DARDEN RESTAURANTS, INC. The discussion and analysis below for the Company, which contains forward-looking statements, should be read in conjunction with the unaudited financial statements, the notes to such financial statements and the "Forward-Looking Statements" included elsewhere in this Form 10-Q. To facilitate review of our discussion and analysis, the following table sets forth our financial results for the periods indicated. All information is derived from the unaudited consolidated statements of earnings for the quarter and six months endedNovember 24, 2019 andNovember 25, 2018 . Three Months Ended Six Months Ended November 24, November 25, November 24, November 25, (in millions) 2019 2018 % Chg 2019 2018 % Chg Sales$ 2,056.4 $ 1,973.4 4.2 %$ 4,190.3 $ 4,034.8 3.9 % Costs and expenses: Food and beverage 583.0 563.3 3.5 1,186.3 1,146.6 3.5 Restaurant labor 692.3 662.4 4.5 1,396.1 1,341.7 4.1 Restaurant expenses 375.6 361.0 4.0 748.0 718.9 4.0 Marketing expenses 66.3 58.0 14.3 135.0 124.5 8.4 General and administrative expenses 91.3 95.1 (4.0 ) 189.3 199.6 (5.2) Depreciation and amortization 87.6 82.8 5.8 173.8 163.5 6.3 Impairments and disposal of assets, net 0.1 2.7 (96.3 ) 0.1 2.8 (96.4) Total costs and expenses$ 1,896.2 $ 1,825.3 3.9$ 3,828.6 $ 3,697.6 3.5 Operating income 160.2 148.1 8.2 361.7 337.2 7.3 Interest, net 13.1 12.8 2.3 24.2 25.9 (6.6) Other (income) expense, net 153.3 - NM 153.3 - NM Earnings (loss) before income taxes (6.2 ) 135.3 NM 184.2 311.3 (40.8) Income tax expense (benefit) (1) (31.6 ) 19.4 NM (13.0 ) 26.5 NM Earnings from continuing operations $ 25.4$ 115.9 (78.1)$ 197.2 $ 284.8 (30.8) Losses from discontinued operations, net of tax (0.7 ) (0.3 ) NM (1.9 ) (3.0 ) NM Net earnings $ 24.7$ 115.6 (78.6)%$ 195.3 $ 281.8 (30.7)% Diluted net earnings per share: Earnings from continuing operations $ 0.21$ 0.92 (77.2)%$ 1.59 $ 2.26 (29.6)% Losses from discontinued operations (0.01 ) - NM (0.02 ) (0.02 ) NM Net earnings $ 0.20$ 0.92 (78.3 )%$ 1.57 $ 2.24 (29.9 )% (1) Effective tax rate NM 14.3 % (7.1 )% 8.5 %
NM- Not meaningful. Percentage increases and decreases over 100 percent were not considered meaningful.
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The following table details the number of company-owned restaurants currently
reported in continuing operations that were open at the end of the second
quarter of fiscal 2020, compared with the number open at the end of fiscal 2019
and the end of the second quarter of fiscal 2019.
November 24, May 26, November 25,
2019 2019 2018
Olive Garden (1) 867 866 858
LongHorn Steakhouse 518 514 510
Cheddar's Scratch Kitchen (2) 166 161 158
Yard House 79 79 75
The Capital Grille (3) 59 58 58
Seasons 52 45 44 42
Bahama Breeze 42 42 41
Eddie V's 23 21 20
Total 1,799 1,785 1,762
(1) Includes six locations in
(2) Includes four restaurants acquired on
(3) Includes one The Capital Burger restaurant.
