Darden Restaurants, Inc.

Your lines have been placed on a listen only until the question and answer session. To ask a question, you may press star one on your touch tone phone. The conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the conference over to Mr. Kevin Kalacak. Thank you, sir. You may begin.

Thank you, Jess. Good morning, everyone, and thank you for participating on today's call. Joining me on the call today are Gene Lee, Darden's chairman and CEO, Rick Cardenas, President and COO, and Raj Vinam, 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 those measurements are included in the presentation. Any reference to pre-COVID when discussing second quarter performance is a comparison to the second quarter of fiscal 2020. This is because last year's results are not meaningful due to the pandemic's impact on the business and the limited capacity environment that we operated in during the second quarter of fiscal 21. We plan to release fiscal 2022 third quarter earnings on Thursday, March 24th, before the market opens, followed by a conference call. This morning, Jean will share some brief remarks, Rick will give an update on our operating performance, and Raj will provide more detail on our financial results and an update to our fiscal 2022 financial outlook. Now, I'll turn the call over to Gene.

Thank you, Kevin, and good morning, everyone. As you saw from our release this morning, we had a fantastic quarter. Sales trends remained strong throughout the quarter as all our brands stayed laser-focused on creating memorable guest experiences. Despite the toughest inflationary environment we've seen in years, we achieved strong, profitable sales growth. Our ongoing success navigating the pandemic is a testament to the power of our strategy driven by our back-to-basics operating philosophy and the strength of our four competitive advantages. Our disciplined commitment to our strategy has allowed us to manage this environment well while returning significant cash to our shareholders. People and product will continue to be our focus, and Rick will share more details about that in a minute. Additionally, our teams have done a great job managing inflation effectively and Raj will provide more color on that during his remarks. The holidays are the busiest time of 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, which is why we're committed to serving our guests, our team members, and our communities. One of the ways we serve our communities is by helping fight hunger. This fiscal year, through our foundation, Darden provided $2.5 million to help our partners at Feeding America add refrigerated trucks for 15 food banks to support mobile pantry programs, and distribution in communities facing high rates of food insecurity. We are uniquely positioned to help, and by leveraging our scale and relationships with partners like Penske Truck Leasing and Lineage Logistics, we're proud to do our part to help get food into the hands of people who need it. On behalf of our management team and the board of directors, I want to thank our team members for everything you do to serve our guests and our communities, and I wish you all a wonderful holiday season. Finally, earlier today we announced that effective May 30th, Rick will succeed me as chief executive officer and will join Darden's board of directors. This is the right time for this transition, and I look forward to continuing to serve as Darden's chairman. Our company is in a clear position of strength, And this is also the right time for me and my family. I'm excited for Rick, who's been a tremendous partner over the last seven years and is one of the best strategic thinkers I've worked alongside. Our brands have tremendous opportunity ahead of them, and Rick is the perfect person to lead Darden into the next chapter. On behalf of the board, Darden's management team, and our 170,000 team members, I want to congratulate Rick and wish him all the best. Rick.

