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Earnings CallFiscal 2017 Q1October 4, 2016
1
Disclaimer / Non-GAAP Information
The following slides are part of a presentation by Darden Restaurants, Inc. (the "Company") and are intended to be
viewed as part of that presentation (the "Presentation"). No representation is made that the Presentation is complete.
Forward-looking statements in this communication regarding our expected earnings performance and all other statements that are not historical
facts, including without limitation statements concerning our future economic performance and expenses, are made under the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of the date on which such
statements are first made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date.
We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature, forward-looking statements
involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of
these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports. These risks and uncertainties include technology
failures including failure to maintain a secure cyber network, food safety and food-borne illness concerns, litigation, unfavorable publicity, risks
relating to public policy changes and federal, state and local regulation of our business, labor and insurance costs, failure to execute a business
continuity plan following a disaster, health concerns including food-related pandemics or virus outbreaks, intense competition, failure to drive
profitable sales growth, our plans to expand our smaller brands Bahama Breeze, Seasons 52 and Eddie V's, a lack of availability of suitable
locations for new restaurants, higher-than-anticipated costs to open, close, relocate or remodel restaurants, a failure to execute innovative
marketing tactics, a failure to develop and recruit effective leaders, a failure to address cost pressures, shortages or interruptions in the delivery of
food and other products and services, adverse weather conditions and natural disasters, volatility in the market value of derivatives, economic
factors specific to the restaurant industry and general macroeconomic factors including interest rates, disruptions in the financial markets, risks of
doing business with franchisees and vendors in foreign markets, failure to protect our intellectual property, impairment in the carrying value of our
goodwill or other intangible assets, failure of our internal controls over financial reporting, an inability or failure to manage the accelerated impact
of social media and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange
Commission.
The information in this communication includes financial information determined by methods other than in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), such as adjusted net earnings per diluted share from continuing operations. The
Company’s management uses these non-GAAP measures in its analysis of the Company’s performance. The Company believes that the
presentation of certain non-GAAP measures provides useful supplemental information that is essential to a proper understanding of the operating
results of the Company’s businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in
accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
IMPORTANT NOTICE
2
$0.28
$0.99
$1.01
$0.68$0.54
$1.21$1.10
$0.88
FY15 FY16 FY15 FY16 FY15 FY16 FY16 FY17
Darden Adjusted EPS3
Q21 Q31 Q42 Q1
$1.56$1.73 $1.75 $1.69
$1.61
$1.85 $1.79 $1.71
FY15 FY16 FY15 FY16 FY15 FY16 FY16 FY17
Darden Sales ($bn)
Q21 Q31 Q42 Q1
Fiscal First Quarter Highlights
1 FY16 Q2 includes the negative impact of the Thanksgiving holiday shift, which occurred in Q3 of FY15.2 FY15 Q4 adjusted to exclude $0.13bn in sales and $0.07 in adjusted diluted earnings per share due to the 53rd week. 3 EPS values, except for FY17 Q1, are adjusted for special items. A reconciliation of reported to adjusted numbers can be found in the additional information section
of this presentation.
2.9%
4.2%
2.6%
1.3%
Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17
Same-Restaurant Sales Growth - Comparable Calendar Basis
3
Continued Top Line Momentum
Same-Restaurant Sales1
Q1 Highlights
2.5%2.8%
4.9%
2.4%2.0%
FY16 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY17 Q1
1 FY16 Same-Restaurant Sales on a comparable calendar basis. Industry excluding Darden brands.
2.0%Same-Restaurant
Sales
+20%OG To Go Growth
+410bpsSame-Restaurant
Sales Industry
Outperformance
4
Strengthening Business Model
0.6%Same-Restaurant
Sales
Q1 Highlights
+270bpsSame-Restaurant
Sales Industry
Outperformance
1 Segment profit margin calculated as (sales less costs of food & beverage, restaurant labor, restaurant expenses and marketing expenses) / sales.2 Segment profit margin adjusted to exclude the impact of incremental rent and other tax expense from the fiscal 2016 real estate transactions.