OVERVIEW OF OPERATIONS Financial Highlights - Consolidated Our sales from continuing operations were$2.06 billion and$4.19 billion for the second quarter and first six months of fiscal 2020, compared to$1.97 billion and$4.03 billion for the second quarter and first six months of fiscal 2019. The increases of 4.2 percent and 3.9 percent in sales for the second quarter and first six months of fiscal 2020 were driven by revenue from the addition of 37 net new company-owned restaurants since the second quarter of fiscal 2019 and combined Darden same-restaurant sales increase of 2.0 percent and 1.5 percent for the second quarter and first six months of fiscal 2020. For the second quarter of fiscal 2020, our net earnings from continuing operations were$25.4 million compared to$115.9 million for the second quarter of fiscal 2019, and our diluted net earnings per share from continuing operations were$0.21 for the second quarter of fiscal 2020 compared to$0.92 for the second quarter of fiscal 2019. For the first six months of fiscal 2020, our net earnings from continuing operations were$197.2 million compared to$284.8 million for the first six months of fiscal 2019, and our diluted net earnings per share from continuing operations were$1.59 for the first six months of fiscal 2020 compared to$2.26 for the first six months of fiscal 2019. Our diluted per share results from continuing operations for the second quarter and first six months of fiscal 2020 were adversely impacted by approximately$0.90 due to a pension settlement charge and approximately$0.01 due to an international structure simplification. Outlook We expect fiscal 2020 sales from continuing operations to increase between 5.3 percent and 6.3 percent, driven by the impact of the 53rd week in fiscal 2020, combined Darden same-restaurant sales growth of 1.0 percent to 2.0 percent and approximately 50 new restaurants. In fiscal 2020, we expect our annual effective tax rate to be between 10.0 percent and 11.0 percent and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between$450.0 million and$500.0 million . 25
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SALES
The following table presents our sales by brand for the periods indicated.
Three Months Ended Six Months Ended
(in millions)
SRS (1) November 24, 2019 November 25, 2018 % Chg SRS (1)
Olive Garden $ 1,023.6 $ 998.1 2.6 % 1.5 % $ 2,113.8 $ 2,050.1 3.1 % 1.9 %
LongHorn Steakhouse $ 447.3 $ 412.6 8.4 % 6.7 % $ 897.5 $ 842.9 6.5 % 4.7 %
Cheddar's Scratch
Kitchen $ 159.2 $ 152.8 4.2 % (1.2 )% $ 324.9 $ 321.8 1.0 % (3.4 )%
Yard House $ 152.9 $ 143.3 6.7 % 0.7 % $ 312.3 $ 292.5 6.8 % (0.7 )%
The Capital Grille $ 116.3 $ 112.5 3.4 % 1.8 % $ 217.2 $ 210.6 3.1 % 1.5 %
Seasons 52 $ 60.6 $ 59.2 2.4 % (3.5 )% $ 118.5 $ 116.0 2.2 % (3.8 )%
Bahama Breeze $ 51.9 $ 52.8 (1.7 )% (3.4 )% $ 118.4 $ 118.7 (0.3 )% (3.9 )%
Eddie V's $ 38.5 $ 34.2 12.6 % 0.5 % $ 73.9 $ 66.1 11.8 % 0.8 %
(1) Same-restaurant sales is a year-over-year comparison of each period's
sales volumes for a 52-week year and is limited to restaurants open at
least 16 months.
Olive Garden's sales increases for the second quarter and first six months of
fiscal 2020 were primarily driven by U.S. same-restaurant sales increases
combined with revenue from new restaurants. The increase in U.S. same-restaurant
sales for the second quarter of fiscal 2020 resulted from a 2.7 percent increase
in average check partially offset by a 1.2 percent decrease in same-restaurant
guest counts. The increase in U.S. same-restaurant sales for the first six
months of fiscal 2020 resulted from a 2.9 percent increase in average check
offset by a 1.0 percent decrease in same-restaurant guest counts.
LongHorn Steakhouse's sales increases for the second quarter and first six
months of fiscal 2020 were primarily driven by same-restaurant sales increases
combined with revenue from new restaurants. The increase in same-restaurant
sales for the second quarter of fiscal 2020 resulted from a 3.5 percent increase
in average check combined with a 3.2 percent increase in same-restaurant guest
counts. The increase in U.S. Same-restaurant sales for the first six months of
fiscal 2020 resulted from a 3.0 percent increase in average check combined with
a 1.7 percent increase in same-restaurant guest counts.
In total, Cheddar's Scratch Kitchen , Yard House, The Capital Grille , Seasons 52,
Bahama Breeze and Eddie V's generated sales for the second quarter and first six
months of fiscal 2020, which were approximately 4.5 percent and 3.5 percent
above last fiscal year's second quarter and first six months, respectively. The
sales increases for the second quarter and first six months of fiscal 2020 were
primarily driven by the incremental sales from new restaurants. Sales growth for
the second quarter of fiscal 2020 also reflected same-restaurant sales increases
at Yard House, The Capital Grille and Eddie V's partially offset by
same-restaurant sales decreases at Cheddar's Scratch Kitchen , Bahama Breeze and
Seasons 52. Sales growth for the first six months of fiscal 2020 also reflected
same-restaurant sales increases at The Capital Grille and Eddie V's partially
offset by same-restaurant sales decreases at Cheddar's Scratch Kitchen , Yard
House, Bahama Breeze and Seasons 52.
