Darden Restaurants, Inc.

Thank you for standing by. We now welcome you to Darling Restaurant's first quarter earnings conference call. At this time, all participants are in listen-only mode, and we will have question and answer session. To ask a question, please press star followed by the number one. Please take note that we will only take one question and one follow-up. Now, let me hand the call over to your host, Kevin Kalachuk. You may begin.

Thank you, Ray. Good morning, everyone, and thank you for participating on today's call. Joining me on the call today are Gene Lee, Darden CEO, and Rick Cardenas, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting the presentation during this call which is posted in the investor relations section of our website at Darden.com. Today's discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation. We plan to release fiscal 2020 second quarter earnings on December 19th before the market opens, followed by a conference call. This morning, Jean will share some brief remarks about our quarterly performance and business highlights, and Rick will provide more detail on our financial results from the first quarter. As a reminder, all references to the industry benchmark during today's call refer to the estimated NAPTRAC, excluding Darden, specifically Olive Garden and Longhorn. During our first fiscal quarter, industry total sales growth was flat. Industry same restaurant sales declined 1.2%, and industry same restaurant guest counts decreased 3.3%. Now I'll turn the call over to Gene.

Thank you, Kevin, and good morning, everyone. As you've seen from our press release this morning, we had a solid quarter. Total sales from continuing operations were 2.1 billion, an increase of 3.5%. Same restaurant sales increased 0.9% and diluted net earnings per share were $1.38. Comparable same restaurant sales for the industry continued to weaken during the quarter as the industry once again faced tougher comparisons. However, the industry comping negative is surprising considering unemployment remains at all-time low and there continues to be strong wage growth, which historically has been a positive for the industry. I'm particularly pleased with the performance of Olive Garden and Longhorn Steakhouse given industry performance and their difficult comparisons over the first quarter of last year. We remain focused on our back-to-basics operating philosophy and leveraging our four competitive advantages, and I'm pleased we continue to take share and protect our margins. Turning to brand highlights for the quarter, Olive Garden has a strong quarter, which resulted in its 20th consecutive quarter of same-restaurant sales growth. Total sales grew 3.6%, driven by same restaurant sales growth of 2.2%, and 1.4% growth from new restaurants. Olive Garden's same restaurant sales gap to the industry was 340 basis points this quarter, representing the largest gap to the industry since the first quarter of fiscal 19. And on a two-year basis, Olive Garden grew total sales by nearly 10%, outperforming the industry benchmark by 840 basis points. Olive Garden's results were driven by the team's ongoing focus on flawless execution, everyday value, and convenience. Guest satisfaction ratings remain impressive, and catering delivery metrics reflect the highest intent to recommend within the brand, giving us confidence that our teams are delivering great experiences inside and outside the four walls of our restaurants. The Olive Garden team made the strategic decision to change the order of their first quarter promotions. This was necessary to separate the two strongest value promotions, buy one, take one, and never any possible to more evenly deliver the value messaging throughout the year. While this change, along with associated media shifts and weakening industry trends, resulted in lower traffic than last year, it was the right strategic decision for the long term. Recognizing the strength of buy one, take one promotion, Olive Garden added $5 take-home entrees to the everyday value lineup, which was supported with national advertising to drive awareness. It has been met with strong guest demand, and it will be a catalyst to continue to grow the off-premise business. Everyday value is also strengthened with the introduction of a new weekday lunch menu with 21 options under $10. including guest favorites like chicken parmigiana and items from the Taste of the Mediterranean menu like chicken margarita. This initiative was supported by integrated marketing and resulted in stronger weekday lunch traffic and guest preference. Finally, the Olive Garden team remains focused on their off-premise capabilities to meet their guests' needs for convenience. A key part of that focus has been optimizing the digital sales channel for both mobile and desktop. During the quarter, digital sales grew by more than 30% and represented approximately 40% of to-go sales. Overall, off-premise sales grew 12%, representing 14% of total sales. Olive Garden remains a truly iconic and broadly appealing brand, and the team is doing an excellent job of focusing on their strategy and competing effectively. Longhorn Steakhouse had a strong quarter as well. Total sales grew 4.6%, driven by 2% growth from new restaurants, and same restaurant sales growth of 2.6%. The 26th consecutive quarter, same restaurant sales growth. On a two-year basis, Longhorn grew total sales by 11%, outperforming the industry benchmark by 940 basis points. The Longhorn team remains focused on their long-term strategy of investing in the quality of the guest experience, simplifying operations to drive execution, and leveraging their unique culture to increase team member engagement. During the quarter, the Longhorn team ran two successful menu promotions, Grillmaster Favorites and Firecrafted Flavors, which were supported by their award-winning You Can't Fake Steak advertising campaign. They also supported these promotions by reinforcing their quality story through multiple guest touchpoints. The team also continued to focus on ensuring the to-go experience equals their in-restaurant experience for guests who choose this convenience. The team simplified the online ordering process, which significantly reduced the order time. During the quarter, digital sales grew almost 50% and represented more than one-third of total to-go sales. Additionally, they have now completed a dedicated to-go area in more than half of their restaurants. These actions led to continued improvement in guest satisfaction scores for order accuracy and timeliness and helped to drive to-go sales growth nearly 12%. Finally, Longhorn's industry-leading retention rates continue to even get better despite the tight labor market. Team member turnover during the quarter was 68% compared to approximately 120% for casual dining, and management turnover during the quarter was 13% compared to approximately 36% for casual dining. We know that engaged team members provide better guest experiences, and the Longhorn team's ongoing focus on retention and culture building is a key driver of this strong business performance. Cheddar Scratch Kitchen total sales decreased 2%, driven by same-restaurant sales decline of 5.4%, and partially offset by sales growth from new restaurants of 3.4%. The trend change was driven by reduced marketing efforts and overall industry softness in the quarter. In addition, the same-restaurant sales decline continued to be more pronounced in the former franchise locations. These restaurants experienced significant disruption during the quarter as they were the last restaurants to complete the kitchen transformation project. While I was disappointed to see the sales trend decline, the Cheddar's team made significant progress against their priorities during the quarter. At the beginning of the new fiscal year, they established three new strategic priorities. create a people-focused, results-oriented culture, reduce friction in the guest experience, and build a brand people talk about, with the goal of building on the progress they made last year repairing fundamental elements of the business and improving their sales trajectory. During the quarter, the Cheddar's team continued to see improvements in both manager and team member turnover trends as they implemented initiatives that led to higher retention levels. Overall, staffing levels for both manager and team members improved during the quarter. Because of the progress made this quarter in staffing and retention, the CHDRS team was able to better execute operational improvements designed to enhance the guest experience. For example, they implemented standards that significantly upgraded their ability to successfully serve large parties. With these and other improvements, they saw better guest experience results compared to last year across all key metrics. Near the end of the quarter, Cheddar's introduced a new menu with more price diversity within categories, and they launched their Quick Pick lunch combo starting at $5.99. These combos are generating strong preference at lunch and have led to higher value and intent to return ratings compared to last year. I recognize there's still a lot of work to do, but the progress that Cheddar's team has made operationally and their improved HR metrics are encouraging. Now that they feel they're moving in the right direction from an operations and a staffing perspective, they will begin to increase their working media spend. Cheddar's has the highest guest frequency of any Darden brand, and 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 franchised 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 their strategic initiatives. Our strategy is working, allowing us to continue to grow sales, increase 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 without having the best people in the business, so I want to take this opportunity to thank you, our 185,000 team members, to continue to create memorable dining experiences for our guests. Now I'll turn it over to Rick.