybe still market pressure. And then maybe a correlated question is, as you guys are going out there at a higher new work is you're talking about turnover, the wage that it costs to hire somebody new today -- have you seen a break in that or a material break in that wage? I'm just curious as I think about how much easier it's not for you guys to hire people. Thanks.

Rick Cardenas:

And if I can just add one thing to that. If you think about our turnover coming down, that means we don’t have as many people we’re hiring as we were before. So we didn’t have to hire as many people now than we did before. And so the wage, even if the wage break didn’t happen, it’s still not as big a deal for us, but the wage break is starting to happen. But the fact that we don’t have to hire as many people helps us as well.

Operator:

Thank you. There are no further questions at this time. I would now like to hand the call back over to Kevin Kalicak for closing remarks.

Operator:

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Kevin Kalicak:

Thanks, Todd. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to the risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the Company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2023 fourth quarter earnings on Thursday, June 22nd, before the market opens followed by a conference call. During today's call, any reference to pre-COVID when discussing third quarter performance is a comparison to the third quarter of fiscal 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence’s, casual dining benchmark, excluding Darden, specifically Olive Garden, LongHorn Steakhouse, and Cheddar’s Scratch Kitchen. During our third fiscal quarter, industry same-restaurant sales increased 7.2% and industry same-restaurant guest counts decreased 3%. This morning, Rick will share some brief remarks on the quarter and our focus moving forward, and Raj will provide more details on our financial results and an update to our fiscal 2023 financial outlook. Now, I'll turn the call over to Rick.

Raj Vennam:

Thank you, Rick. Good morning, everyone. We had high expectations for the third quarter sales growth as we were wrapping on last January’s Omicron outbreak and several weeks of severe winter weather that combined to reduce sales by over $100 million in the third quarter of last year. Exceeded those high expectations, posting record total sales of $2.8 billion, which was 13.8% higher than last year, driven by 11.7% same-restaurant sales growth along with the addition of 35 net new restaurants. This same restaurant sales performance outpaced the industry by 450 basis points, and our same-restaurant guest counts performed even more as they exceeded the industry benchmark by 700 basis points. Diluted net earnings per share from continuing operations were $2.34, an increase of 21.2% above last year. Total EBITDA was $448 million, and we returned $272 million of cash to our shareholders this quarter, consisting of $148 million in dividends and $124 million in share repurchases. Total pricing for the quarter was approximately 6.3%, 70 basis points below total inflation of roughly 7%. Now looking at our margin performance compared to last year. Food and beverage expenses rose 110 basis points, driven by commodities inflation of approximately 9%, which was higher than we anticipated going into the quarter and significantly outpaced pricing of 6.3%. Chicken, dairy and grains continue to be categories experiencing the highest levels of inflation, but each improved versus prior quarter as we expected. However, beef inflation increased from the second quarter level and drove the majority of our higher-than-anticipated commodities inflation this quarter. Restaurant labor was 120 basis points better than last year as we benefited from sales leverage and our restaurants continue to run efficient labor despite hourly wage inflation of 8%. Total restaurant labor inflation was 7%. Restaurant expenses were 40 basis points favorable to last year as we leveraged higher sales that more than offset elevated inflation on utilities as well as higher repairs and maintenance expense. Marketing expenses were 10 basis points lower than last year, driven by sales leverage. G&A expenses were 40 basis points higher than last year, driven by the timing of our incentive compensation accrual and other expenses. Operating income margin of 12.6% was 30 basis points better than last year. Our effective tax rate for the quarter was 13.2%, and we ended the quarter with earnings from continuing operations of $287 million. Now looking at our margin performance versus pre COVID, we grew operating income by 70 basis points, while underpricing inflation by more than 400 basis points since pre-COVID. Increased food and beverage costs were more than offset by improved productivity, reduced marketing and other cost savings initiatives. Looking at our segment performance. All of our segments significantly outperformed their respective industry benchmarks on both traffic and sales. Sales at Olive Garden grew 13.9% above last year, driven by same-restaurant sales growth of 12.3%. Average weekly sales at Olive Garden were 108% of pre-COVID level. Segment profit margin of 22.5% was 150 basis points better than last year, driven by sales leverage and labor efficiencies. LongHorn sales grew 13.5% above last year, with same-restaurant sales growth of 10.8%. Average weekly sales at LongHorn were 127% of the pre-COVID level. Segment profit margin of 17.4% was 80 basis points below last year, driven by elevated commodities inflation. Sales in our Fine Dining segment grew 13.2% over last year driven by same-restaurant sales growth of 11.7% and average weekly sales were 113% of the pre-COVID level. Segment profit margin of 21.8% and was 110 basis points below last year, driven by elevated commodities inflation. Our other segment sales grew 14.1% above last year with the same restaurant sales growth of 11.7% and average weekly sales were 109% of the pre-COVID level. Segment profit margin of 14% was 20 basis points better than last year, driven by sales leverage and labor efficiencies. Turning to our financial outlook for fiscal 2023. We have increased our guidance to reflect our year-to-date results and expectations for the fourth quarter. We now expect total sales of $10.45 billion to $10.5 billion, same-restaurant sales growth of 6.5% to 7%, approximately 55 new restaurant openings, capital spending between $550 million to $575 million, total inflation of 7% to 7.5% and annual pricing of 6% to 6.5%. Furthermore, we expect commodities inflation between 9.5% and 10%, the annual effective tax rate of approximately 13% and approximately 123 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $7.85 and $8. This outlook implies fourth quarter sales between $2.73 billion and $2.78 billion, same-restaurant sales between 3% and 5%, diluted net earnings per share between $2.43 and $2.58. It also implies higher commodities inflation than we last communicated. We now expect commodities inflation that is solidly in the low-single-digit range for the fourth quarter versus the closer to flat estimate we shared with you on the last earnings call. Increase in commodities inflation is primarily due to higher-than-anticipated beef costs. For fiscal 2024, we anticipate opening 50 to 55 new restaurants and capital spending between $300 million and $325 million related to new restaurants and another $200 million to $225 million related to ongoing restaurant maintenance, refresh and technology spending. And while we don't normally provide a commodity outlook this early for the next fiscal year, we are anticipating low-single-digit inflation for the total commodities basket in fiscal 2024 led by high single-digit inflation on beef and produce. We expect all other categories to range from slight deflation to low single-digit inflation. With that, I'd like to close by saying that we continue to be very proud of how our teams are managing their businesses to deliver strong results in this dynamic environment. Now, we'll open it up for questions.

