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 nine months endedFebruary 23, 2020 andFebruary 24, 2019 . Three Months Ended Nine Months Ended February 23, February 24, February 23, February 24, (in millions) 2020 2019 % Chg 2020 2019 % Chg Sales$ 2,346.5 $ 2,246.5 4.5 %$ 6,536.8 $ 6,281.3 4.1 % Costs and expenses: Food and beverage 658.0 638.0 3.1 1,844.3 1,784.6 3.3 Restaurant labor 753.8 711.4 6.0 2,149.9 2,053.1 4.7 Restaurant expenses 396.7 379.5 4.5 1,144.7 1,098.4 4.2 Marketing expenses 71.6 62.4 14.7 206.6 186.9 10.5 General and administrative expenses 100.3 102.8 (2.4 ) 289.6 302.4 (4.2 ) Depreciation and amortization 87.7 85.3 2.8 261.5 248.8 5.1 Impairments and disposal of assets, net 0.1 1.6 (93.8 ) 0.2 4.4 (95.5 ) Total costs and expenses$ 2,068.2 $ 1,981.0 4.4$ 5,896.8 $ 5,678.6 3.8 Operating income 278.3 265.5 4.8 640.0 602.7 6.2 Interest, net 13.2 12.4 6.5 37.4 38.3 (2.3 ) Other (income) expense, net - - - 153.3 - - Earnings (loss) before income taxes 265.1 253.1 4.7 449.3 564.4 (20.4 ) Income tax expense (1) 31.8 28.0 13.6 18.8 54.5 (65.5 ) Earnings from continuing operations$ 233.3 $ 225.1 3.6$ 430.5 $ 509.9 (15.6 ) Losses from discontinued operations, net of tax (1.0 ) (1.5 ) NM (2.9 ) (4.5 ) NM Net earnings$ 232.3 $ 223.6 3.9 %$ 427.6 $ 505.4 (15.4 )% Diluted net earnings per share: Earnings from continuing operations$ 1.90 $ 1.80 5.6 %$ 3.48 $ 4.06 (14.3 )% Losses from discontinued operations (0.01 ) (0.01 ) NM (0.02 ) (0.04 ) NM Net earnings$ 1.89 $ 1.79 5.6 %$ 3.46 $ 4.02 (13.9 )% (1) Effective tax rate 12.0 % 11.1 % 4.2 % 9.7 %
NM- Percentage change not considered meaningful.
25--------------------------------------------------------------------------------
Table of Contents
The following table details the number of company-owned restaurants currently
reported in continuing operations that were open at the end of the third quarter
of fiscal 2020, compared with the number open at the end of fiscal 2019 and the
end of the third quarter of fiscal 2019.
February 23, May 26, February 24,
2020 2019 2019
Olive Garden 870 866 860
LongHorn Steakhouse 522 514 512
Cheddar's Scratch Kitchen (1) 169 161 159
Yard House 81 79 78
The Capital Grille (2) 60 58 58
Seasons 52 45 44 43
Bahama Breeze 42 42 42
Eddie V's 23 21 20
Total 1,812 1,785 1,772
(1) Includes four restaurants acquired on
acquired on December 2, 2019 .
(2) Includes two The Capital Burger restaurants in fiscal 2020 and one in
fiscal 2019.
OVERVIEW OF OPERATIONS
Financial Highlights - Consolidated
Our sales from continuing operations were $2.35 billion and $6.54 billion for
the third quarter and first nine months of fiscal 2020, compared to $2.25
billion and $6.28 billion for the third quarter and first nine months of fiscal
2019. The increases of 4.5 percent and 4.1 percent in sales for the third
quarter and first nine months of fiscal 2020 were driven by revenue from the
addition of 40 net new company-owned restaurants since the third quarter of
fiscal 2019 and combined Darden same-restaurant sales increase of 2.3 percent
and 1.8 percent for the third quarter and first nine months of fiscal 2020.
For the third quarter of fiscal 2020, our net earnings from continuing
operations were $233.3 million compared to $225.1 million for the third quarter
of fiscal 2019, and our diluted net earnings per share from continuing
operations were $1.90 for the third quarter of fiscal 2020 compared to $1.80 for
the third quarter of fiscal 2019. For the first nine months of fiscal 2020, our
net earnings from continuing operations were $430.5 million compared to $509.9
million for the first nine months of fiscal 2019, and our diluted net earnings
per share from continuing operations were $3.48 for the first nine months of
fiscal 2020 compared to $4.06 for the first nine months of fiscal 2019. Our
diluted per share results from continuing operations for the first nine 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.