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COSTS AND EXPENSES The following table sets forth selected operating data as a percent of sales for the periods indicated. All information is derived from the unaudited consolidated statements of earnings for the quarter and six months endedNovember 24, 2019 andNovember 25, 2018 . Three Months Ended Six Months Ended November 24, 2019 November 25, 2018 November 24, 2019 November 25, 2018 Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Food and beverage 28.4 28.5 28.3 28.4 Restaurant labor 33.7 33.6 33.3 33.3 Restaurant expenses 18.3 18.3 17.9 17.8 Marketing expenses 3.2 2.9 3.2 3.1 General and administrative expenses 4.4 4.8 4.5 4.9 Depreciation and amortization 4.3 4.2 4.1 4.1 Impairments and disposal of assets, net - 0.1 - 0.1 Total operating costs and expenses 92.2 % 92.5 % 91.4 % 91.6 % Operating income 7.8 7.5 8.6 8.4 Interest, net 0.6 0.6 0.6 0.6 Other (income) expense, net 7.5 - 3.7 - Earnings (loss) before income taxes (0.3 ) 6.9 4.4 7.7 Income tax expense (1.5 ) 1.0 (0.3 ) 0.7 Earnings from continuing operations 1.2 % 5.9 % 4.7 7.1
Quarter Ended
• Food and beverage costs decreased as a percent of sales primarily due to a
0.8% impact from pricing and cost savings initiatives partially offset by
a 0.7% impact from unfavorable menu mix and inflation.
• Restaurant labor costs increased as a percent of sales primarily due to a
1.3% impact from inflation partially offset by a 0.7% impact from price
leverage, a 0.3% impact from sales leverage related to favorable menu mix
and a 0.2% impact from improved productivity.
• Marketing expenses increased as a percent of sales primarily resulting
from a shift in the timing of marketing expenses at
due to promotional changes and increased media spending at Cheddar's
Scratch Kitchen .
• General and administrative expenses decreased as a percent of salesprimarily driven by a 0.2% impact related to lower management incentive
expense and a 0.2% impact related to sales leverage.
Six Months Ended
• Food and beverage costs decreased as a percent of sales primarily due to a
1.0% impact from pricing and cost savings initiatives partially offset by
a 0.9% impact from unfavorable menu mix and inflation.
• Restaurant labor costs were flat as a percent of sales as a 0.7% impact
from price leverage, a 0.3% impact from sales leverage related to
favorable menu mix and a 0.2% impact from improved productivity were
offset by a 1.3% impact from inflation.
• General and administrative expenses decreased as a percent of sales
primarily driven by a 0.2% impact related to lower management incentive
expense and a 0.2% impact related to sales leverage.
