The paragraph is an introduction to Darden Restaurants, Inc.'s Q2 Fiscal Year 2025 Earnings Conference Call and Webcast. The call is hosted by Phil McClain, Vice President of Finance and Investor Relations, with remarks from Rick Cardenas, Darden's President and CEO, and Raj Vennam, CFO. The discussion includes forward-looking statements subject to risks, as outlined in the company's press release and SEC filings. A presentation is available on their website. Non-GAAP measurements are discussed, with reconciliations included. The company plans to release Q3 earnings on March 20, followed by another call. During the fiscal second quarter, industry same restaurant sales grew by 1%, but guest counts decreased by 1.8%, according to Black Box Intelligence data excluding Darden.

This morning, Rick Cardenas reported a strong quarter with positive same-restaurant sales for their major brands: Olive Garden, LongHorn Steakhouse, Yard House, and Cheddar’s Scratch Kitchen. Olive Garden performed particularly well, with its "never-ending pasta bowl" promotion driving sales, thanks to a consistent price point and high refill rates. Additionally, Olive Garden is piloting an Uber Direct integration in 100 restaurants, with plans to expand post-holiday season. The brand is working on initiatives to attract both core guests and value seekers.

The paragraph discusses recent initiatives and successes within Olive Garden, LongHorn, Yard House, and Cheddar’s. Olive Garden reintroduced popular dishes, such as Steak Gorgonzola and Stuffed Chicken Marsala, achieving positive guest feedback and planning to advertise them in January. LongHorn attributes its success to high-quality steaks and exceptional service, highlighted by hosting a steak cutter summit culminating in awarding the Golden Steak Award. LongHorn focuses on consistently grilling steaks perfectly, leading to high customer satisfaction. Additionally, Yard House and Cheddar’s contributed to positive performance with appealing and innovative menu offerings.

The paragraph discusses the successful marketing strategies and operations of several restaurant brands. The Yard House capitalized on Oktoberfest with Bratwurst sliders, bolstering sales momentum. Cheddar's leveraged Darden's purchasing power for efficient offerings like limited-time Texas T-bone and Ribeye meals, achieving high retention and value scores. Chuy's integration into Darden is underway, with objectives to maintain employee and guest experiences while migrating onto Darden’s platform. The integration timeline may be extended due to a new point of sale system rollout.

The paragraph describes a proprietary system that supports nine brands and provides a competitive advantage through extensive data and insights. The system, originally developed over 20 years ago, is integrated with key restaurant applications to aid managers, enhance operations, and ensure labor compliance. The IT team is modernizing the system for improved usability, updated technology, and real-time analytics, aiming to reduce training time and enhance efficiency. The rollout will help minimize disruptions, specifically at Chuy's. Additionally, the paragraph mentions that Hurricanes Helene and Milton significantly impacted operations, with most restaurants reopening quickly, except for the Chatters in Asheville, North Carolina, which will reopen next fiscal year.

The paragraph discusses Darden's commitment to helping others in times of need and highlights its partnership with the American Red Cross through a $500,000 annual grant to the Disaster Giving Program. It also mentions Darden's internal support system, Darden Dimes, which provided $1.1 million in grants to team members affected by unexpected events. The company's leadership remains focused on its long-term strategy and operating philosophy, expressing pride in their performance and gratitude towards their 195,000 team members. Lastly, it notes that second-quarter earnings met expectations with positive sales at their largest brands.

In the second quarter, sales increased by 6% to $2.9 billion, driven by positive same restaurant sales, the acquisition of 103 Chuy’s locations, and 39 new restaurants. The Thanksgiving holiday shift positively impacted sales, adding 90 basis points, but was partially offset by losses from hurricanes. The company outperformed industry benchmarks in both same restaurant sales and guest counts. Adjusted earnings per share rose by 10%, and $308 million was returned to shareholders through dividends and share repurchases. Cost efficiencies were achieved with lower food, beverage, and labor expenses, although marketing expenses increased due to greater media spending.