Thank you, Gene. Good morning, everyone. It is an honor to be appointed Darden's next chief executive officer, and I'm grateful to Jean and the board for their confidence in me. It is humbling to lead 170,000 outstanding team members who nourish and delight everyone we serve. I was incredibly fortunate to work with each of Darden's CEOs, so I have a strong appreciation for the legacy of leadership I am inheriting. By upholding our commitment to operational excellence and maximizing the power of the Darden platform, we will continue to execute our strategy to drive growth and shareholder value. Turning to the quarter, our restaurants continue to execute at a high level. Our focus on simplifying operations to drive execution remains our top priority, which is why we once again paused any new initiatives during the quarter in order to eliminate distractions and allow our operators to focus on running great shifts. This pause also ensures they can zero in on people and product as we navigate through the current staffing and supply chain challenges. From a people perspective, we feel good about the progress we've made on the staffing front. Across our brands, manager staffing levels are above historical norms, and team member staffing levels continue to improve. Our new hiring system has made it easier to source talent, giving our management teams more time to focus on successfully onboarding and training new team members. We also continue to invest in our team members, further strengthening our industry-leading employment proposition. Earlier this year, we committed to increasing the minimum hourly earnings for our restaurant team members to $12, which includes income earned through gratuities, by January 2023. However, given the strength of our performance, we were accelerating that timing to January 2022. This primarily impacts entry-level roles such as hosts, busters, and dishwashers, And with this change, we expect our restaurant team members will earn, on average, approximately $20 per hour. Our people are the key to our performance. We work hard to be the employer of choice in our industry, and we're proud that our retention rates for managers and team members are both in the top quartile. And we will continue to invest in them to retain and attract the best talent in the industry. On the product side, our supply chain team continues to do a great job making sure our restaurants have the products they need to serve our guests. Our inventory levels are strong, and the team's ability to meet the needs of the business can be seen in the fact that we shipped more cases in the last two quarters than at any time during Darden's history. The ability to maintain supply continuity for our restaurants minimizes distractions and allows our operators to focus on executing at the highest level. whether our guests are in our dining rooms or enjoying the convenience of to-go. During the quarter, to-go sales continued to benefit from the strength of our digital platform. This platform not only makes it easier for our teams to execute, it makes it more convenient for our guests to visit, order, pay, and pick up. Off-premise sales accounted for 28% of total sales at Olive Garden and 15% of total sales at Longhorn Steakhouse. Digital transactions accounted for 60% of all off-premise sales during this quarter, and 11% of Darden's total sales. Finally, we successfully opened 12 new restaurants during the quarter, including a flagship yard house in Times Square, with minimal staffing challenges. The time to build a new restaurant is longer today than it has been historically, and we are also beginning to see longer lead times for kitchen equipment and technology hardware. Regardless, we remain on track to open approximately 35 to 40 new restaurants this fiscal year. To wrap up, I also want to recognize our team members in our restaurants and our support center for your tireless efforts in creating exceptional experiences for our guests. I wish you all a safe and happy holiday season. Now we'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. Total sales for the second quarter were $2.3 billion, 37% higher than last year, driven by 34.4% same-restaurant sales growth and the addition of 34 net new restaurants. Average weekly sales grew by more than 7% compared to pre-COVID. Deluded net earnings per share from continuing operations were $1.48. Total EBITDA was $335 million, resulting in EBITDA margin of 14.7%. The significant business model improvements we made over the past year and a half, combined with strong sales, resulted in margin growth of 270 basis points compared to pre-COVID. We expect this to be the highest quarterly EBITDA margin growth this fiscal year, as this quarter has the most opportunity given its low seasonality. We continue to return significant cash to shareholders, paying $143 million in dividends and repurchasing $266 million in shares totaling over $400 million of cash returned to investors in the quarter. And while we're happy with our performance, cost pressures continue to exceed our expectations on both commodities and labor, with total inflation of 6% this quarter. Our teams continue to demonstrate agility in managing through this environment. This quarter, we implemented several mitigating actions to preserve the strength of our business model while balancing the impact to our guests and team members. One of these actions was taking additional pricing. For the second quarter, total pricing was 2%, and we expect back half pricing to approach 4%, resulting in total pricing of just under 3% for the full fiscal year. We continue to execute our strategy of pricing significantly below our overall inflation to strengthen our value leadership position by leveraging our scale. This level of pricing covers most of what we consider to be the structural and long-lasting impacts of the current inflationary environment and absorbing what we consider to be more short-term fluctuations while providing future flexibility should there be a need. For the rest of the fiscal year, we expect commodity and labor inflation to peak in our third quarter and then start to slow down as we enter the fourth quarter and lap commodities inflation of 4.3% in the fourth quarter of last year. Now turning to our P&L and segment performance for the second quarter, we're comparing against pre-COVID results in the second quarter of 2020, which we believe are more comparable to normal business operations and with how we've been framing our margin expansion opportunity. For the second quarter, Food and beverage expenses were 220 basis points higher, driven by elevated commodity inflation of 9 percent, as well as investments in food quality, portion size, and pricing significantly below inflation. Restaurant labor was 90 basis points favorable, driven by sales leverage and efficiencies gained from operational simplifications, and was partially offset by elevated wage pressures. Hourly wage inflation during the quarter was almost 9 percent. Restaurant expenses were 130 basis points lower due to sales leverage, which more than offset higher utilities costs. Marketing spend was $44 million lower, resulting in 230 basis points of favorability. As a result, restaurant-level EBITDA margin for Darden was 18.8%, 230 basis points better than pre-COVID levels. G&A expense was 40 basis points lower, driven by savings from the corporate restructuring in fiscal 2021, a decrease in mark-to-market expense, and sales leverage. Turning to our segment performance, second quarter sales at Olive Garden increased 5% versus pre-COVID. Strong performance, especially as we were wrapping against nine weeks of never-ending possible. This sales growth combined with the business model improvements at Olive Garden helped drive a segment profit margin increase of 320 basis points, even while offsetting elevated inflation. Longhorn continued its strong sales growth with an increase of 22% versus pre-COVID. However, inflationary pressures, including double digits for commodities, were at their highest level in the second quarter, resulting in reduction of segment profit margin by 80 basis points. Sales at our fine dining segment increased 22% versus pre-COVID as this segment continues to see a strong rebound in performance. Segment profit margin grew by 140 basis points, driven by strong sales leverage and operational efficiencies, which more than offset double-digit commodities inflation. Our other segment grew sales by 7% versus pre-COVID and segment profit margin by 250 basis points. This segment continues to perform well, and we're pleased to see the business model transformation persist. Finally, turning to our financial outlook for fiscal 2022, we updated our outlook for the full year to reflect our performance year to date and our expected performance for the remainder of the year. We now expect total sales of $9.55 billion to $9.7 billion, representing growth of 9% to 11% from pre-COVID levels, Same restaurant sales growth of 29% to 31%, and 35 to 40 new restaurants. Capital spending of approximately $425 million. Total inflation of approximately 5.5%, with commodities inflation between 7% and 8%. Total restaurant labor inflation between 6% and 6.5%, which includes hourly wage inflation approaching 9%. EBITDA of $1.55 billion to $1.6 billion, an annual effective tax rate of approximately 14%, and approximately 130 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $7.35 and $7.60. This outlook implies EBITDA margin growth versus pre-COVID similar to our previous outlook of 200 to 250 basis points, with flow-through from pricing and higher sales helping offset elevated inflation. Now, we'll take your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up. You may re-signal if you have more questions. Again, that is star 1 to ask a question. We'll take our first question from Brian Bittner at Oppenheimer.

Thank you so much for the question and good morning. First and foremost, congratulations to both Jean and Rick on the big announcement today. Jean, I know this is not goodbye yet, but I just want to say it's truly been a pleasure as an analyst to witness what you've done to reshape and better position the Darden Enterprise over the last seven years. My question is related to pricing and costs. And it's not surprising that you moved your total cost inflation guidance up a bit, given the turbulent environment. But your EBITDA margin guidance at its midpoint is unchanged versus your prior inflation guidance. So you're obviously taking a bit more price, which you talked about in your prepare remarks. Should we interpret these actions as a firm commitment to the EBITDA margin goals that you've been talking about? And are you confident that you have the pricing levers if it's something you need to continue to use in the future to hold the line on these margins? Or is this about as far as you want to go on pricing for the foreseeable future? Thanks.

Yeah. Hi, Brian. This is Raj. I think, as you alluded to, we have, you know, we committed to the 200 to 250 at the beginning of the year, and we've shown through the, you know, two quarters now that we're adjusting our business model, adjusting our thinking on pricing based on where our business model is, you know, coming out. So as we look at our P&L, we continue to look at opportunities to manage costs better, and we are focused on doing some of that before we take pricing. But with that said, we preserved a lot of flexibility, and we have, you know, and we are tapping into some of that. But we do believe we have more dry powder if needed. And I think the way we're thinking about it is really, you know, some of these excess sales are going to help offset some of this elevated inflation. The other piece I mentioned in my prepared remarks was that We're really focused on pricing to cover for the structural parts of it, and then, you know, trying to kind of weather through the short-term fluctuations. But we are committed to the margin growth.

