The operator introduces the Darden Fiscal Year 2024 Third Quarter Earnings Call and reminds participants that the call is being recorded. Kevin Kalicak, President and CEO of Darden, along with CFO Raj Vennam, will be leading the call. Forward-looking statements will be made and risks and uncertainties are noted. A presentation is also being broadcasted and non-GAAP measurements will be discussed. Fiscal 2024 fourth quarter earnings will be released on June 20. Pre-COVID comparisons will be made and industry results will be referenced. During the fiscal third quarter, industry same-restaurant sales and guest counts decreased.

Rick Cardenas, the speaker, shares some brief remarks on the company's quarter results and highlights their growth in total sales and profit. He mentions that they outperformed industry benchmarks for same-restaurant sales and traffic, and opened 16 new restaurants during the quarter. However, they faced challenges due to unfavorable weather and a pullback from lower income consumers. Despite this, they were able to gain market share and remain focused on their competitive advantages and back-to-basics operating philosophy. The speaker also mentions some notable achievements from their restaurant teams.

The company's internal guest satisfaction metrics show a strong focus on providing excellent service. All of their brands have high guest satisfaction ratings and have been ranked highly in industry tracking tools. The company's retention rates and engagement levels are also at an all-time high. Three of their brands received the Employer of Choice Award and the integration of Ruth's Chris is on track to be completed by the end of the fiscal year. Ruth's Chris was also named America's favorite chain restaurant in a recent survey.

The survey measures various aspects of the restaurant experience, and Ruth's Chris, Seasons 52, Bahama Breeze, LongHorn, and the Capital Grille were all ranked in the top 10. The company is pleased with their performance and continues to focus on their long-term strategy and purpose. They also have a scholarship program for team members' families and thank their employees for creating exceptional experiences. Third quarter earnings were in line with expectations, but sales were softer than anticipated due to winter weather and underlying consumer weakness. However, the company's teams have done a great job managing their businesses.

In the third quarter, the company saw a 6.8% increase in total sales, driven by the acquisition of Ruth's Chris Steak House and new restaurant openings. Despite a 1% decrease in same-restaurant sales, the company outperformed the industry by 320 basis points. Adjusted diluted net earnings per share increased by 12% and $512 million was generated in adjusted EBITDA. The company also returned $190 million to shareholders through dividends and share repurchases. Food and beverage expenses improved by 90 basis points, while total commodities inflation was below total pricing. Restaurant labor and expenses were slightly unfavorable, but marketing expenses were in line with expectations. As a result, restaurant-level EBITDA was 20.6%, 70 basis points better than last year. G&A expenses were lower than last year and overall expenses were slightly favorable due to lower incentive compensation and synergies from the Ruth's Chris integration.

The company's interest expense increased due to the Ruth's Chris acquisition, but adjusted earnings from continuing operations improved. Olive Garden had a slight increase in total sales, but negative same-restaurant sales. However, their same-restaurant sales and traffic outperformed the industry benchmark. LongHorn had strong sales growth and outperformed the industry benchmark. Fine dining segment sales increased with the addition of Ruth's Chris restaurants, but same-restaurant sales were negative. The other business segment also saw an increase in sales, but same-restaurant sales were negative as well. Overall, the company's profit margins remained steady or improved in all segments. The company has updated its financial outlook for the fiscal year.

The company expects total sales of $11.4 billion with a growth of 1.5% to 2% and plans to open 50 to 55 new restaurants. They also anticipate an annual effective tax rate of 12% to 12.5% and an adjusted diluted net earnings per share outlook of $8.80 to $8.90. For fiscal 2025, they plan to open 45 to 50 new restaurants and spend between $250 million and $300 million on capital. The company is proud of their teams' performance in a dynamic environment. During the Q&A, the company was asked about the low-income consumer pulling back and they mentioned seeing changes in consumer behavior.

The speaker discusses how consumer behavior has shifted during the pandemic, with transactions from households with higher incomes increasing while those from lower incomes have decreased. They also mention that their margins have improved due to better-than-expected inflation for commodities and labor, as well as strong cost management and improved productivity.