12.4%
15.0%16.3%
20.0%
17.8%19.0%
14.9%15.6%
1.3%1.3%
1.5%
FY15Q2
FY16Q2
FY15Q3
FY16Q3
FY15Q4
FY16Q4
FY16Q1
FY17Q1
15.4%2
21.3%220.3%2
Segment Profit Margin Percent1
Incremental rent and other tax expense impact on Segment
Profit Margin from fiscal 2016 real estate transactions
17.1%2
+220bpsAdjusted Segment
Profit Margin % vs.
Last Year (Basis Point
Diff)
5
First Quarter Same-Restaurant Sales Growth
-1.2%
0.7%
-1.7%
3.9%
0.0%
Financial Update
7
Fiscal First Quarter Highlights
1.3%Same-Restaurant Sales
$0.88Diluted EPS from Continuing
Operations
$70 millionDividends Paid
29.4%Adjusted Diluted EPS Growth
vs Last Year1
$500 millionNew Share Repurchase
Authorization
1 Prior year EPS values adjusted for special items. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.
~3.2 million Shares Repurchased
8
EAT Margin increased 130 basis points
Fiscal Q1 2017
($ millions) % of Salesvs. PY* (bps)
Favorable/(Unfavorable)
Sales $1,714.4
Food & Beverage $493.2 28.8% 100
Restaurant Labor $545.8 31.8% Flat
Restaurant Expenses $303.7 17.7% (170)
Marketing $63.7 3.7% 20
Restaurant-Level EBITDA $308.0 18.0% (50)
G&A $87.7 5.1% 10
Depreciation & Amortization $66.8 3.9% 100
Impairments ($7.8) (0.5%) 50
EBIT $161.3 9.4% 90
Interest Expense $9.9 0.6% 80
EBT $151.4 8.8% 170
Income Tax ExpenseNote: Effective Tax Rate
$40.3 2.4%26.6%
(40)
EAT $111.1 6.5% 130
Note: Percentages may not foot due to rounding. * Compared to FY16 Q1 adjusted performance. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.
9
1 Segment profit margin calculated as (sales less costs of food & beverage, restaurant labor, restaurant expenses and marketing expenses) / sales.2 Segment profit margin adjusted to exclude the impact of incremental rent and other tax expense from the fiscal 2016 real estate transactions.
All segments had positive sales growth ($ millions)
…with strong Segment Profit Margin, excluding incremental rent from real estate transactions1
20.3%
19.4%
2.3%
FY16 Q1 FY17 Q1
14.9%
15.6%
1.5%
FY16 Q1 FY17 Q1
15.7%
14.8%
0.1%
FY16 Q1 FY17 Q1
17.9%
17.7%
0.6%
FY16 Q1 FY17 Q1
Segment Performance
$945 $961
FY16 Q1 FY17 Q1
$384 $386
FY16 Q1 FY17 Q1
$113 $114
FY16 Q1 FY17 Q1
$245 $253
FY16 Q1 FY17 Q1
Fine Dining Other
Fine Dining Other
21.7%2
17.1%2
14.9%2
18.3%2
Incremental rent and other tax expense impact on Segment Profit Margin from fiscal 2016 real estate transactions
10
Fiscal 2017 Annual Outlook
Note: Dollars in millions except per share amounts.
Total Sales Growth
1.7% to 2.7%
Same Restaurant Sales
1.0% to 2.0%
New Restaurants
24 to 28
Capital Spending
$310 to $350
Cost Savings
$30
Total Inflation
1.5% to 2.0%
Effective Tax Rate
26% to 27%
Sales Margin
Earnings per Diluted Share
$3.87 to $3.97(~126 million Weighted Average Diluted Shares Outstanding)
Updated
11
Thank you to our 150,000 Team Members!