Thank you.

We'll take our next question from Andrew Charles at Catlin.

First and foremost, Deco Brian. Gene, congrats on a story career, not just at Darden, but at Rare as well. And Rick, congrats to you as well for a very deserved promotion. I had two questions. The first one is Olive Garden saw steady improvement on a two-year basis in 2Q without really changing the advertising and promotional strategy much. And as you guys mentioned, really focusing on operations. And as we start here of calendar 2022, how do you think about the competitive environment changes that are likely to occur this year and how this will impact your marketing promotion plans that have thus far really not changed that much over the last few months?

Andrew, this is Rick. First of all, I just want to say how proud I am of the work that Dan and his team has done, keeping with our strategy. We did have trends improve in Q2, and we exceeded industry to your comp growth, so thanks for noticing that. You know, I think... One of the things that we've been thinking about through marketing spend is we're going to continue to look for equilibrium and react accordingly to whatever happens in the marketplace. Advertising will always be a part of Darden's mix because of the scale advantage they have. And if and when we increase our marketing spend, we'd expect it to earn a return compared to where we were if we didn't have any marketing spend. So, you know, we're going to continue to see what happens. We know that there's some advertisers out there with some heavy TRPs. We had $44 million less in media this quarter than we did two years ago, and we feel good about where we were.

Then, Rick, just a follow-up question. The off-garden, off-premise mix at 28% was pretty steady from 1Q to 2Q. This had been decelerating in quarters before that as the dining business picked up. And I know historically you'd said longer-term off-garden, off-premise sales would likely settle at 20% at least. But has the recent experience led you to believe that off-premise mix can perhaps be 25% plus longer-term?

Andrew, yes, you mentioned our – To-go sales at Olive Garden were a little bit higher than they were in Q1. This is a typically lower volume quarter for us, and the to-go sales stayed up there, so that helped our total percentage. To answer your question about where we expect it to be, we do expect it to be higher than our 20% that we said. It is a little bit stickier than we thought. You guys were all right about that, a little stickier than we thought. We're not going to necessarily say we expect it to be a 25%, but probably above 20%.

We'll move to our next question from Eric Gonzalez at KeyBank Markets.

Hey, thanks for the question. I'd also like to give my congratulations to Gene and to Rick. My question is, you know, it looks like November was a relatively strong month for the industry. I think the NAPTRAC accelerated to a little over 6%. Can you talk about the sustainability of that trend line? You know, how much of a pull forward in demand is that given the earlier holiday shopping and maybe which of your brands might have benefited more from that phenomenon?

Yeah, Eric. Yes, we saw the same increase in November that the industry did. As I said, Olive Garden was ahead of the industry, and so was Longhorn. What I would say is it's too early to tell if it was a pull forward from shopping. We do know that retail sales were a little bit more online this year than a normal kind of after Thanksgiving, and some of the retailers were closed on Thanksgiving Day. But it's too early to tell about that. We do have a shift, as we've said before, that Thanksgiving shifted back into our second quarter from our third quarter two years ago, and we're seeing that kind of impact this quarter. So still too early to tell, but the holidays do line up pretty well for us. I will caveat all that by saying weather is the biggest fluctuation in this quarter, and we'll see what happens. If weather hits during a holiday period, then that could be a little bit of a challenge on the comp.

That makes sense. And then just on the seasonality of the business, I think Raj was talking about how EBITDA growth was highest in the second quarter. I'm guessing there's a lot of staffing that needs to happen during the holiday period, just given that the overall number of crew members is higher. So can you talk about what the margin implications are for the third quarter? and how staffing in this environment might impact the margins?

Yeah, Eric, I think when you think about Q3, historically it's been a strong seasonal quarter, right? The volumes are higher. Our margins are really high. I mean, if you go back to pre-COVID, I think we were in the 15-plus range for the third quarter when our annual was around 14%. So the point I think we're trying to make here is that, you know, once you start approaching that 17-plus percent, it starts to get harder and harder. That means, you know, so that's really what we're trying to talk about is that there was a lot more opportunity in Q2 because you were able to leverage that, you know, low-volume period, some of the fixed costs better, and it just gets harder and harder when you're at the high volume. The staffing is higher. We do staff, you know, we want to, you know, staff, over-staff, especially during peak periods.

and during the holidays that's part of that but overall you know 17 plus is starts to get hotter all right thanks we'll go next to chris okul with steeple sorry about that please go ahead thanks for taking the question and i'd also like to congratulate gene and rick gene it's been a pleasure to follow the success you've had over the past 20 years covering Rare and Darden, so congrats. So, Rick, given the promotional level remains low at Olive Garden, was the acceleration in the comps, you think, due more to an improvement in staffing and capacity utilization quarter to quarter, or have you seen customers really start to respond to some of the ongoing quality improvements the company's made there?

Hello? Stand by just one moment, Chris. Sorry about that, guys.

Sorry. You know, Chris, thanks a lot for the question. This is Rick. As a reminder, the second quarter is our lowest seasonal quarter. We did run NEPB two years ago, so we're really proud of the fact that we comped over two years ago without never any possible running. And this was really aided by the point you made of in staffing, aided by productivity enhancements we made during the quarter, and the fact that our two new team members were moving up the learning curve more quickly and becoming more productive. And there could be something about vaccination rates being above Q1 levels, so maybe people are more comfortable dining out. And the fact that we have, as you mentioned, made these investments in our core items. We've made great investments in the items that people really want. The value ratings are great. And we're just executing at a high level.

That's helpful. And then just one other question related to commodity inflation. I don't know if this is for Rick or Raj, but I'm wondering if you have any insights into how processors, packers, distributors are going to pass through the inflation that they're experiencing. And what I'm trying to understand is how much commodity inflation could be permanent versus temporary and whether you believe restaurants can get back to that kind of pre-COVID cost of sales if commodity prices were at comparable levels to that period.