OTHER (INCOME) EXPENSE, NET Other (income) expense, net was$153.3 million of expense for the second quarter and first six months of fiscal 2020 compared with$0.0 for the second quarter and first six months of fiscal 2019. The expense increase was primarily due to a pre-tax pension settlement charge resulting from the termination of our primary non-contributory defined benefit pension plan. 27
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INCOME TAXES The effective income tax rate for continuing operations for the quarter endedNovember 24, 2019 was a 509.7 percent benefit compared to an effective income tax rate expense of 14.3 percent for the quarter endedNovember 25, 2018 . The effective income tax rate for continuing operations for the six months endedNovember 24, 2019 was a 7.1 percent benefit compared to an effective income tax rate expense of 8.5 percent for the six months endedNovember 25, 2018 . The effective income tax rate change for the quarter and six months endedNovember 24, 2019 was primarily due to lower earnings before income taxes for fiscal 2020 driven primarily by a pension settlement charge recorded during the quarter endedNovember 24, 2019 . LOSSES FROM DISCONTINUED OPERATIONS On an after-tax basis, losses from discontinued operations for the second quarter and first six months of fiscal 2020 were$0.7 million ($0.01 per diluted share) and$1.9 million ($0.02 per diluted share) compared with losses from discontinued operations for the second quarter and first six months of fiscal 2019 of$0.3 million ($0.00 per diluted share) and$3.0 million ($0.02 per diluted share). SEGMENT RESULTS We manage our restaurant brands, Olive Garden,LongHorn Steakhouse ,Cheddar's Scratch Kitchen , Yard House,The Capital Grille , Seasons 52,Bahama Breeze and Eddie V's inNorth America as operating segments. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. Our four reportable segments are: (1) Olive Garden, (2)LongHorn Steakhouse , (3) Fine Dining and (4) Other Business (see Note 6 to our unaudited consolidated financial statements in Part I, Item 1 of this report). Our management uses segment profit as the measure for assessing performance of our segments. Beginning in fiscal 2020 we changed the allocation of non-cash real estate-related expenses from our operating segments to corporate. Fiscal 2019 segment profit has been restated to conform to the current year presentation. The following table presents segment profit margin for the periods indicated. Three Months Ended Six Months Ended Segment November 24, 2019 November 25, 2018 Change November 24, 2019 November 25, 2018 Change Olive Garden 18.6% 18.4% 20 BP 19.8% 19.5% 30 BP LongHorn Steakhouse 16.1% 16.3% (20 ) BP 16.3% 16.4% (10 ) BP Fine Dining 19.6% 19.7% (10 ) BP 17.4% 17.7% (30 ) BP Other Business 11.1% 12.3% (120 ) BP 12.6% 13.8% (120 ) BP The increase in Olive Garden's segment profit margin for the second quarter and first six months of fiscal 2020 was driven primarily by leveraging positive same-restaurant sales. The decrease inLongHorn Steakhouse's segment profit margin for the second quarter and first six months of fiscal 2020 was due to food cost inflation, primarily beef, as well as a shift in the timing of media spend as a result of promotional changes. The decrease in Fine Dining's segment profit margin for the second quarter and first six months of fiscal 2020 was driven primarily by new restaurant labor inefficiencies and incremental pre-opening expenses. The decrease in Other Business' segment profit margin for the second quarter and first six months of fiscal 2020 was driven by incremental marking expense, primarily atCheddar's Scratch Kitchen and margin impact from negative same-restaurant sales. SEASONALITY Our sales volumes fluctuate seasonally. Typically, our average sales per restaurant are highest in the winter and spring, followed by the summer, and lowest in the fall. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. LIQUIDITY AND CAPITAL RESOURCES Cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures for new restaurants and to remodel and maintain existing restaurants, to pay dividends to our shareholders and to repurchase shares of our common stock. Since substantially all of our sales are for cash and cash equivalents, and accounts 28 -------------------------------------------------------------------------------- payable are generally paid in 5 to 60 days, we are able to carry current liabilities in excess of current assets. In addition to cash flows from operations, we use a combination of long-term and short-term borrowings to fund our capital needs. We currently manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable costs. Our publicly issued long-term debt currently carries the following ratings: • Moody's Investors Service "Baa2";
•
• Fitch "BBB".
Our commercial paper has ratings of: • Moody's Investors Service "P-2";
•
• Fitch "F-2".