The company plans to share more details in June about their upcoming year and will use their long-term framework as a guide. The CEO also mentioned a decrease in sales from low-end consumers, which may impact industry sales in the future. However, the company feels confident in their ability to operate in this environment and notes that the decline in low-end consumer sales is a year-over-year phenomenon.

The company is pleased to see a return to pre-COVID levels and is focused on profitable sales growth. All segments saw improved sales and profits, despite increased competition. The company will stick to its strategy of everyday value for customers and will adjust marketing spending as needed. In the third quarter, the company effectively managed margins by using technology and improving productivity. In the fourth quarter, they expect to underprice inflation by 150-200 basis points.

In the third quarter, Darden saw improved turnover and retention rates, resulting in lower training expenses and better overall performance. Turnover rates were down by 20 percentage points compared to last year and 30 percentage points better than the industry average. Pre-COVID levels have been reached, with some brands even experiencing historically low turnover rates. In terms of inflation and pricing, Darden expects a gap of 100-150 basis points in the fourth quarter. As for customer average checks, there has been a moderate improvement in mix for casual brands and a significant improvement for fine dining, with negative mix decreasing by half.

The speaker discusses the strong sales during the holiday season and positive momentum in the quarter. They also mention that off-premise sales were slightly lower but still performing well. They address concerns about staying top of mind for consumers in a competitive market and mention their high share of voice and other ways to reach consumers.

The speaker explains that the best way to attract customers to their restaurants is through word-of-mouth recommendations. They will continue to use marketing to promote their core values and have levers to pull in the future. The unit growth projection for next year is lower than desired due to high construction costs and delays in construction starts and completion. They are willing to slow down the growth to ensure better long-term results.

The speaker discusses the company's approach to managing the business in a potentially worsening environment. They mention having levers to pull, such as adjusting marketing, but emphasize that they will not change their overall strategy. They are focused on building a strong, stable business for the long-term, even if it means dealing with short-term pressures.

The speaker discusses their tactics and strategy for their brand, stating that they do not plan on becoming a deep discounting brand. They mention that Olive Garden gained share despite less marketing in Q3 compared to Q2 and last year, while competitors had more. The focus is on gaining share, sales, and profit growth through execution, food, service, and atmosphere. They plan to continue pricing below inflation, but have room to increase if needed. The speaker also mentions that the operating environment is tougher than anticipated, but it is not just Darden experiencing this trend in February.

Rick Cardenas, the CEO of a company, discusses the challenges his company is facing in the market. He mentions that their gap increased from January to February, and that every category in the industry had negative traffic in the quarter. He believes that there is a bigger challenge for consumers and they will see how it plays out over the next few quarters. In response to a question about March, he states that their guidance takes into account everything they know about the month and that they have improved their gap between January and February. He also mentions that they are not going to read too much into the delay in tax returns and are not going to discuss March yet.

The speaker, Rick Cardenas, responds to a question about the softer trends in the company's results and attributes it to the lower income consumer. He also mentions the importance of delivering on the brand promise and providing value to appeal to consumers despite economic challenges. The company's strategic pricing decisions and exceptional team members are also highlighted as factors for success. The speaker believes that the lower end consumer may have driven the company's miss, but they remain focused on taking care of every guest and maintaining market share.

Rick Cardenas, Darden's CEO, discusses the success of their strategy in providing value to their casual dining customers. He mentions that their gap to the industry has been strong, with a 10% gap over three years, due to their focus on offering a great everyday value and keeping prices below inflation. The next question from Andrew Strelzik focuses on industry capacity and the impact of closures during COVID. Raj Vennam, Darden's CFO, responds that they have seen a 10% reduction in locations, and there have been more closures than openings in the last year.

In the paragraph, the speaker discusses the challenges of opening a new restaurant due to increased regulation and financing costs. They also mention that unit growth may be constrained in the near term. In terms of unit growth, the speaker expects two-thirds to come from Olive Garden and LongHorn, with the remaining third from other brands. In response to a question about potential strategies to increase sales, the speaker mentions past successful tactics such as dinners for two, buy one take one, and targeted couponing to lower income consumers. They suggest that these ideas may be considered in the future.

