ORLANDO, Fla., Dec 16, 2004 /PRNewswire-FirstCall via COMTEX/ -- Darden Restaurants, Inc. (NYSE: DRI) today reported quarterly sales of $1.23 billion for the second quarter ended November 28, 2004, and diluted net earnings per share of 26 cents, a 44% increase over the prior year. These and all other amounts in this press release have been presented on a basis consistent with a restatement that the Company also announced, which is described below.
"This quarter's outstanding results were driven by continued industry leading performance at Olive Garden and significant improvement at Red Lobster," said Clarence Otis, Chief Executive Officer of Darden. "Both companies' strong sales and operating profit results this quarter reflect their focus on brilliance with the basics in two key areas -- restaurant operations and brand building. As a result, Olive Garden continued to deliver competitively superior guest experiences and Red Lobster achieved record guest satisfaction results. We believe being even more effective across all of Darden in these key areas is how we'll achieve our goal of being the best in casual dining now and for generations."
Highlights for the quarter ended November 28, 2004, include the following:
* Net earnings in the second quarter were $43.0 million or 26 cents per diluted share, on sales of $1.23 billion, including an earnings per share impact of $0.007 reflecting the restatement described below. Last year, net earnings were $30.1 million, or 18 cents per diluted share, on sales of $1.14 billion, including an earnings per share impact of $0.007 reflecting the restatement described below.
* Total sales of $1.23 billion represent a 7.6% increase over prior year.
* Olive Garden reported its 41st consecutive quarter of same-restaurant sales growth with a 5.5% increase.
* Red Lobster reported same-restaurant sales growth of 3.4% for the quarter.
* The Company now expects diluted net earnings per share growth in the range of 22% to 27% on a GAAP basis, which is a growth rate of 10% to 15% excluding the asset impairment and restructuring charge ($23.1 million after tax or $0.14 per diluted share) taken in the fourth quarter of fiscal 2004. The Company had previously estimated that diluted net earnings per share growth would be in the range of 8% to 12% excluding the asset impairment and restructuring charge taken in the fourth quarter of fiscal 2004.
* The Company continued its repurchase of shares, buying back 256,155 shares of its common stock in the quarter.
* Following a review of its accounting policy and in consultation with its independent registered public accounting firm, KPMG LLP, the Company has corrected its computation of straight-line rent expense and the related deferred rent liability and as a result will restate its prior period financial statements. As discussed below, this restatement will have modest impact on diluted net earnings per share and no impact on the Company's cash flows, sales or same-restaurant sales for prior periods or compliance with any covenant under its credit facility or other debt instruments.
Operating Highlights
OLIVE GARDEN'S record second quarter sales of $564.2 million were 8.8% above prior year, driven by a same-restaurant sales increase of 5.5% and revenue from 15 net new restaurants in operation versus last year. This is the 41st consecutive quarter of comparable-restaurant sales growth for Olive Garden and builds on a 4.3% increase in the second quarter last year. The company's increased sales, combined with lower restaurant expenses and depreciation as a percent of sales more than offset increased restaurant labor and selling, general and administrative expenses as a percent of sales. This resulted in a record operating profit for the second quarter.
RED LOBSTER'S second quarter sales of $569.2 million were 4.4% above prior year, driven by a same-restaurant sales increase of 3.4%. Red Lobster's increased sales along with lower food and beverage expenses as a percent of sales, lower restaurant labor costs as a percent of sales, lower restaurant expense as a percent of sales and lower selling, general and administrative expenses as a percent of sales, resulted in record operating profit for the second quarter.
BAHAMA BREEZE delivered improved financial performance this quarter. Operating five fewer restaurants than the prior year, Bahama Breeze achieved lower cost of sales and labor expenses as a percent of sales while strengthening the guest experience it provides.
SMOKEY BONES opened seven restaurants during the second quarter, bringing the year-to-date total to 14 openings. In addition, the company has opened five more restaurants since the end of the quarter. As a result, Smokey Bones now has 88 restaurants in operation. It expects to open a total of 30 to 40 restaurants during the fiscal year.
"This was an outstanding quarter at both of our established operating companies," said Drew Madsen, President and Chief Operating Officer for Darden. "Olive Garden has a trusted brand, superior in-restaurant operations and highly effective marketing. They continue to deliver consistently strong growth and exceptional levels of absolute performance. Red Lobster also had a tremendous quarter, driven by record guest satisfaction, improved cost management and a powerful "Endless Shrimp" promotion. They have made significant progress in improving their business fundamentals. Smokey Bones and Bahama Breeze also made progress strengthening their business models and improving their guest experience."