Recent Developments
In March 2020 , the COVID-19 outbreak was declared a National Public Health
Emergency and resulted in a significant reduction in guest traffic at our
restaurants due to changes in consumer behavior as individuals are being
encouraged to practice social distancing, reduced restaurant seating capacity
and other restrictions mandated by state and local governments. As of March 20,
2020 , we have closed the dining rooms in all of our restaurants and almost all
continue to operate on a "To Go" only or, for some restaurants, "To Go plus
delivery" model. We have been in discussions with our major suppliers and
currently have not experienced disruptions in our supply chain. In response to
the current conditions, our Board of Directors has suspended the quarterly cash
dividend and intends to review our dividend policy as developments warrant.
Additionally, to secure our liquidity position and provide financial flexibility
given uncertain market conditions we have fully drawn on our $750.0 million
Revolving Credit Agreement and suspended our current share repurchase activity.
See the subsection below entitled "Liquidity and Capital Resources" for further
details.
Outlook
Given the level of volatility and uncertainty surrounding the future impact of
the COVID-19 outbreak, measures taken to control its spread, the broader US
economy and any specific impact on our financial results, we have withdrawn our
full year financial outlook for fiscal 2020.
26--------------------------------------------------------------------------------
Table of Contents
SALES
The following table presents our sales by brand for the periods indicated.
Three Months Ended Nine Months Ended
(in millions)
SRS (1)
1,169.3 $ 1,130.2 3.5 % 2.1 % $ 3,283.0 $ 3,180.3 3.2 % 1.9 %
LongHorn Steakhouse $ 510.7 $ 483.2 5.7 % 3.9 % $ 1,408.2 $ 1,326.2 6.2 % 4.4 %
Cheddar's Scratch
Kitchen $ 174.9 $ 166.8 4.9 % (1.6 )% $ 499.9 $ 488.6 2.3 % (2.7 )%
Yard House $ 164.1 $ 154.8 6.0 % 1.8 % $ 476.4 $ 447.3 6.5 % 0.2 %
The Capital Grille $ 142.0 $ 134.3 5.7 % 4.2 % $ 359.1 $ 344.9 4.1 % 2.5 %
Seasons 52 $ 75.3 $ 70.6 6.7 % 3.0 % $ 193.8 $ 186.6 3.9 % (1.3 )%
Bahama Breeze $ 57.6 $ 57.5 0.2 % (0.5 )% $ 176.0 $ 176.2 (0.1 )% (2.6 )%
Eddie V's $ 46.4 $ 40.2 15.4 % 3.9 % $ 120.3 $ 106.3 13.2 % 2.0 %
(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 third quarter and first nine 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 third quarter of fiscal 2020 resulted from a 1.9 percent increase
in average check combined with a 0.2 percent increase in same-restaurant guest
counts. The increase in U.S. same-restaurant sales for the first nine months of
fiscal 2020 resulted from a 2.5 percent increase in average check partially
offset by a 0.6 percent decrease in same-restaurant guest counts.
LongHorn Steakhouse's sales increases for the third quarter and first nine
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 third quarter of fiscal 2020 resulted from a 2.3 percent increase
in average check combined with a 1.6 percent increase in same-restaurant guest
counts. The increase in same-restaurant sales for the first nine months of
fiscal 2020 resulted from a 2.7 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 third quarter and first nine
months of fiscal 2020, which were approximately 5.8 percent and 4.3 percent
above last fiscal year's third quarter and first nine months, respectively. The
sales increases for the third quarter and first nine months of fiscal 2020 were
primarily driven by the incremental sales from new restaurants. Sales growth for
the third quarter of fiscal 2020 also reflected same-restaurant sales increases
at Yard House, The Capital Grille , Seasons 52 and Eddie V's partially offset by
same-restaurant sales decreases at Cheddar's Scratch Kitchen and Bahama Breeze .
Sales growth for the first nine months 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.
27--------------------------------------------------------------------------------
Table of Contents
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 nine months endedFebruary 23, 2020 andFebruary 24, 2019 . Three Months Ended Nine Months Ended February 23, 2020 February 24, 2019 February 23, 2020 February 24, 2019 Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Food and beverage 28.0 28.4 28.2 28.4 Restaurant labor 32.1 31.7 32.9 32.7 Restaurant expenses 16.9 16.9 17.5 17.5 Marketing expenses 3.1 2.8 3.2 3.0 General and administrative expenses 4.3 4.6 4.4 4.8 Depreciation and amortization 3.7 3.8 4.0 4.0 Impairments and disposal of assets, net - 0.1 - 0.1 Total operating costs and expenses 88.1 % 88.2 % 90.2 % 90.4 % Operating income 11.9 11.8 9.8 9.6 Interest, net 0.6 0.6 0.6 0.6 Other (income) expense, net - - 2.3 - Earnings (loss) before income taxes 11.3 11.3 6.9 9.0 Income tax expense 1.4 1.2 0.3 0.9 Earnings from continuing operations 9.9 % 10.0 % 6.6 % 8.1 %
Quarter 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 0.6% 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 0.8% impact from price
leverage.