Chris Carril:

So, I just wanted to talk or ask first about the top line trends. So, I guess, just given the choppiness in the comparison to last year, could you talk about the progression of sales through the quarter? Maybe specifically what you saw following the Omicron lap, and maybe perhaps what you're seeing in the current quarter just as we're trying to get a sense of where trends are shaking out kind of on a normalized basis? I know, Rick, you spoke of the strength around the Valentine's Day. So, any detail beyond that point would be great.

Chris Carril:

And then, I appreciate the preliminary commodity inflation outlook for FY24. So, thanks for providing that this morning. Any thoughts on -- or any guidance you could provide on how you're thinking about just pricing here going forward just relative to that commodity inflation outlook that you're providing for FY24?

Operator:

Our next question comes from Brian Harbour with Morgan Stanley.

Rick Cardenas:

Hey Brian, this is Rick. Let's talk about our staffing. As we mentioned on our call, we're very well staffed. We have more managers per restaurant than we’ve ever had in our history. So, we feel really good about where we are. We’re not going to talk necessarily about what our wage growth will be next year. I will say that even before COVID, wage inflation was in the mid-signal-digit. So, we will continue to work with whatever the economy comes our way and however we can handle that. But we have a great employment proposition. Our turnover is significantly reducing. It's getting closer to our pre-COVID levels. And we still think we've got room to improve our turnover. We're hiring great people and we're being as discerning as we had been before COVID. So, we feel really good about where we are. And we'll talk about our inflation targets and our pricing and all of those things in June.

Raj Vennam:

Well, I think we've talked about inflation being one of the big things, right? When you look at construction costs have gone up quite a bit, especially when you compare it to pre-COVID, and we're ramping up growth. So, we do have -- I think this year, we said we're approximately 55 new units and then we talked about next year kind of in that 50 to 55 as well. So, it's really a function of the increase in construction costs. I think on the construction cost front, especially the FF&E for new restaurants has been growing quite a bit. And so that's -- it's -- you're seeing a 25-plus-percent increase in those costs related to pre-COVID. So those are really the big drivers. But having said that, given the improvements we've made to our business models and where our unit economics are, we still have pretty strong returns on our new units, and we continue to want to grow that. And that's why we do want to try to target as much growth as we can. Now, we're going to be disciplined in how we do that. But we have -- we're being a little bit more selective, but still, we feel like we have opportunity to take share.

David Tarantino:

My question, I guess, Raj, if you could just tell us what level of pricing you are running in the fourth quarter. And just trying to frame up the comp guidance of 3% to 5% and what might be implied from a traffic perspective in that number.

David Tarantino:

Got it. And then, I guess then the guidance implies maybe slightly negative traffic. And I was wondering if you or Rick could you comment just on why you think that is? And is it a macro issue, or is it something else in your view? And maybe, Rick, I'd love to hear your thoughts on the current macro environment given all the volatility we've seen lately. Just how are you thinking about kind of the outlook for the next several quarters?

David Tarantino:

Makes sense. Thank you.