Outlook
The Company now expects diluted net earnings per share growth in the range of 22% to 27% on a GAAP basis, which is a growth rate of 10% to 15% excluding the asset impairment and restructuring charge ($23.1 million after tax or $0.14 per diluted share) taken in the fourth quarter of fiscal 2004. The Company had previously estimated that diluted net earnings per share growth would be in the range of 8% to 12% excluding the asset impairment and restructuring charge taken in the fourth quarter of fiscal 2004.
Other Actions
Darden continued the buyback of its common stock, purchasing 256,155 shares in the second quarter. Since December 1995, the Company has repurchased 112.4 million shares under authorizations totaling 137.4 million shares.
Restatement
Following a review of its accounting policy and in consultation with its independent registered public accounting firm, KPMG LLP, the Company has corrected its computation of straight-line rent expense and the related deferred rent liability. As a result, the Company will restate its financial statements for fiscal 1996 through fiscal 2004 and for the first quarter of fiscal 2005. Historically, when accounting for leases with renewal options, the Company has recorded rent expense on a straight-line basis over the initial non-cancelable lease term, with the term commencing when actual rent payments began. The Company depreciated its buildings, leasehold improvements and other long-lived assets on those properties over a period that included both the initial non-cancelable term of the lease and all option periods provided for in the lease (or the useful life of the assets if shorter). The Company will restate its financial statements to recognize rent expense on a straight-line basis over the entire lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. The lease term will commence on the date when the Company becomes legally obligated for the rent payments.
The Company estimates that the cumulative effect of the restatement through fiscal 2004 will be an increase in the deferred rent liability of approximately $120 million. In addition, the deferred income tax liability as of the end of fiscal 2004 will decrease by approximately $46 million. As a result, retained earnings at the end of fiscal 2004 will decrease by approximately $74 million. Rent expense for fiscal years ended 2002, 2003 and 2004 will increase by approximately $8 million, $10 million and $7 million, respectively, and for the first quarter of fiscal 2005 by approximately $1.8 million. The restatement will decrease diluted net earnings per share by approximately $0.03, $0.04 and $0.03 for the fiscal years ended 2002, 2003 and 2004, respectively, and approximately $0.007 for the first quarter of fiscal 2005. The restatement will not have any impact on the Company's previously reported cash flows, sales or same-restaurant sales or compliance with any covenant under its credit facility or other debt instruments.
These estimates are subject to change as the Company's independent registered public accounting firm completes its review. The Company will amend the appropriate filings with the Securities and Exchange Commission (SEC) to include the restated financial statements. As a result of the restatement, the financial statements contained in the Company's prior filings with the SEC should no longer be relied upon.
November 2005 Same-Restaurant Sales Results
Darden reported same-restaurant sales for the four-week November fiscal month ended November 28, 2004. This period is the last month of Darden's fiscal 2005 second quarter.
Same-restaurant sales at Olive Garden were up 4% to 5% for fiscal November, which reflected a 3% to 4% increase in guest counts and approximately 1% increase in check average. The check average increase was a result of a 2% increase in pricing and a 1% decrease from menu mix changes. Last year, Olive Garden had an increase of 8% to 9% in same-restaurant sales during fiscal November.
Same-restaurant sales at Red Lobster were up approximately 2% for fiscal November, which reflected a decrease of approximately 2% in guest counts and an increase of approximately 4% in check average from menu mix changes. Last year, Red Lobster realized an 8% to 9% decrease in same-restaurant sales during fiscal November.
The Company estimates that this year's shift of Thanksgiving from fiscal December to fiscal November adversely affected November same-restaurant sales results at both Olive Garden and Red Lobster by approximately 2 to 3 percentage points.
Darden Restaurants, Inc., headquartered in Orlando, FL, owns and operates over 1,300 Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 restaurants with annual sales of $5.0 billion.
Forward-looking statements in this news release, if any, are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important factors could cause results to differ materially from those anticipated by the forward-looking statements, including the completion of the accounting restatement, the impact of changing economic or business conditions, the impact of competition, the availability of favorable credit and trade terms, the impact of changes in the cost or availability of food and real estate, government regulation, construction costs, weather conditions and other factors discussed from time to time in reports filed by the Company with the Securities and Exchange Commission.