Hey, Chris, it's Gene. Let me just jump in here. And I think about this. The commodity infrastructure pre-COVID was able to feed the world without a lot of inflation. And that's what the world getting richer is. And so I believe that the commodity infrastructure will get back to an equilibrium where it will be able to produce, you know, the food needed to feed everyone. And I don't think there'll be a lot of inflation in that. I think where the inflation is going to come in in commodities is going to be whatever labor impact there is to grow and deliver that food. And so I think we still have 12 to 18 months for that to all work its way out. But there was something happening over the last decade where we weren't seeing a tremendous amount of inflation in food. And I think it had to do with technology and other aspects. And I think that all those capabilities are still there. And so I just end by saying what we don't know is How much labor is involved in each product to grow and deliver and harvest and so on and so forth? And what are the impacts the labor is going to have on the commodities? And so I think we're going to wait and see. I don't know. I mean, I think the end of your question was, are we going to get COGS back to historical levels? Yes, I think over time. It will take time. But I think these models will all drift back to the same what I would call prime cost model, you know, when you add labor and COGS.

That's helpful. Thank you.

We'll take our next question from John Glass with Morgan Stanley.

Well, good morning, and hats off, Gene, and congrats, Rick, as well. Gene or Rick, first, just on, can you talk about the wage increases? I guess broadly, when I see a number like $12 an hour, when you compare it to other retailers or even some others in other segments of retail of restaurants, it still seems low I know you're a top quartile payer in your industry. Do you think the casual dining industry in general, though, is maybe underpaying relative to others in retail and there's a need just to continue to advance that? And maybe if you could just unpack the 12th, is it a hybrid number that includes gratuities? So maybe what is the back of the house starting wages, for example, just so we can maybe better benchmark without including the gratuities, which we don't really have exactly a handle on.

Yeah, John, I think where I'd start was, you know, we basically said we expect our average to be approximately $20 after this goes into effect. Now, very few people in our company make minimum wage. This is what I would call an entry-level wage in more rural America. And, you know, in the major cities, you're not hiring anybody for $12 an hour today. This is, you know, an increase in a guarantee to our workforce. will probably have more impact on Cheddar's than any of our other brands. And so, you know, starting wages or wage rates vary very, very much depending on geography and overall demand. You know, we have people that in our environment that make $25 to $28 an hour in the back of the house. And in some parts of the country, you're doing that same job for $18 an hour, depending on the environment. And so I don't believe in your macro question around this casual dining paying too little. I don't think that's true. I think casual dining is paying the appropriate rates in the marketplace based on supply and demand. And I think our teams are doing a very, very good job of looking at the overall situation and ensuring that we're paying probably a little bit more of the competitive wage in each market to ensure that our restaurants are fully staffed. And I'm very encouraged by Rick's comments that our restaurants today are better staffed than they were last quarter and they're better staffed than the quarter before. You know, we still have strong, strong retention rates. And I think that, you know, the way we think about it, I'll leave you with this. The way we think about it is that there may not be enough service workers to staff every restaurant in America, but there's enough service workers out there to staff Darden's restaurants, and that's what we're focused on. That's great to hear.

One follow-up, Rick, I think you mentioned putting on pause some initiatives to focus on operations right now. What are some examples of those initiatives that you've put on pause? Are they sales driving initiatives that we can think about coming back over time? Are they more marginally? I don't know what they are, but what maybe is some examples of those and when do you think they come back?

I think about a couple of things that are not directly related to training and staffing. So those initiatives we're still working on, making sure that we've got our restaurant staffed and we've got our people trained. But things like new product development that, you know, for years we'd done a lot of new development, but we're focusing on just developing one or two products a year that are really great. And so we thought it was right for us to not go ahead and do that during this time when we can keep managers focused entirely on staffing their restaurant, make sure they train their people. So that's an example. We're still doing a lot of things here in the support center that are getting ready to gear up, a lot on the technology front, but that was one example. Perfect. Thank you.

We'll take our next question from Peter Seller at BTIG.

Great. Thank you, and good morning, and congrats to both Gene and Rick. A couple questions on my end. I think you guys mentioned longer lead times to open units, really getting some of the equipment in there. Can you give us a little bit more color on that? Are we talking weeks or months? And do you see any end to that? Is that something that you think persists for a while, or is that kind of more short-term in nature?

Yeah, this is Rick. We're talking weeks, not months. A couple of weeks here or there. We may have a restaurant or two that might go a little bit longer than that, but on average we're a few weeks. And we are starting to order a lot of these long lead time items a lot sooner and actually holding them in inventory, which not driving our inventory costs up, but making sure that we have the kitchen equipment to open the restaurant when the restaurant's ready to open. So not very long.

Great. And then just lastly on my end, is there any other technology or any other processes that you guys are implementing or looking at, maybe kitchen equipment or other, that could help reduce some of the labor hours necessary in the restaurant?

Yeah, Peter, we've always focused on our technology in three places, and I'll talk about the two big ones, guest-facing and restaurant technology. So if you think about what we're doing on the restaurant side, we are doing a lot of things to help improve productivity, simplifying processes for managers so that they don't have to hunt and peck and do other things, so that they can spend their time training their people. But we don't foresee bringing in in technology that will reduce the number of people that we need to do the job. We are a full-service restaurant company. We're going to maintain that to provide the service that our guests expect. We will bring technology in to help that, but not to necessarily replace.

Peter, one of the things that I think that's most interesting is machine learning for forecasting. Forecasting our businesses, forecasting our restaurant business is one of the most important things that we do every single day. And, you know, we think there's some real upside in the machine learning around that, and our team's developed some pretty slick stuff, and I'm fairly excited about that potential. That turns into productivity. If you can predict your business correctly, then you can really increase your productivity at the store level.

Very helpful. Thank you very much.

We'll take our next question from Chris Carroll at RBC Capital Markets.

