Darden Restaurants, Inc.

Welcome to the Darden Fiscal Year 2020 Second Quarter Earnings Call. Your lines have been placed on listen only until the question and answer session. To ask a question, you may press star 1 on your touchtone phone. The conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Mr. Kevin Kalachak. You may begin.

Thank you, Carol. 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 a 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 third quarter earnings on March 19th before the market opens, followed by a conference call. This morning, Gene will share some brief remarks about the quarterly performance and business highlights, and then Rick will provide more detail on our financial results from the second quarter. As a reminder, all references to the industry benchmark during today's call refer to estimated NAPTRAC, excluding Darden, specifically Olive Garden and Longhorn Steakhouse. During our fiscal second quarter, industry total sales growth was 1.2%. Industry same restaurant sales increased 0.3%, and industry same restaurant guest counts decreased 2.3%. 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 good quarter. Total sales from continue operations were $2.06 billion, an increase of 4.2%. Same restaurant sales increased 2%. And adjusted diluted net earnings per share were $1.12. Looking at the industry overall, we continue to see that consumers are willing to visit brands with compelling value and strong in-restaurant execution. That's why we remain relentlessly focused on executing our back-to-basics operating philosophy anchored in food, service, and atmosphere, and supported with integrated marketing that resonates with our guests. We also continue to strengthen and leverage our four competitive advantages. One of those advantages is our results-oriented culture. Amidst record low unemployment, I am proud to see our retention rates continue to improve. We have a compelling employment proposition and our ability to retain and staff our restaurants with the right people is an important driver of our success. Turning to brand highlights for the quarter. Olive Garden delivered its 21st consecutive quarter same restaurant sales growth. Total sales grew 2.6% driven by same restaurant sales growth of 1.5% and 1.1% growth from new restaurants. Olive Garden outperformed the industry benchmark in same restaurant sales and traffic by 120 basis points and 110 basis points, respectively. As a reminder, Olive Garden had a difficult promotional wrap to start the quarter with Lasagna Mia comping over buy one, take one for the first four weeks. Additionally, we made some changes to our promotional messaging and we reduced marketing spending. As a result, we had to make up some ground from negative same-restaurant sales at the beginning of the quarter. Sales trends improved as we moved into never-ending pasta bowl with more comparable marketing spend. The Olive Garden team continues to focus on operational execution, convenience, and everyday value. Delivering exceptional guest experiences remain a key priority for their restaurant teams. Olive Garden also continued to meet their guest's need for convenience as off-premise sales grew 17% during the quarter, driven by strong preference for their $5 take-home offer. For the quarter, off-premise sales represented 17% of total sales. Digital sales grew approximately 33% and represented 38% of total to-go sales. Finally, as we noted last quarter, Olive Garden introduced a new weekday lunch menu with 21 options under $10 to strengthen everyday value. This platform continues to perform well, and they're seeing meaningful improvements in lunch sales trends. Overall, I'm pleased with Olive Garden's performance. They have the right strategy in place, and I'm confident that they will continue to make the appropriate investments and execute at a high level, which will enable them to continue to grow market share. Longhorn Steakhouse had an outstanding quarter. Total sales grew 8.4%, driven by 1.7% growth from new restaurants and same restaurant sales growth of 6.7%, the brand's 27th consecutive quarter same restaurant sales growth. Longhorn outperformed the industry benchmark in same restaurant sales and traffic by 640 basis points and 550 basis points respectively. Longhorn's performance is a result of adhering to 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. Over the last four years, the team has made significant investments in this strategy, and those investments continue to pay off. During the quarter, they introduced several enhancements to existing core menu items to further strengthen the quality of their food and beverage. And in order to tell their quality story more effectively, the Longhorn team evolved their award-winning You Can't Fake Steak advertising campaign to better communicate their expertise and showcase their high-quality steaks. The overall Longhorn experience is a key differentiator, and their distinctive relevant advertising continues to resonate with guests. Longhorn with design is a very simple business, and the operations team has done an excellent job of finding opportunities to simplify to drive execution. During the quarter, they implemented a number of ideas that were the result of direct feedback from restaurant teams. Additionally, a renewed focus on execution standards led to improved throughput during the busiest weekend hours this quarter. And finally, Longhorn continues to leverage the biggest competitive advantage, their unique culture. Manager retention reached another all-time high during the quarter, and hourly retention rates remained at industry-leading levels. This high level of engagement is further evidenced by the fact that Longhorn's guest satisfaction rating for the quarter reached record levels across all key metrics. I'm extremely proud of the discipline the Longhorn leadership team brings to the business, and I'm confident that adhering to their long-term strategy will continue to drive their momentum. Cheddar's Scratch Kitchen total sales increased 4.2% driven by sales growth from new restaurants of 5.4% and partially offset by same restaurant sales decline of 1.2%. We continue to see improvement in Cheddar's HR and operations metrics, which we know are foundational elements of running great restaurants. I'm encouraged by these trends, knowing that the restaurants that have made these improvements are operating successfully. Overall staffing levels for manager and team members remain strong during the quarter, and retention levels continue to move in the right direction. Hourly turnover improved by nearly 20 points compared to last year, and management turnover showed meaningful improvement as well. From an operations perspective, Cheddar's is a high-volume business that requires efficient throughput. One of the key operations metrics the team focused on during the quarter was speed of service, and they saw significant improvement versus last year. In fact, they saw strong improvement in the guest experience across all key metrics compared to last year. In addition to strengthening HR and operating fundamentals, the team also worked to improve the appeal of the amazing value Cheddar's offers. In October, they began providing every guest with their most craveable and highest rated menu item, their honey butter croissants. This is an element of guest service that we identified as an opportunity when we acquired the brand. Providing every guest with a warm honey butter croissant reinforces the wild value Cheddar's provides. After making the necessary operational adjustments to facilitate this new step of service, And given the overall improvements the operations teams have made, this was the right time to roll it out. And the response from the guests and team members has been very positive. As I shared on the last call, this quarter the Cheddar team increased their working media spend and conducted numerous tests and learns using a variety of marketing channels to drive awareness and trial. They're in the early stages of this learning and still have a lot of work to do. They will continue to invest the time, effort, and resources in order to determine the most effective way to market the brand in the future. While I'm encouraged by the results we're seeing, the work at Cheddar's is far from over. The team is working on the right priorities, and I'm confident they are moving in the right direction. And finally, the holidays are the busiest time of the year for our restaurant teams as they delight our guests and help create lasting holiday memories. This time of year is also a great reminder that being of service is at the heart of our business. We embrace a higher purpose of enhancing people's lives, which is why we serve with purpose to delight our guests, support our team members, and make a better tomorrow. One of the ways we're working to make a better tomorrow is through our harvest program. One in eight households in our country live without consistent access to food. To help fight hunger, Every one of our restaurants donates surplus food to local food banks and nonprofits in their communities on a weekly basis. More than 115 million pounds of food has been donated through this program. That's the equivalent of nearly 96 million meals. The impact of our harvest program takes on added significance during the holidays, and I'm so proud of the passion our team members have for it. On behalf of the management team and the board of directors, I want to thank our 185,000 team members for everything you do to serve our guests and communities. I wish all of you a wonderful holiday season. Now I'll turn it over to Rick.