The paragraph discusses the restaurant chain's financial performance for the quarter. Their restaurant level EBITDA increased by 70 basis points compared to last year, despite a 10 basis point rise in adjusted G&A expenses due to unfavorable mark-to-market expenses on deferred compensation. This expense was largely offset in their tax line through hedging, resulting in an adjusted tax rate of 12.3%. The interest expense increased by 20 basis points due to financing costs related to the Chuy's acquisition and other cash needs. Overall, their adjusted earnings from continuing operations were $240 million, or 8.3% of sales, improving by 20 basis points from the previous year. In terms of individual segments, Olive Garden's sales grew by 3.3%, outperforming industry benchmarks, while LongHorn's sales increased by 10.4%. Both segments saw a rise in profit margins. However, the fine dining segment experienced a 3.8% decrease in sales, with negative same-restaurant sales across all fine dining brands.

In the paragraph, the company discusses the financial impact of Thanksgiving's shift from the second quarter to the third quarter, along with hurricanes, resulting in a negative impact on same restaurant sales for their fine dining brands. Despite a 3.8% decrease in fine dining sales, there was a sequential improvement from the first quarter. The other business segment saw a 12.9% sales increase, primarily due to acquiring Chuy’s and a slight rise in same restaurant sales, leading to a better profit margin. The financial outlook for fiscal 2025 includes total expected sales of $12.1 billion, with Chuy’s contributing $300 million. The company also outlines expected same restaurant sales growth, new restaurant openings, capital spending, inflation rates, tax rate, and diluted average shares. There is no change to their adjusted diluted net earnings per share outlook. They anticipate lower sales and EPS growth rates in Q3 compared to Q4 due to the Thanksgiving holiday shift.

The paragraph discusses the recent acquisition of 103 Chuy’s restaurants and the expected synergies from this deal, which are anticipated to result in about $17 million in savings by fiscal 2026. The integration is progressing smoothly, and the company believes this transaction will not impact their adjusted earnings per share for the fiscal year, apart from transaction and integration costs. The company expresses satisfaction with their brand teams' efforts and confidence in their business strategy. During the Q&A session, David Palmer from Evercore ISI asks about Olive Garden's performance and why its sales gap compared to the industry is not larger, despite high customer satisfaction. He questions if this is related to a reduction in advertising spend since pre-COVID times. Rick Cardenas responds by highlighting Olive Garden's strong relative performance over the past five years, despite the narrower current gap.

The company recently reflected on past decisions not to engage in significant discount promotions, focusing instead on profitable growth in guest count and sales. They found success by extending their Never Ending Pasta Bowl promotion, which yielded great results. Despite reducing the advertising budget—specifically mentioning significant cuts by LongHorn and some reduction by Olive Garden—they are confident in their long-term strategy. The company's marketing spend is not viewed as problematic, and they're open to adjusting advertising strategies depending on future promotions. They believe they are well-positioned for the second half of the year.

The paragraph discusses the potential for increased marketing in the second half of the year, but specific details are withheld for competitive reasons. Rick Cardenas notes that while the third quarter is typically strong, advertising will differ due to the return of popular menu items and a compelling price point offer. However, he doesn't comment on whether there will be more or less marketing. Additionally, regarding the Never Ending Pasta Bowl promotion at Olive Garden, Cardenas expresses pride in the team's efforts to enhance guest experiences and mentions the positive impact of extending the promotion by four weeks.

The paragraph discusses a successful promotion of the Never Ending Pasta Bowl, highlighting how it maintained strong customer preference and record demand for refills and upgrades despite changes in marketing intensity over its duration. The strategy included the introduction of a new sauce, although it was not as impactful as a full-scale promotional launch. Additionally, there's a discussion about LongHorn's strategy, noting its strong customer engagement despite lower marketing spend. The focus for LongHorn is on delivering quality and experiential value rather than competing on price points like some other casual dining competitors.

The paragraph discusses LongHorn's strategic investments in improving food quality and execution over the years, which contributed to a 7.5% increase in comparable sales for the quarter, adding onto positive growth in previous years. These improvements include better-trained grill masters and more value offered to guests. The results indicate that customers appreciate the high quality and value of the steaks, leading to increased traffic and check averages. The conversation includes some financial details and statistics about these gains. The discussion then shifts to a question about accounting for delivery and service charges in Olive Garden's partnership with Uber Eats.

