Darden Restaurants, Inc. (NYSE:DRI) Q1 2020 Earnings Conference Call - Final Transcript

Sep 19, 2019 • 08:30 am ET

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Darden Restaurants, Inc. (NYSE:DRI) Q1 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Gene Lee

this investment is intended to build upon the strong position, improve brand awareness and drive trial. They will be leveraging Darden resources and best practices to implement the media plan.

Finally, during the quarter, we acquired four previously franchise restaurant locations in Texas, and I'm pleased to say that each of these four restaurants is performing at a very high level.

In closing, I'm pleased with the progress our teams made executing against the strategic initiatives. Our strategy is working, allowing us to continue to grow sales, increased market share, improve margins and invest in our people and brands, all while continuing to return capital to our shareholders. Of course, none of this would be possible of having the best people in the business, so I want to take this opportunity to thank you our 185,000 team members who continued to create memorable dining experiences for our guests.

Now, I'll turn it over to Rick.

Executive
Rick Cardenas

Thank you, Gene, and good morning, everyone. We had another good quarter with total sales growth of 3.5%, driven by 2.6% growth from the addition of 40 net new restaurants and same-restaurant sales growth of 0.9%. First quarter diluted net earnings per share from continuing operations were $1.38, an increase of 3% from last year's diluted net earnings per share. We paid $108 million in dividends and repurchased $95 million in shares, returning over $200 million to shareholders this quarter.

Before I get into the detailed results from this quarter, I want to mention that we adopted the new accounting standard for leases at the beginning of this fiscal year. Consistent with the expectation discussed on last quarter's call, we estimate that this will negatively impact EPS by approximately $0.05 in fiscal 2020. However, the more meaningful impact was to our balance sheet, as you saw from this morning's press release.

This quarter, we also updated our segment reporting. Beginning in fiscal 2020, our calculation of segment profit now excludes non-cash real estate related expenses and fiscal 2019 has been restated for comparability. This change allows for more consistent evaluation of our business across segments and fiscal periods.

Now turning to our detailed margin results. Food and beverage costs were flat to last year, as pricing of 2% and continued cost savings initiatives offset commodity inflation of approximately 1.5% and continued investments. I'm impressed with restaurant labor being flat to last year, particularly in light of same-restaurant sales growth of 0.9%. Total labor inflation of 4% was offset by pricing, check mix and productivity improvements in new and existing restaurants.

Restaurant expense was unfavorable 10 basis points due to deleverage, as our comp sales growth was below inflation. As a result, restaurant level EBITDA margin of 18.1% was 10 basis points unfavorable to last year. General and administrative expense was 50 basis points lower than last year and favorable mark-to-market expense, which is generally offset in the tax line, lower management incentive expense and sales leverage.

Our Q1 effective tax rate of 9.8% was slightly