Thanks, and good morning. And I also want to echo my congratulations to both Jean and Rick on the announcement today. So just following up on pricing, clearly a still challenging cost environment, but curious to hear how you're thinking, how you expect today's pricing levels to be received by guests, and how does that pricing flow through the different brands? Are you expecting to take relatively more pricing at your higher-end brands while keeping pricing closer to historical levels for the others?

Yeah. Hey, Chris. Yeah, you know, let me start with the later question first. Yes, we do. So when you look at our overall pricing, I'd say you almost you can assume that Olive Garden and Cheddar's are going to be below the Darden level of pricing and all other brands are going to be higher, with obviously the spectrum being the fine dining will probably have the highest pricing. As far as the guest reactions, obviously we track this over time. One of the things we notice, one of the key factors is how much do you price related to the CPI? And I think as we look at how we've been pricing, we've been pricing a lot below that. That gives us a lot more comfort in the fact that the elasticity, we're not hitting that, you know, the portion of that curve that's actually more elastic. So at this point, the level of pricing we have is significantly below CPI, which means it's fairly inelastic impact.

Okay, great. And just as a follow-up, at the risk of asking this question too early, but can you provide us with any sense on whether you're seeing any shift in guest behavior in recent weeks in response to just latest COVID concerns. Perhaps any observations on a regional basis that would suggest there is or is not any change in demand levels today. That would be helpful. Thank you.

Yeah, that's a pretty simple answer, no. We haven't seen any change in behaviors in any of the regional. It's real early in what seems to be this next wave. I mean, I think if you study the New York Times map, you could see this surge heading towards New England for a few weeks now. And, you know, so that's been a part of the country that's been most sensitive into maybe what I would call overreacting. But we'll see. I mean, as of today, we haven't seen any big change. I would just say that there's significant COVID fatigue out there. and it's going to take a lot to modify a certain percentage of the population's behavior. There's a certain percentage of the population that is going to react to this, but there's a certain set of it that's just going to continue on, and all you've got to do is look at stadiums and concert halls to see who those people are.

Okay, great. Thanks for all the detail today.

We'll go next to Brett Levy at MKM.

Agreed. Thank you. And best of luck to everyone in their next endeavors. So thanks, Rick. Thanks, Jean. When you think about the guidance items that you provided, and obviously you've unpacked a lot with the commodity and the inflationary talk on labor, where do you still see the greatest opportunities beyond the sales line to improve your fundamentals at the unit level? And when you think about your CapEx, you obviously raised it to the high end Can you walk us through how you're thinking about where that comes from and just your capital thoughts for the year? Thanks.

Yeah, Gene, I'll start with the fundamentals. I think the fundamentals for us right now is how do we bring along the most the population of new employees, the percentage of the population of new employees, how do we bring them along and as Rick said earlier, make them as productive as we possibly can and bring our brands to life the way we wanted to do so. And as we head into the busiest part of the year, we are just laser focused on trying to keep things simple and ensure that we can execute at a high level we know that our competitors are having similar, the same problems that we have, and our goal is to out-execute them and win guest loyalty through this very difficult period of time. And so I think that's really where our advantage is right now. We're better staffed. We've got, you know, we're doing great training, and we're really confident that we're, you know, we're executing at a high level, and that's what our, you know, that's what our research is telling us. Raj, you want to take the?

Yeah, look, clearly, you know, in this environment with inflation, there are construction costs on the CapEx that are going up a little bit, but overall CapEx levels, Given, while they are higher, what we said was the high end of the guidance we had provided earlier, the efficiency of this capital spend is still very high. We're actually still, especially with the improvements we made at the unit level, the returns are really strong. So even with the elevated CapEx, we're getting stronger returns than we did before COVID.

If I could just follow up on labor with one quick question. Where do you see yourselves right now in terms of where you want to be at staffing levels and how that compares to pre-COVID staffing levels. Thank you.

Yeah, Brett, this is Rick. I'll start with the second part. We're at about 95% of pre-COVID staffing levels, where in the end of the first quarter we were at 90. So we continue to increase that percentage. But I will say that we don't, because of the productivity enhancements that we've made over the years in these brands, It means we don't need as many people as before. So a majority of our restaurants are well staffed. The exclusions that we've seen are still the most complicating factor. You know, as exclusions for COVID, they're still the most complicating factor, especially on the weekends when we're busy. So we feel good about our staffing levels. We just want to keep trying to make sure that we get people that can work and not be excluded and continue to hire people every week and train them.

Thank you very much.

We'll go next to David Palmer at Evercore ISI.

Thanks. Congratulations, Gene and Rick. The on-premise traffic in the U.S. full service segment, it's down in the high 20s versus pre-COVID levels. That's a pretty striking number. Perhaps you can comment on why you think that is. What are the biggest reasons for this at this point? Is it covert comfort levels, diminished capacity out there or something else. And then focusing on Darden, how much is on-premise traffic down across your major brands versus pre-COVID levels? And I'm curious, are you really not assuming an on-premise traffic recovery in the second half of your fiscal 23 guidance? Thank you.

Hey, David, let me just answer the part about the on-premise traffic, and then I'll let Rick or Jean jump in on the other aspects of it. We are not seeing the level of decline you're talking about. We're not 20% down on on-premise. When you look at on-premise overall across the system, we're probably in the single digits of decline. So I think that's different from what you're referring the industry is, but we are. Yeah, and Longhorn actually on-premise is higher than pre-COVID. And so an overall garden in the single digits declined, but not double digits like you're alluding to.

And I'll take the other part of that. You know, as we've been making investments in our off-premise experience, making it easier for our guests to order, pick up, and pay, we still see people coming back more often and more often on the off-premise side. That's why we think the off-premise is going to stay at a little bit more elevated level, which could become very convenient, so maybe people won't come in as often. But we believe that in the long run we'll get back to our pre-COVID levels of on-premise experiences as we continue to invest in our food, as we continue to increase our staffing levels, as people become more confident and comfortable going out to eat. We believe that in the long run we will get back to our in-restaurant experience.

Thank you.

We'll take our next question from Jeffrey Bernstein at Barclays.