These ratings are as of the date of the filing of this Form 10-Q and have been obtained with the understanding that Moody's Investors Service,Standard & Poor's and Fitch will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating. We maintain a$750.0 million revolving credit agreement (Revolving Credit Agreement) withBank of America, N.A . (BOA), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and affirmative and negative covenants (including limitations on liens and subsidiary debt and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. As ofNovember 24, 2019 , we were in compliance with all covenants under the Revolving Credit Agreement. The Revolving Credit Agreement matures onOctober 27, 2022 , and the proceeds may be used for working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions and general corporate purposes. Loans under the Revolving Credit Agreement bear interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid (Applicable Margin), or the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Eurocurrency Rate plus 1.00 percent) plus the Applicable Margin. Assuming a "BBB" equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement will be 1.000 percent for LIBOR loans and 0 percent for base rate loans. As ofNovember 24, 2019 , we had no outstanding balances under the Revolving Credit Agreement. As ofNovember 24, 2019 , our outstanding long-term debt consisted principally of: •$500.0 million of unsecured 3.850 percent senior notes due inMay 2027 ;
•
•
•
The interest rate on our$42.8 million senior notes due inOctober 2037 is subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As ofNovember 24, 2019 , no such adjustments are made to this rate. We may from time to time repurchase our remaining outstanding debt in privately negotiated transactions. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. From time to time we enter into interest rate derivative instruments. See Note 11 to our unaudited consolidated financial statements in Part I, Item 1 of this report, which is incorporated by reference. Net cash flows provided by operating activities of continuing operations increased to$443.1 million for the first six months of fiscal 2020, from$433.9 million for the first six months of fiscal 2019. Net cash flows used in investing activities of continuing operations were$309.7 million for the first six months of fiscal 2020, compared to$241.8 million for the first six months of fiscal 2019. Capital expenditures increased to$256.5 million for the first six months of fiscal 2020 from$233.0 million for the first six months of fiscal 2019 reflecting an increase in new 29 -------------------------------------------------------------------------------- restaurant construction and remodel activity during fiscal 2020. Net cash flows used in investing activities for fiscal 2020 also reflect net cash used of$37.0 million in the acquisition ofCheddar's Scratch Kitchen restaurants from an existing franchisee. Net cash flows used in financing activities of continuing operations were$433.8 million for the first six months of fiscal 2020, compared to$194.7 million for the first six months of fiscal 2019. Net cash flows used in financing activities for the first six months of fiscal 2020 included share repurchases of$230.9 million and dividends paid of$215.7 million . Net cash flows used in financing activities for the first six months of fiscal 2019 reflected dividends paid of$186.0 million and share repurchases of$92.3 million partially offset by net proceeds from the issuance of short-term debt of$45.0 million and proceeds from the exercise of employee stock options. Dividends declared by our Board of Directors totaled$1.76 per share for the first six months of fiscal 2020, compared to$1.50 per share for the same period in fiscal 2019. OnSeptember 18, 2019 , our Board of Directors authorized a new share repurchase program under which we may repurchase up to$500.0 million of our outstanding common stock. This repurchase program does not have an expiration and replaces all other outstanding share repurchase authorizations. During the quarter and six months endedNovember 24, 2019 , we repurchased 1.2 million and 2.0 million shares of our common stock, respectively, compared to 0.6 million and 0.9 million shares of our common stock, respectively, during the quarter and six months endedNovember 25, 2018 . As ofNovember 24, 2019 , of the 195.3 million cumulative shares repurchased under current and previous authorizations, 184.0 million shares were retired and restored to authorized but unissued shares of common stock. We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales, costs or expenses, results of operations, liquidity, capital expenditures or capital resources. We believe that our Revolving Credit Agreement and internal cash generating capabilities will be sufficient to finance our ongoing capital expenditures, dividends, stock repurchase program and other operating activities through fiscal 2020. It is possible that changes in circumstances existing as of our annual impairment test on the first day of the fourth quarter of fiscal 2019 or at other times in the future, or in the numerous estimates associated with management's judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment loss of a portion or all of our goodwill or trademarks. If we recorded an impairment loss, our financial position and results of operations would be adversely affected and our leverage ratio for purposes of our credit agreement would increase. If such leverage ratio were to exceed the maximum permitted under our credit agreement, we would be in default under our credit agreement. As ofNovember 24, 2019 , a write down of goodwill, other indefinite-lived intangible assets, or any other assets in excess of approximately$1.10 billion would have been required to cause our leverage ratio to exceed the permitted maximum. Due to the seasonal nature of our business, a lesser amount of impairment in future quarters could cause our leverage ratio to exceed the permitted maximum. FINANCIAL CONDITION Our current assets totaled$535.5 million as ofNovember 24, 2019 , compared to$892.6 million as ofMay 26, 2019 . The decrease was primarily due to a decrease in cash and cash equivalents primarily driven by the repurchase of our common stock and by dividends paid. Our current liabilities totaled$1.56 billion as ofNovember 24, 2019 , compared to$1.47 billion as ofMay 26, 2019 . The increase was primarily related to an increase in other current liabilities due to the operating lease liability recorded as a result of the adoption of the new lease accounting guidance, partially offset by a decrease in unearned revenues associated with gift card redemptions in excess of gift card sales as well as a decrease in accrued payroll related to the payment of annual incentive compensation. CRITICAL ACCOUNTING ESTIMATES We prepare our consolidated financial statements in conformity withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales, costs and expenses during the reporting period. Actual results could differ from those estimates. We have discussed the development, selection and disclosure of those estimates with the Audit Committee. Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year endedMay 26, 2019 . 30 -------------------------------------------------------------------------------- APPLICATION OF NEW ACCOUNTING STANDARDS Information regarding application of new accounting standards is incorporated by reference from Note 1 to our unaudited consolidated financial statements in Part I, Item 1 of this report. FORWARD-LOOKING STATEMENTS Statements set forth in or incorporated into this report regarding the expected increase in the number of our restaurants, projections forU.S. same-restaurant sales and capital expenditures in fiscal 2020, and all other statements that are not historical facts, including without limitation statements with respect to the financial condition, results of operations, plans, objectives, future performance and business ofDarden Restaurants, Inc. and its subsidiaries that are preceded by, followed by or that include words such as "may," "will," "expect," "intend," "anticipate," "continue," "estimate," "project," "believe," "plan," "outlook" or similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements for any reason to reflect events or circumstances arising after such date. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. In addition to the risks and uncertainties of ordinary business obligations, and those described in information incorporated into this report, the forward-looking statements contained in this report are subject to the risks and uncertainties described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year endedMay 26, 2019 , which are summarized as follows: • Insufficient guest or employee facing technology, or a failure to maintain
a continuous and secure cyber network, free from material failure,
interruption or security breach;
• Food safety and food-borne illness concerns throughout the supply chain;
• The inability to hire, train, reward and retain restaurant team members or
an inability to adequately monitor and proactively respond to employee
dissatisfaction;
• A failure to recruit, develop and retain effective leaders or the loss or
shortage of key personnel, or an inability to adequately monitor and
respond to employee dissatisfaction;
• Insufficient or ineffective response to legislation or government
regulation may impact our cost structure, operational efficiencies and
talent availability;
• Litigation, including allegations of illegal, unfair or inconsistent
employment practices;
• Unfavorable publicity, or a failure to respond effectively to adverse
publicity;
• An inability or failure to recognize, respond to and effectively manage
the accelerated impact of social media;
• The inability to cancel long-term, non-cancelable leases that we may want
to cancel or the inability to renew the leases that we may want to extend
at the end of their terms;
• Labor and insurance costs;
• Our inability or failure to execute a comprehensive business continuity
plan following a major natural disaster such as a hurricane or manmade
disaster, including terrorism;
• Health concerns arising from food-related pandemics, outbreaks of flu
viruses or other diseases;
• Intense competition, or an insufficient focus on competition and the
consumer landscape;
• Changes in consumer preferences that may adversely affect demand for food
at our restaurants;
• Our failure to drive both short-term and long-term profitable sales growth
through brand relevance, operating excellence, opening new restaurants of
existing brands and developing or acquiring new dining brands;
• A lack of suitable new restaurant locations or a decline in the quality of
the locations of our current restaurants;
• Higher-than-anticipated costs to open, close, relocate or remodel restaurants;
• A failure to identify and execute innovative marketing and guest
relationship tactics and ineffective or improper use of other marketing
initiatives and increased advertising and marketing costs;
• A failure to address cost pressures, including rising costs forcommodities, labor, health care and utilities used by our restaurants, and
a failure to effectively deliver cost management activities and achieve
economies of scale in purchasing;
• The impact of shortages or interruptions in the delivery of food and other
products from third-party vendors and suppliers;
• Adverse weather conditions and natural disasters;
• Volatility in the market value of derivatives we may use to hedge
commodity and broader market prices;
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• Economic and business factors specific to the restaurant industry and
other general macroeconomic factors including energy prices and interest
rates that are largely out of our control;
• Disruptions in the financial markets that may impact consumer spending
patterns, affect the availability and cost of credit and increase pension
plan expenses;
• Risks associated with doing business with franchisees and licensees;
• Risks associated with doing business with business partners and vendors in
foreign markets;
• Failure to protect our service marks or other intellectual property;
• Impairment of the carrying value of our goodwill or other intangible assets;
• Changes in tax laws or treaties and unanticipated tax liabilities; and
• A failure of our internal controls over financial reporting and future
changes in accounting standards.
Any of the risks described above or elsewhere in this report or our other filings with theSEC could have a material impact on our business, financial condition or results of operations. It is not possible to predict or identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. Therefore, the above is not intended to be a complete discussion of all potential risks or uncertainties. 32
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