DARDEN RESTAURANTS, INC.
NUMBER OF RESTAURANTS
11/28/04 11/23/03
649 Red Lobster USA 649
31 Red Lobster Canada 31
--- ------------------ ---
680 Total Red Lobster 680
541 Olive Garden USA 526
6 Olive Garden Canada 6
--- ------------------- ---
547 Total Olive Garden 532
32 Bahama Breeze 37
83 Smokey Bones BBQ 53
1 Seasons 52 1
----- -----
1,343 Total Restaurants 1,303
DARDEN RESTAURANTS, INC.
SECOND QUARTER FY 2005 FINANCIAL HIGHLIGHTS
(In millions, except per share data)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
Restated Restated
11/28/2004 11/23/2003 11/28/2004 11/23/2003
Sales $ 1,229.4 $1,142.5 $2,508.0 $2,402.2
Net earnings $43.0 $30.1 $114.0 $97.5
Net earnings per
share:
Basic $0.27 $0.18 $0.73 $0.59
Diluted $0.26 $0.18 $0.70 $0.57
Average number of
common shares
outstanding:
Basic 156.8 164.9 157.2 164.8
Diluted 163.4 171.0 163.4 170.7
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
Restated Restated
11/28/2004 11/23/2003 11/28/2004 11/23/2003
Sales $1,229,373 $1,142,543 $2,508,017 $2,402,232
Costs and
expenses:
Cost of sales:
Food and beverage 368,036 346,200 759,457 742,913
Restaurant labor 400,714 375,614 806,530 767,949
Restaurant
expenses 202,225 192,939 397,225 385,677
Total cost of
sales (1) $970,975 $914,753 $1,963,212 $1,896,539
Selling, general and
administrative 130,785 120,320 245,365 233,961
Depreciation and
amortization 53,176 52,048 105,936 103,601
Interest, net 11,007 10,725 21,971 21,366
Total costs
and expenses $1,165,943 $1,097,846 $2,336,484 $2,255,467
Earnings before
income taxes 63,430 44,697 171,533 146,765
Income taxes (20,416) (14,638) (57,497) (49,298)
Net earnings $43,014 $30,059 $114,036 $97,467
Net earnings per share:
Basic $0.27 $0.18 $0.73 $0.59
Diluted $0.26 $0.18 $0.70 $0.57
Average number of common
shares outstanding:
Basic 156,800 164,900 157,200 164,800
Diluted 163,400 171,000 163,400 170,700
(1) Excludes restaurant
depreciation and
amortization as
follows: $49,486 $48,443 $98,705 $96,525
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
SUMMARY OF RESTATEMENT IMPACTS
13 WEEKS ENDED 11/23/2003
(In thousands, except per share data)
(Unaudited)
As reported Adjustments As restated
Sales $1,142,543 $-- $1,142,543
Costs and expenses:
Cost of sales:
Food and beverage 346,200 -- 346,200
Restaurant labor 375,614 -- 375,614
Restaurant expenses 191,010 1,929 192,939
Total cost of sales $912,824 $1,929 914,753
Selling, general and
administrative 120,320 -- 120,320
Depreciation and amortization 52,048 -- 52,048
Interest, net 10,725 -- 10,725
Total costs and
expenses $1,095,917 $1,929 $1,097,846
Earnings before income taxes 46,626 (1,929) 44,697
Income taxes (15,373) 735 (14,638)
Net earnings $31,253 $(1,194) $30,059
Net earnings per share:
Basic $0.19 $(0.01) $0.18
Diluted $0.18 $-- $0.18
Average number of common
shares outstanding:
Basic 164,900 -- 164,900
Diluted 171,000 -- 171,000
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
SUMMARY OF RESTATEMENT IMPACTS
26 WEEKS ENDED 11/23/2003
(In thousands, except per share data)
(Unaudited)
As reported Adjustments As restated
Sales $2,402,232 $-- $2,402,232
Costs and expenses:
Cost of sales:
Food and beverage 742,913 -- 742,913
Restaurant labor 767,949 -- 767,949
Restaurant expenses 381,832 3,845 385,677
Total cost of sales $1,892,694 $3,845 $1,896,539
Selling, general and
administrative 233,961 -- 233,961
Depreciation and
amortization 103,601 -- 103,601
Interest, net 21,366 -- 21,366
Total costs and
expenses $2,251,622 $3,845 $2,255,467
Earnings before income taxes 150,610 (3,845) 146,765
Income taxes (50,763) 1,465 (49,298)
Net earnings $99,847 $(2,380) $97,467
Net earnings per share:
Basic $0.61 $(0.02) $0.59