Great. Thank you very much. And congratulations, Gene and Rick. Rick, you have some big shoes to fill. I had one follow-up on the last question and then another. The follow-up is just related to what you just mentioned about expectation to get in restaurant dining back to full strength at a certain point. I just want to then couple that with Olive Garden and Longhorn's performance in the earliest stores that have returned to full in-store dining. Just wondering what the range of averages of that to-go business is. I know you mentioned it's 28% and 15%, just trying to get a sense of the range around that, because it would seem like a fantastic win if you could get the on-premise back to 100% and still hold on to what you suggested might be north of 20% at Olive Garden in terms of to-go. So any call you could add in terms of how much of that you think is incremental would be great.

Yeah, Jeff, as Gene, as Rick alluded to earlier and stated that, you know, we believe that this off-premises is stickier than what we originally thought. And Rick gave you guys credit. You guys were right. We were wrong on that. We don't get to say that often. But, you know, it seems as though that the technology that we've created and the friction we've taken out of that experience And our ability to deliver a quality experience has made this a lot stickier. And we don't know, again, we keep on going back to equilibrium. We haven't got to equilibrium. We're not close to equilibrium yet. So we don't know what the long-term runway is going to be off-prem and on-prem. I mean, I would say that when we look at on-prem, there's still some regional differences. based on how people think about COVID. I think when I look at on-prem, I think staffing continues to be an issue. It's getting better and better. I also think that throughput, when we look at our sales during the week, we're a lot stronger on a comparable basis Monday through Thursday than we are on the weekend. And we think some of that has to do with, one, staffing, two, the productivity of the people working in the restaurants and that We believe that as they become more proficient and develop more repetitions over time, that we'll actually have some more throughput on the weekends where we know we have excess demand right now. We have a lot of restaurants in our system that are doing more guests in the restaurant today on-prem than they were pre-COVID. We still have pockets where we're struggling a little bit. And so I think that that's the real opportunity as I look at the opportunity as we move forward. You know, we've got in full service, Don, and we've got 11, you know, or overall, Don, we've got 11% less restaurants to service what we believe is going to be aggregate demand that's going to end up being as strong or greater than pre-COVID. And if we do what we've been doing all the way through this, investing in our product, investing in our people, we're going to capture our market share.

Understood. And then my follow-up just related to the comments you made about labor. It does seem like the industry is improving of late. Just wondering your thoughts on to what we should attribute that. And you had mentioned that staffing is still a big challenge for you. It seems like it's pretty much back. I think you said you're now back to 95% of staffing and you don't need to get back to 100%. So I'm just wondering, you know, where is it that you have the greatest challenge from a staffing perspective if you're that close to that full 100% and you really don't need to get back to that full 100%? Thank you.

Yeah, Jeff, I think what we know, obviously, we probably struggle most in our lower end brands where your check average isn't as high and your business models don't afford you some of the luxuries that our other business models afford from a pay structure standpoint. And you got the, you know, basically the lower check average, you know, yields you a lower tip an aggregate. So those businesses struggle a little bit more. They also tend to be high, high volume businesses. So you're running through a lot more guests through those businesses. And so, you know, I think that I think there's been a couple of things contributing to improve labor in the restaurant industry. Obviously, getting away from the subsidies and unemployment. I think people getting more confidence that they can enter back into the workforce. I think that childcare probably is still the biggest barrier today for people getting back into the workforce. But, you know, I think, you know, things are better than they were 90 days ago, and they're a lot better than they were 180 days ago. Great.

Thank you.

We'll go next to Lauren Silverman at Credit Suisse. I also wanted to ask about the wage investments. As you look across the portfolio, Are you seeing greater challenges in your ability to recruit or retain employees and any differences geographically? And then how do you assess the risk that you'll need to make another big wage commitment next year?

Hey, Lauren, this is Rick. We aren't really seeing a whole lot of differences across the country on staffing. Not any more challenging in Texas as it is in New York. We're staffing our restaurants. And we're seeing the pickup. We've actually implemented a new system, as we mentioned. It's increasing our speed of hire. The one thing, we've got an incredible employment proposition. When we make an offer, people accept it. And that's a great thing. And so I think that, to me, is the biggest nature. Our employment proposition is so strong that people want to come to work for us. As it relates to future need to increase our minimum kind of guaranteed wage, right now we're looking at the number that we have right now at $12 is the right thing for us. As we said and Jean mentioned, you know, we average around $20 an hour after this change, and we'll continue to monitor that and see where we need to increase wages on a market-by-market basis.

Great. And just to follow up on price, covering most of what you view as structural and then absorbing the short-term fluctuations, can you expand on what you view as transitory? Is it primarily just the commodity piece or anything related to labor?

Thanks. No, we view labor as actually more sticky. So it really focuses on the commodities. It's where we see some of the transitory, especially on the proteins front where you already see some of that coming back, right? You saw beef prices peak up, you know, especially middle stakes, and you're starting to see them come down.

Great, thanks. Our next question comes from Dennis Geiger at UBS.

Thank you. And Jean and Rick, a big congratulations to you both. Just first question, I wanted to ask another one on labor. Curious if you could speak to where labor efficiency or productivity was in the quarter. And then just regarding the pull forward of the minimum wage increase announcement, how much of that the wage inflation target for the year that you noted is related to that pull forward?

Yeah, let me start with the second part of the question on the $12 wage. That really isn't costing us very much in the grand scheme of things. It's a very small portion of the wage inflation that we're seeing in the back half of the year. And so I'll leave it at that. On the productivity side, we're more productive than we were two years ago. We're about as productive as we were in the first quarter versus two years ago. But I will say, remember, our second quarter is the lowest sales quarter, so productivity is a little bit more difficult to do than in Q1 and in Q3.

I appreciate that, Rick. And then just one more question, just on the consumer and recognizing some of the pandemic impacts here could make this question difficult, but sort of what are you seeing right now, you know, across consumer demand, behaviors, overall consumer health, and then, you know, how you think about the consumer going into 22? You know, is there anything on the lower income consumer yet that's starting to concern you? Just broader thoughts and perspective there would be great. Thank you.