The paragraph discusses the impact of customers switching from self-pickup to delivery through Uber Eats. Raj Vennam explains that the financial impact is currently minimal, as Uber Eats delivery is only implemented at about 100 restaurants for a part of the quarter, leading to a negligible effect on sales. Looking forward, any potential impact is expected to be small, possibly 5 to 10 basis points, depending on the percentage of delivery sales. Regarding unit growth, Raj attributes an increase of five units to the inclusion of Chuy's restaurants and mentions efforts to build a pipeline for future growth. The paragraph concludes with a transition to a new question from Jeffrey Bernstein of Barclays regarding fiscal ‘25 comp guidance.

In the paragraph, Jeff Bernstein is questioning Raj Vennam about the decision to narrow the sales growth guidance for restaurants to 1.5%, down from a previous range of 1% to 2%. He wonders if this tighter prediction indicates increased confidence in reduced volatility and asks for specifics regarding Olive Garden and LongHorn. Vennam explains that the adjustment is based on observed trends and actions planned for the rest of the year, which suggest more stable sales closer to the midpoint of the range. Additionally, since two quarters have already been completed, they have a better understanding of the expected annual performance. Bernstein also seeks clarification on whether Olive Garden's performance is expected to pick up and notes that LongHorn has been performing well above previous expectations.

In the paragraph, Raj Vennam discusses assumptions about the brand portfolio, while Jeffrey Bernstein inquires about the impact of GLP-1 drugs on fine dining brands. Rick Cardenas explains that no specific brands are leading or lagging, although Ruth's Chris performed slightly less than Capital Grill and ADVs due to operational changes like eliminating lunch and third-party delivery and not increasing prices. Cardenas acknowledges that approximately 6% of the population uses GLP-1 drugs, which might affect higher-end brands, but they will continue to monitor the situation. Jeffrey Bernstein responds with thanks, and the next question is posed by Sara Senatore who inquires about the broader dining environment, noting that fine and polished casual dining was softer, while Olive Garden saw an increase due to protein add-ons.

The paragraph discusses shifting consumer behaviors in dining preferences. Rick Cardenas notes that consumer sentiment is improving, with increased optimism and expectations for a better labor market. There is a growth in visits from consumers earning between $50,000 and $100,000, who tend to favor casual dining brands, while fine dining experiences remain less frequent, especially among those earning less than $150,000. There may be some trade-down from higher-end restaurants like Capital Grill to mid-range ones like LongHorn Steakhouse, but overall dining frequency is not significantly increasing.

The paragraph discusses the performance and growth potential of the Cheddar's brand following its acquisition. Rick Cardenas acknowledges improvements made by John Wilkerson and his team, such as reducing turnover, which has positively impacted operations. Although he hesitates to use the term "inflection point" for Cheddar's growth, Cardenas highlights the brand's operational improvements, recent successful testing, and plans for opening new restaurants, including a lower-cost prototype. He indicates that these efforts will contribute to future unit growth, which they plan to discuss further in their March call.

In the discussion, Raj Vennam provides financial guidance following the Chuy's acquisition, mentioning that G&A costs are expected to rise to around $470 million. Interest expenses are projected to be approximately $47 million per quarter. G&A costs as a percentage of sales are anticipated to see a slight increase due to inflation and capital expenditures. Andrew Charles asks about the inflation outlook for beef, noting a low-single-digit expectation, and inquires about vendor discussions. Raj implies a preference for covering less due to prohibitive costs, opting for more spot market purchasing opportunities instead.

In the discussion, Raj Vennam highlights the effectiveness of their supply chain team's strategy in managing beef prices. Despite a significant year-over-year increase in beef prices, driven by retailer promotions and supply concerns, their strategic approach has yielded strong financial results. Looking ahead, they anticipate opportunities to leverage a seasonal dip in beef prices in early 2025. However, the reluctance of packers to commit due to supply issues has led to unfavorable pricing premiums. Andrew Strelzick then inquires about overall inflation forecasts for 2025 and its impact on margins, to which Raj Vennam responds that they expect approximately a 2.5% rise in total inflation.