• Marketing expenses increased as a percent of sales primarily resulting
from increased media spending at Olive Garden and Cheddar's Scratch
Kitchen .
• General and administrative expenses decreased as a percent of sales
primarily due to sales leverage.
Nine Months Ended
• Food and beverage costs decreased as a percent of sales primarily due to a
1.1% impact from pricing and cost savings initiatives partially offset by
a 0.9% 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 and a 0.3% impact from improved productivity.
• Marketing expenses increased as a percent of sales primarily resulting
from increased media spending at
• General and administrative expenses decreased as a percent of sales
primarily driven by a 0.2% impact related to sales leverage and a 0.1%
impact related to lower management incentive expense.
OTHER (INCOME) EXPENSE, NET Other (income) expense, net was$0.0 for the third quarter and$153.3 million of expense for the first nine months of fiscal 2020 compared with$0.0 for the third quarter and first nine months of fiscal 2019. The expense increase for the first nine months of fiscal 2020 was primarily due to a pre-tax pension settlement charge resulting from the termination of our primary non-contributory defined benefit pension plan. 28
--------------------------------------------------------------------------------
Table of Contents
INCOME TAXES The effective income tax rate for continuing operations for the quarter endedFebruary 23, 2020 was 12.0 percent compared to an effective income tax rate of 11.1 percent for the quarter endedFebruary 24, 2019 . The effective income tax rate for continuing operations for the nine months endedFebruary 23, 2020 was 4.2 percent compared to an effective income tax rate of 9.7 percent for the nine months endedFebruary 24, 2019 . The effective income tax rate increase for the quarter endedFebruary 23, 2020 was primarily due to higher earnings before income taxes. The effective income tax rate decrease for the nine months endedFebruary 23, 2020 was primarily due to lower earnings before income taxes for fiscal 2020 driven primarily by a pension settlement charge. LOSSES FROM DISCONTINUED OPERATIONS On an after-tax basis, losses from discontinued operations for the third quarter and first nine months of fiscal 2020 were$1.0 million ($0.01 per diluted share) and$2.9 million ($0.02 per diluted share) compared with losses from discontinued operations for the third quarter and first nine months of fiscal 2019 of$1.5 million ($0.01 per diluted share) and$4.5 million ($0.04 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 Nine Months Ended Segment February 23, 2020 February 24, 2019 Change February 23, 2020 February 24, 2019 Change Olive Garden 21.1% 21.7% (60 ) BP 20.3% 20.3% - BP LongHorn Steakhouse 20.5% 20.1% 40 BP 17.8% 17.8% - BP Fine Dining 24.8% 24.9% (10 ) BP 20.3% 20.5% (20 ) BP Other Business 14.5% 15.1% (60 ) BP 13.3% 14.2% (90 ) BP The decrease in Olive Garden's segment profit margin for the third quarter of fiscal 2020 was driven primarily by increased labor costs due to inflation as well as incremental marketing expense, primarily related to television media. Olive Garden's segment profit margin for the first nine months of fiscal 2020 was flat compared to prior year. The increase inLongHorn Steakhouse's segment profit margin for the third quarter of fiscal 2020 was driven primarily by leveraging positive same-restaurant sales.LongHorn Steakhouse's segment profit margin for the first nine months of fiscal 2020 was flat compared to prior year driven primarily by leveraging positive same-restaurant sales, offset by increased food and beverage costs due to promotional changes. The decrease in Fine Dining's segment profit margin for the third quarter and first nine 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 third quarter and first nine months of fiscal 2020 was driven by incremental marketing 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. 29
-------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Typically, 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 payable are generally paid in 5 to 60 days, we are typically able to carry current liabilities in excess of current assets. As previously noted, all of our restaurants are currently operating at reduced capacities due to the COVID-19 outbreak and may not be able to generate sufficient cash from operations to cover all of our projected expenditures while operating at these reduced capacities. Accordingly, in response to the current conditions, we have suspended our dividend until further notice, and to secure our liquidity position and provide financial flexibility, we have drawn$750.0 million from our Revolving Credit Agreement (see below for additional information) and suspended our current share repurchase activity. We may also continue to pursue additional liquidity alternatives with our relationship banks as conditions warrant. 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 "Baa3";
•
• Fitch "BBB".