Yeah, the consumer's never been healthier, right? I mean, you look at all the statistics out there, when you look at the personal balance sheets and where the consumer's at, I think they're earning. I think they're learning how to manage through the inflation. And I would expect, and as we transition to calendar 22, I would expect the consumer behavior to continue to be strong. You know, there's a lot of talk about inflation, and inflation has been a horrible thing to the lower-end consumer. But when you really think about, you know, if you look at the share of wallet when you think about gasoline, it's still historically low, even at current prices. And so I think people are making choices. I do believe that we're still transitioning to this experiential economy. And I think people want experiences after 18 months of not having experiences. And I think going out to eat is an experience that people want to have more regularly than they've had over the past two years. And so I feel really good about where the consumer is. Great. I appreciate that, Culler.

Our next question comes from Andy Barish with Jefferies.

Hey, guys. Happy holidays. Gene, I'm just happy it's snowing in Colorado finally. Quick question on, can you give us a little bit of a Cheddar's kind of review in terms of the progress it's made here during the pandemic and from a people side of things, which I think has been the biggest challenge, are you building bench strength to start to see a noticeable change ramp in the unit growth in fiscal 23 for that brand?

Andy, this is Rick. We're really proud of the work Cheddar's done on the people front. Let me give you a couple of statistics without getting into too much detail in our P&L. You know, they've added, they're back close to where Longhorn and Olive Garden is on the percent of their general managers that have been general managers for a year or more. where they were way far away from that a couple of years ago. Their management turnover continues to improve. I believe the last 45 restaurant general managers or managing partners that they added were all promotion within. You couldn't say that a couple of years ago. We've got a strong, strong pipeline that we're building of managers. And we do expect to have more openings in fiscal 23 at Cheddar's than we did in fiscal 22. So we're really excited where they are, partly because of the business model improvements they've made, which, you know, we don't highlight because they're in the other segment, but they've had a significant improvement in their business model, which gives us even more confidence that they can grow with this pipeline that they're building of people.

Thank you very much.

Our next question comes from James Rutherford at Stevens.

Hey, thanks for the questions. Rick, marketing is still one of the biggest sources of margin expansion within your business. What main factors will you consider as you work to determine when it's time to start adding some marketing dollars back into the business incrementally?

Yeah, James, thanks for the question. As we mentioned in an earlier question, Olive Garden will always be a marketer because of their scale, the advantage that they have in their size, gives them the ability to spend money in marketing. And we'll continue to look at the time when equilibrium comes. You know, we still have a lot of demand to come into our restaurants today. We have reduced our marketing spend overall. And as I said, as we increase, whenever we make that decision, I don't want to tell you when we would do that based on strategic implications. But whenever we would make that decision, we would ensure that that marketing is profitable. whether it's when we compare to what we would do if we didn't have that marketing. So, you know, we have had a couple hundred basis points of improvement in marketing spend. I would tell you that even if we increase our marketing dollars, we will still have some margin improvement or margin maintained with marketing. So, don't assume that when we bring marketing back, it's going to basically reduce our margins by the amount that we bring it back.

Very helpful. My second question is on Longhorn, which has clearly benefited from strong execution as well as a general robust consumer appetite for steak as a category. What do you think it will take to retain these high sales levels if and when the consumer potentially begins to shift back to more of a value-focused mindset?

Yeah, thanks for asking about Longhorn. Todd and his team have been on a journey for years, and that journey has been to invest in food quality, As we've mentioned before, we've improved all of our steaks. We've increased the size of our steaks. We've increased our portion sizes of our sides. And we've improved our execution of all of that food. And so, yes, the steak category has been helped by consumer demand, but we believe that we will continue to execute at this level and continue to grow Longhorn. I can't tell you what our comp will be in the future, but we're proud of what they've done over the years to continue to invest and make sure that they have the best product. They're number one in quality and casual dining, and they continue to do those things. Thanks very much.

Our next question comes from Brian Mullen at Deutsche Bank.

Hey, thank you. I'd just like to echo all the congrats to both Gene and Rick. Question on fine dining specifically related to development. I know it's a smaller piece of the puzzle, but Gene or Rick, can you just talk about how you see development in this segment over the next, say, three to five years? You know, is there a lot more room across the country for your brands? And if you could discuss any structural changes in that segment or learning throughout the pandemic, you know, might have that changed your answer from what you would have said two years ago, if at all.

Yeah, two parts to that answer. Number one, we've, We think that we can push Capital Grill in suburban areas a little bit further than what maybe we have thought in the past. We've had some recent openings that give us confidence that there are additional trade areas in which we can compete with that brand and get a great return on our investment. And then secondarily, the real opportunity is can we take ADVs and get it to mirror Capital Grill and get to the same size company? We are thrilled with what we refer to as our COVID babies For the EDVs that we've opened during COVID, they've all gone to the market very well, been accepted very well. Our business model is really strong and getting stronger. And there's no reason why we can't get in debt from the high 20s into the low 60s and do that very profitably. Now, again, that's a three to 40 year. You've got to wait for the right sites. But we're just, we're thrilled. And for those who, anybody that travels through Nashville, please go visit our new Nashville EDVs. It's just a spectacular, spectacular, you know, venue and doing extremely well. So we're confident that fine dining will still continue to be a big contributor to what we're doing and the margin structure. We just have a lot more flexibility in that business. to deal with some of this inflation that we don't have in our casual brands. Thank you.

We'll take our next question from David Tarantino with Baird.

Hi, good morning, everyone, and wow, Gene, what a terrific career. Congrats on your decision to retire, and Rick, my congrats on your promotion. Rick, I had a question about a big picture view of the long-term strategy at Darden. And I just wanted to ask, with the upcoming transition to you as CEO, certainly not much needs to change, but just wondering your thoughts on what maybe some new strategic priorities or new priorities for you are as you take over the CEO role. Thanks.