In the paragraph, it's discussed that in the first half of the year, food inflation was stable, with labor costs in the high 3% range and other costs around 3%, resulting in an overall inflation rate of just over 2%. Looking ahead, beef, chicken, and seafood are expected to become low-single-digit inflationary factors in the second half, leading to increased costs, particularly in Q4. Labor and other costs are expected to remain constant. Additionally, the performance of Olive Garden's Never Ending Pasta promotion exceeded expectations, with a high number of customers choosing protein add-ons and more refills than anticipated, contributing positively to same-store sales, although the sales impact from the add-ons was not substantial.

Rick Cardenas discusses the current status of their partnership with Uber for delivery services. Although they have not actively promoted it yet, the pilot program has been successful across 100 restaurants, with delivery accounting for around 1.5% of total sales and 6% of the to-go business. Despite the lack of marketing, order volume is increasing weekly, and the average order size for delivery is larger than pickup orders. Additionally, 15% of delivery orders include catering items, a positive surprise, as their existing catering delivery requires orders to be placed by 5:00 p.m. the day before.

The paragraph discusses Olive Garden's strategy for rolling out a new delivery service across its restaurants, aiming for completion by the end of the third quarter. It mentions that after the rollout, there will be a period for operators to familiarize themselves with the system. Olive Garden is planning a marketing campaign, supported by a partnership with Uber, to promote the new delivery service, although the timing of this campaign is not specified. Additionally, it provides details on Olive Garden's pricing, which was just below 3%, and notes that this is in line with overall Darden system pricing. The paragraph also highlights a significant contribution from catering to Olive Garden's mix in the second quarter.

In the paragraph, Raj Vennam discusses the quarterly performance of Olive Garden and LongHorn, highlighting strong September sales driven by Olive Garden's Never Ending Pasta Bowl. Despite disruptions from hurricanes in September and October, which impacted traffic by 30 and 50 basis points respectively, the underlying traffic trends have improved compared to the previous two quarters. As they move into the next quarter, Vennam notes that the holiday schedule is similar to pre-COVID times in 2019, allowing for meaningful comparisons. Overall, the company feels positive about its performance trends relative to pre-COVID levels.

In the paragraph, Lauren Silberman questions Rick Cardenas about the upcoming promotions for three menu items, Stuffed Chicken Marsala, Steak Gorgonzola, and a third classic item. Cardenas explains that for competitive reasons, they won't disclose specific price points but assures that they will offer a compelling price. Only one of these items will have a special price, as the other two are already on the menu. Following this, Jon Tower inquires about improvements in speed of service at Olive Garden and the role of technology upgrades in enhancing service efficiency.

The paragraph discusses the gradual improvements being made in speed across various brands in the casual dining industry. Each brand is implementing speed improvements differently, acknowledging that this is a long-term effort due to historical slowdowns in the industry. An example is given of Cheddar's focusing on certain service updates to enhance speed, resulting in faster execution of tasks. Technology, like next-generation point-of-sale systems and Ziosk tablets, are being used to further improve efficiency. Overall, while early progress is promising, the complete transition to faster operations will take time.

In the paragraph, Rick Cardenas discusses the use of connected TV (CTV) in marketing efforts, particularly for Cheddar's and other brands like Olive Garden and LongHorn. He notes that CTV has been effective in targeting specific demographics and geographic areas, which enhances marketing efficiency despite potentially higher costs compared to traditional linear TV. CTV is seen as a channel with expansion potential across different brands. Ultimately, the effectiveness of targeted advertising through CTV makes it a valuable marketing option.

The paragraph discusses the faster-than-expected rollout of a project involving Uber and Olive Garden, which has been successful due to the seamless integration of new technology and strong operator support at pilot locations. The integration was achieved by combining Olive Garden's point-of-sale system with Uber's system, requiring some adjustments on Uber's part. Despite the fast rollout, the company has not factored any significant additional sales from this initiative into their current fiscal year guidance. Additionally, Dennis Geiger asks about future menu innovation, although no specific details are provided.