Our commercial paper has ratings of: • Moody's Investors Service "P-3";
•
• 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 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 ofFebruary 23, 2020 , 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 ofFebruary 23, 2020 , we had no outstanding balances under the Revolving Credit Agreement. As noted above, onMarch 17, 2020 , we provided notice to the lenders to borrow the full$750.0 million available under the Revolving Credit Agreement. The applicable interest rate for this loan is currently 1.773 percent. We may use the proceeds from the Revolving Credit Agreement borrowing for working capital, ongoing operating needs and general corporate purposes. As ofFebruary 23, 2020 , 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
30
--------------------------------------------------------------------------------
maximum adjustment is 2.000 percent above the initial interest rate and the
interest rate cannot be reduced below the initial interest rate. As of
February 23, 2020 , 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 $922.4 million for the first nine months of fiscal 2020, from
$920.0 million for the first nine months of fiscal 2019.
Net cash flows used in investing activities of continuing operations were $447.4
million for the first nine months of fiscal 2020, compared to $349.7 million for
the first nine months of fiscal 2019. Capital expenditures increased to $374.5
million for the first nine months of fiscal 2020 from $346.9 million for the
first nine months of fiscal 2019 reflecting an increase in new restaurant
construction and remodel activity during fiscal 2020. Net cash flows used in
investing activities for fiscal 2020 also reflect net cash used of $50.1 million
in the acquisition of Cheddar's Scratch Kitchen restaurants from existing
franchisees.
Net cash flows used in financing activities of continuing operations were $608.1
million for the first nine months of fiscal 2020, compared to $403.8 million for
the first nine months of fiscal 2019. Net cash flows used in financing
activities for the first nine months of fiscal 2020 included share repurchases
of $300.3 million and dividends paid of $322.3 million . Net cash flows used in
financing activities for the first nine months of fiscal 2019 reflected
dividends paid of $278.4 million and share repurchases of $166.0 million
partially offset by proceeds from the exercise of employee stock options.
Dividends declared by our Board of Directors totaled $2.64 per share for the
first nine months of fiscal 2020, compared to $2.25 per share for the same
period in fiscal 2019.
On September 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
nine months ended February 23, 2020 , we repurchased 0.6 million and 2.6 million
shares of our common stock, respectively, compared to 0.7 million and 1.6
million shares of our common stock, respectively, during the quarter and nine
months ended February 24, 2019 . As of February 23, 2020 , of the 195.9 million
cumulative shares repurchased under current and previous authorizations, 184.6
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.
As of February 23, 2020 , a write down of goodwill, other indefinite-lived
intangible assets, or any other assets in excess of approximately $1.22 billion
would have been required to cause our leverage ratio to exceed the permitted
maximum under the Revolving Credit Agreement. After giving consideration to the
$750.0 million borrowing on the Revolving Credit Agreement mentioned above, a
write down of goodwill, other indefinite-lived intangible assets, or any other
assets in excess of approximately $970.0 million would have been required to
cause our leverage ratio to exceed the permitted maximum. We conduct our annual
impairment test on the first day of our fourth quarter. Given the present
uncertainty surrounding the global economy due to the COVID-19 outbreak,
including but not limited to stock price volatility in general, the volatility
of our stock price as well as our competitors, declining sales at our
restaurants and the challenging environment for the restaurant industry, it is
possible that our analysis could result in a non-cash impairment loss of a
portion or all of our goodwill, other indefinite-lived intangible assets, or
other assets. 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 Revolving Credit Agreement would increase. If such leverage
ratio were to exceed the maximum permitted under that agreement, we would be in
default.
FINANCIAL CONDITION
Our current assets totaled $686.0 million as of February 23, 2020 , compared to
$892.6 million as of May 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 $1.68 billion as of February 23, 2020 , compared
to $1.47 billion as of May 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 as
well as an increase in unearned revenues associated with gift card sales in
excess of gift card redemptions.
31
--------------------------------------------------------------------------------
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with U.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 ended May 26, 2019 .
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 for U.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 of Darden 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
ended May 26, 2019 and in our Forms 10-Q (including this report), which are
summarized as follows:
• The impacts of the novel coronavirus (COVID-19) pandemic on our business
and the response of governments and of our company to the outbreak;• 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;
32--------------------------------------------------------------------------------
Table of Contents
• 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;
• Economic and business factors specific to the restaurant industry andother 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. 33
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