Diluted $0.58 $(0.01) $0.57
Average number of common
shares outstanding:
Basic 164,800 -- 164,800
Diluted 170,700 -- 170,700
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Restated
11/28/2004 5/30/2004
ASSETS
Current assets:
Cash and cash equivalents $60,431 $36,694
Receivables 30,905 30,258
Inventories 236,441 198,781
Assets held for sale 889 --
Prepaid expenses and other current assets 22,670 25,316
Deferred income taxes 60,338 55,258
Total current assets $411,674 $346,307
Land, buildings and equipment 2,292,062 2,250,616
Other assets 184,182 183,425
Total assets $ 2,887,918 $2,780,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $162,142 $174,624
Short-term debt -- 14,500
Accrued payroll 92,600 103,327
Accrued income taxes 91,495 48,753
Other accrued taxes 36,083 38,440
Unearned revenues 71,154 75,513
Current portion of long-term debt 149,931 --
Other current liabilities 246,493 228,324
Total current liabilities $849,898 $683,481
Long-term debt, less current portion 502,574 653,349
Deferred income taxes 123,944 130,370
Deferred rent liability 133,394 128,952
Other liabilities 15,093 12,661
Total liabilities $1,624,903 $1,608,813
Stockholders' equity:
Common stock and surplus $1,632,633 $1,584,115
Retained earnings 1,231,684 1,123,900
Treasury stock (1,547,759) (1,483,768)
Accumulated other comprehensive income (loss) (7,478) (10,173)
Unearned compensation (45,281) (41,401)
Officer notes receivable (784) (1,138)
Total stockholders' equity $1,263,015 $1,171,535
Total liabilities and stockholders' equity $2,887,918 $2,780,348
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
5/30/2004
(In thousands)
(Unaudited)
As Reported Adjustments As Restated
ASSETS
Current assets:
Cash and cash equivalents $36,694 $-- $36,694
Receivables 30,258 -- 30,258
Inventories 198,781 -- 198,781
Prepaid expenses and other
current assets 25,316 -- 25,316
Deferred income taxes 55,258 -- 55,258
Total current assets $346,307 $-- $346,307
Land, buildings and
equipment 2,250,616 -- 2,250,616
Other assets 183,425 -- 183,425
Total assets $2,780,348 $-- $2,780,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $174,624 $-- $174,624
Short-term debt 14,500 -- 14,500
Accrued payroll 103,327 -- 103,327
Accrued income taxes 48,753 -- 48,753
Other accrued taxes 38,440 -- 38,440
Unearned revenues 75,513 -- 75,513
Other current liabilities 228,324 -- 228,324
Total current liabilities $683,481 $-- $683,481
Long-term debt, less current
portion 653,349 -- 653,349
Deferred income taxes 176,216 (45,846) 130,370
Deferred rent liability -- 128,952 128,952
Other liabilities 21,532 (8,871) 12,661
Total liabilities $1,534,578 $74,235 $1,608,813
Stockholders' equity:
Common stock and surplus,
no par value. Authorized
500,000 shares: issued
264,907 and 261,463, shares,
respectively; outstanding
158,431 and 164,950 shares,
respectively $1,584,115 $-- $1,584,115
Preferred stock, no par
value. Authorized 25,000
shares; none issued and
outstanding -- -- --
Retained earnings 1,197,921 (74,021) 1,123,900
Treasury stock, 106,476 and
96,513 shares, at cost,
respectively (1,483,768) -- (1,483,768)
Accumulated other
comprehensive income (loss) (9,959) (214) (10,173)
Unearned compensation (41,401) -- (41,401)
Officer notes receivable (1,138) -- (1,138)
Total stockholders' equity $1,245,770 $(74,235) $1,171,535
Total liabilities and
stockholders' equity $2,780,348 $-- $2,780,348
SOURCE Darden Restaurants, Inc.
Analysts, Matthew Stroud, +1-407-245-6458, or Media, Jim
DeSimone, +1-407-245-4567, both of Darden Restaurants, Inc.
/Company News On-Call: http://www.prnewswire.com/comp/105228.html
http://www.darden.com
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