The paragraph involves a discussion between Dennis Geiger and Rick Cardenas about Olive Garden's menu innovation and pricing strategy. Rick mentions that Olive Garden has simplified its menu over the years but plans to continue improving it by reintroducing items like Steak Gorgonzola and Stuffed Chicken Marsala, as well as identifying gaps for further innovation. There's also a focus on offering competitive price points for a limited time to attract customers seeking value. In a separate query, Gregory Francfort asks about the role of data processing and AI in Darden's operations. Raj Vennam responds, highlighting that Darden has been proactive in building a robust data infrastructure by investing in tokenization and a data lake, setting a strong foundation for utilizing data effectively.

The paragraph discusses the company's advancements in data analytics and potential integration of generative AI, noting ongoing pilots but limited details to share. Gregory Francfort thanks Raj for the perspective, and Danilo Gargiulo from Bernstein asks about future labor market impacts on restaurant staffing and salaries due to potential immigration policy changes. Rick Cardenas responds that it's too early to predict the new administration's actions but emphasizes confidence in the company's ability to operate in varying immigration environments, referencing their employment strategy and prior experience.

The paragraph discusses Darden's strategy of maintaining lower pricing compared to competitors by enhancing efficiency and leveraging scale advantages to manage various inflations, such as food and labor costs. Over the past five years, their pricing has increased significantly less than the Consumer Price Index (CPI) and limited-service restaurants, aligning with their long-term focus. Rick Cardenas expresses excitement about the company's internal developments and brand initiatives, particularly at Olive Garden, LongHorn, Cheddar's, and Yard House, and feels optimistic about consumer sentiment. Despite external challenges, he is confident in the company's ability to adapt and continue its long-term strategy.

In the conference call, David Tarantino from Baird asks about the significant increase in CapEx guidance, suggesting that it might be related to Chuy's and inquiring if this increase is a good basis for future growth projections. Raj Vennam responds, confirming that the increase is partly due to plans to open five Chuy's restaurants and acquire land, but also due to pipeline development for projects planned for next year. He notes that while maintenance and IT CapEx remain constant at around $300 million annually, an increase in new units will result in higher CapEx. More details will be shared in March. Following this, Rahul Krotthapalli from JPMorgan asks about the potential impact of product deregulation on the casual dining industry, including its effects on M&A and development pipelines.

In the paragraph, Rick Cardenas, representing a full-service restaurant company, avoids commenting on future policies regarding pay or taxes on tip credits, only stating that streamlined restaurant openings would be beneficial. He addresses a question from Rahul Krotthapalli about potentially acquiring a fast-casual brand to attract younger customers, explaining that their company excels in full-service dining and does not plan to enter the fast-casual sector soon. He notes that the company already attracts a higher percentage of younger consumers, and as these consumers age and enter their peak earning years, they tend to frequent casual dining establishments more, as seen historically with millennials.

The paragraph discusses the effectiveness of labor cost management in a business setting. Jake Bartlett inquires about labor efficiencies, noting that labor costs per operating week have been increasing at a slower rate than wage inflation. Raj Vennam responds by attributing this to improved staff turnover rates over the past year and a half, achieving best levels for some brands. He also mentions that the Thanksgiving holiday shifting contributed to more efficient use of labor, especially for casual dining brands. Vennam emphasizes the company's commitment to continuous improvement in labor efficiency.

The paragraph is from a conference call discussing company performance and future expectations. Jake Bartlett inquires about an anticipated increase in selling expenses as a percentage of sales by 2025, noting a 30 basis point rise in the recent quarter. Raj Vennam explains that factors like a longer non-earning period and an extended advertising window due to Thanksgiving shifting contributed to the changes. The company expects a 10 to 20 basis point increase for the full year and indicates willingness to invest in marketing if it boosts sales and profits. Phil McClain concludes the call by announcing the release date for the third quarter results.

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