Additional Information
13
Product Breakdown and Contract Coverage For Q2 of Fiscal 2017
¹ Includes cheese, cream, butter, and shortening
² Includes breadsticks and pasta
Commodities Outlook – Q2 of Fiscal 2017
Q2
FY2017
Spend by
Category Coverage Outlook
Beef 20% 80% Mid Single Digit Deflation
Produce 12% 80% Low Single Digit Inflation
Dairy / Oil1 12% 50% Low Single Digit Inflation
Seafood 10% 85% Low Single Digit Inflation
Wheat2 7% 100% Low Single Digit Inflation
Chicken 7% 95% Low Single Digit Deflation
Non-Perishable / Other 32% 75% Flat
Weighted Average
Coverage100% 80%
14
Reported to Adjusted Earnings Reconciliations
Note: The sum of the quarterly Diluted EPS amounts do not total the annual EPS amounts due to the impact of the timing of share repurchases on the weighted average share count. Values may not foot due to rounding.
Fiscal 2016
Q1 Q2 Q3 Q4 Annual
Reported Diluted Net EPS from Continuing Operations $0.63 $0.23 $0.84 $1.10 $2.78
Real Estate Plan Implementation 0.05 0.16 0.03 - 0.26
Debt Retirement Costs - 0.17 0.34 - 0.51
Strategic Action Plan and Other Costs - (0.02) - - (0.02)
Adjusted Diluted Net EPS from Continuing Operations $0.68 $0.54 $1.21 $1.10 $3.53
Fiscal 2015
Q2 Q3 Q4*
Reported Diluted Net EPS from Continuing Operations ($0.24) $1.01 $0.92
Debt Retirement Costs 0.05 0.00 0.00
Strategic Action Plan and Other Costs 0.47 (0.02) 0.16
Adjusted Diluted Net EPS from Continuing Operations $0.28 $0.99 $1.08
Remove 53rd Week Impact (0.07)
Adjusted Diluted Net EPS from Continuing Operations (52-Week Basis) $0.28 $0.99 $1.01
* Reflects an extra week of operations due to a 53 week year
15
Reported to Adjusted EBIT Margin and Earnings Reconciliations
Change
(in millions) 8/28/2016 8/30/2015 (bps)
Sales - as reported 1,714.4$ 1,687.0$
Earnings from continuing operations - as reported 111.1$ 81.0$
Interest, net - as reported 9.9 22.4
Income taxes - as reported 40.3 30.8
EBIT from continuing operations 161.3$ 134.2$
EBIT Margin from continuing operations 9.4% 8.0% 140
EBIT Impacts -$ 8.8$ (1)
Adjusted EBIT from continuing operations 161.3$ 143.0$ Adjusted EBIT Margin from continuing operations 9.4% 8.5% 90
Earnings from continuing operations - as reported 111.1$ 81.0$
EBIT Impacts - 8.8 (1)
Income tax impacts of adjustments - (2.2)
Adjusted earnings from continuing operations 111.1$ 87.6$
Adjusted earnings margin from continuing operations 6.5% 5.2% 130
(1) Represents costs associated with the real estate implementation
Quarter Ended
16
Fiscal and Comparable Calendar Dates
Same-Restaurant Sales Calculation Dates
Fiscal Calendar Basis Comparable Calendar Basis
Q1
June 1, 2015 – August 30, 2015
vs.
May 26, 2014 – August 24, 2014
June 1, 2015 – August 30, 2015
vs.
June 2, 2014 – August 31, 2014
Q2
August 31, 2015 - November 29, 2015
vs.
August 25, 2014 - November 23, 2014
August 31, 2015 - November 29, 2015
vs.
September 1, 2014 - November 30, 2014
Q3
November 30, 2015 – February 28, 2016
vs.
November 24, 2014 – February 22, 2015
November 30, 2015 – February 28, 2016
vs.
December 1, 2014 – March 1,2015
Q4
February 29, 2016 - May 29, 2016
vs.
February 23, 2015 - May 24, 2015
February 29, 2016 - May 29, 2016
vs.
March 2, 2015 - May 31, 2015