The speaker, Rick Cardenas, addresses the issue of attracting higher income consumers back to Olive Garden. He explains that the company's focus has shifted from deep discounting and promotions to creating marketing strategies that elevate brand equity. However, they will still offer some promotions, such as the Never Ending Pasta Bowl at a price of $13.99. He also mentions that they have already seen growth in the higher income consumer segment at all of their brands, but there may be some trading down within their brands. Overall, the company's goal is to execute well and rely on positive word of mouth to attract higher income consumers.

The company is focusing on long-term success and executing better than competitors, rather than relying on short-term strategies. They are satisfied with their current approach to loyalty and believe there are other ways to gather valuable data. LongHorn has been handling the tough operating environment better than other brands, and the company plans to apply their learnings to improve performance across all brands. Steak tends to perform better during times of high beef prices due to consumer preference for not risking expensive ingredients in home cooking.

The speaker discusses the performance of the steak category within the restaurant industry, specifically mentioning LongHorn's success due to their focus on execution and value. They also mention the brand's large customer base and steady frequency of visits, as well as their active eClub membership of 25-30 million guests. The speaker expresses confidence in their ability to operate in the current income demographic.

The gap in the industry has been widening, particularly from fiscal Q2 to Q3, due to a more selective consumer. However, in January, the gap narrowed due to weather conditions and the fact that they were wrapping up a strong performance from the previous year. The normalization of low-income customers may serve as a headwind in the coming quarters, but this could be offset by better mix.

The speaker discusses the company's performance in the industry and income mix, stating that they have been able to maintain their share and expect moderate improvement in the next two to three quarters. They also mention that they expect the mix to improve and discuss their thoughts on commodity outlook for the fourth quarter.

During a conference call, Raj Vennam discusses the potential risks to the upside or downside in terms of commodities inflation. He explains that the company expects a 3% inflation rate in the third quarter, with beef and produce being the main contributors. However, they are 75% covered for the fourth quarter and have already started planning for 2025. In response to a question about menu innovation, Rick Cardenas states that there is always room for new menu items and potential limited time platforms at Olive Garden and LongHorn.

The company is focused on balancing innovation and improving existing items while keeping the menu simple and avoiding frequent menu changes. They have seen success with limited time offers and opportunity buys at Cheddar's, while Olive Garden is looking to improve and potentially remove items from their menu. The company plans to continue innovating but also prioritize improvements. In terms of same-store sales, there is continued weakness in Texas and California. The company is currently spending less on marketing, but they believe this is the right level for now, even though it is lower than pre-COVID levels.

The speaker discusses the impact of weather on Florida, Texas, and California during the third quarter and the cautious approach to marketing. They mention a methodical increase in marketing and the use of data analysis to ensure effectiveness. The speaker also mentions that the company expects G&A to be similar to the previous quarter and that there have been improvements in managing the business. Despite lower sales, inflation is more favorable.

The company's earnings guidance for the year has been adjusted to $8.80 to $8.90, despite a lower sales forecast. This was achieved through effective cost management and other wins. There has been a softness in traffic for lower-income consumers, but they are not necessarily managing their checks differently. Older consumers, especially those over 65, are managing their checks more and shifting to lunch. However, check management has improved from Q2 to Q3.

Olive Garden has been able to outperform the industry benchmark for same-restaurant traffic by 270 basis points and has gained a significant share over the past two years. This is attributed to their focus on their key equity of never-ending, craveable, abundant Italian food and their efforts to improve the guest experience. Despite a softness in the lower-end consumer market, Olive Garden has been able to maintain its strong everyday value positioning.

The speaker discusses the value of Olive Garden's loyal customers and how they may shift to competitors. They are proud of their 270 basis point gap compared to competitors and believe that customers may switch back and forth between restaurants. The call concludes with a reminder of the release of fourth quarter results and a thank you to participants.

This summary was generated with AI and may contain some inaccuracies.