David, thanks for the question. I just want to first say that, you know, I've been with Gene for seven years as his CEO, partnering on developing our strategy. And I really think the strategy that we have is the right strategy. We've got our four competitive advantages. We're going to continue to invest in those advantages to make them stronger. We're a platform company that helps our brand succeed in driving back to basic operating philosophy. We are going to continue to improve our operations execution, and continue to invest in our competitive advantages. I don't see a big change in our strategic priorities, partly because I was a big part of writing them, so it would be a little weird if I did change those. But, you know, we'll look and see as we go through our five-year plan process, which we just did last year. So there's not a whole lot for us to talk about right now.

Makes sense. Thank you for that.

Our next question comes from Andrew Strelzyk at BMO Capital.

Hey, good morning. Thanks for taking the questions. I wanted to first just clarify on the commodity commentary. I think you said that inflation would peak in 3Q when you called out the inflation comparison in 4Q from the year ago as part of the reason why that would ease this year. So you also mentioned that some of the underlying commodity prices have eased as well. So does the outlook reflect that underlying kind of easing, or is there a timing dynamic where that's not included in that? And then my question is really on unit growth and just at this point, the visibility to hitting the high end of the framework that you've talked about in 2023. I know you've talked about some construction cost increases and delays, which doesn't sound like that big of a deal, but just wanted to see about the visibility and anything that you can comment on the brand mix would be great. Thank you very much.

Hi, Andrew. This is Raj. So on the commodities front, yeah, we did see, you know, the way we think about it is we're looking at, you know, what we have covered and then, you know, based on our best estimate of where the costs are going to be, right? When you look at the cadence of some of this, Q2 was around 9% commodity inflation. We expect Q3 to be a little bit north of 10%. And then I think by the time we get to Q4, because we're wrapping on elevated number two years ago or a year ago, that it's not going to be as high. So the way we are looking at it is really on a two-year basis, what does it look like? And I think if you're looking at it on a two-year basis, we're hovering around 10 to 11 percent, and that's where we expect Q4 to land as well. And so that's why there's a big difference between Q3 and Q4. I mean, I guess at this point on the unit growth front, we still feel confident that we have a good shot at getting to the high end. There may be a few, you know, slips here and there, but we still think that, you know, 55 to 60 is a good, you know, number to think of. Obviously, you know, a few, four or five could get push start, but at this point, we're still targeting that higher end.

Great. Thank you very much.

We'll go next to Jared Garber with Goldman Sachs.

Hi, thanks, and certainly would like to also echo my congratulations to Jean and Rick. Exciting to watch you both progress in your careers. Had two questions, one on the top line at Olive Garden and then one on cost. You noted that you're lapping over the never-ending possible from two years ago. Can you help frame maybe what some of the headwinds were in that business? Obviously, the Olive Garden trend seemed like they're pretty strong, but just any color on maybe what you were lapping and the headwinds that you saw related to that that would have essentially pushed that two-year comp a little bit higher. And then on costs, Raj, appreciate all the color on the commodity front. If I look at your deck, it looks like, you know, on beef, you're, you know, very, very low contracting at this point, about 25% versus the normal, you know, 80%, 80% plus. I just wanted to get a sense of exactly how you're thinking about beef purchases and maybe some of the risks that beef prices move higher. Thanks.

Hey, Jared, it's Rick. I'll comment on the other headwinds at Olive Garden. If it's never any possible... with web providing not much of a comment. We don't wanna talk about the impact that Never Any Possible had. We know it was a negative impact over the years, but the profitability wasn't as high as the guests that we're doing today. And so we decided to reduce the dependency on Never Any Possible this year because we didn't need to drive volume into our restaurants. As we think about why we had a better performance, even lapping Never Any Possible, As I said, it was productivity. We just got better at serving the guests when they came in the restaurant. Our to-go business stayed strong, which is a very productive business for us. But, you know, as we look forward, we don't know if we'll bring and when we'll bring Never Ending Possible back because we have a never-ending abundance every day with our never-ending first course.

Yeah, on the coverage on beef, I think really the way we're thinking about it is at this point the forward premium is too much and this is really purposeful. We feel like there's opportunity to be more short and not be long given where the levels are. To the extent there is risk, I mean I think what we've shown, I think we've demonstrated over the last two quarters that if inflation ends up being higher, our teams are agile, we'll react, we'll adjust accordingly. But we have a pretty good line of sight into what we think the costs are going to be, and that's where we're sitting here. But could this change? Yeah, but we'll adjust and we'll still get to the commitments we've made.

Our next question comes from John Ivanco at J.P. Morgan.

Hi, thank you very much. Since the transformative rare acquisition, that's obviously brought in Gene, the business has made a number of acquisitions with Cheddar's, Yardhouse, Eddie V's. And I did want to get a sense, and maybe this is where there could be a little bit of a difference in the CEO change, in terms of appetite or potentially even need for future acquisitions. And I ask this, obviously, in the context, the organizational ability, which I'm sure you have, you know, about the organization's desire, especially as there's probably a number of businesses that are out there that you could acquire with probably not adding much G&A, if at all, based on what your scale is. But, you know, just want to get your sense in terms of what you see in the current market. And as we kind of think about, you know, the Darden business over the next 24 months or so, you know, if we could potentially see something else.

Yeah, John, this is Rick. You know, I'll just start by saying I've been involved with some of these acquisitions, but our management team and board regularly evaluates all of our alternatives. How do we allocate capital? How do we manage our business to achieve our long-term goals? And M&A is part of that, and we'll continue to act the same way we have over the last 10 years or 15 years since we bought Rare.

Again, John, I'll just jump in and just say that we are thrilled with our current portfolio today with the business model enhancements that we've made to these businesses. We do not need to do something to achieve our long-term framework. And we believe that, you know, I believe, I won't, you know, I won't be driving it, but I believe that we'll continue to be opportunistic if the timing is right. But at the end of the day, we love our portfolio of brands today, and we think they're extremely well positioned to take a lot of market share as we move forward.

Thank you, guys. Congratulations.

Our next question comes from Ryan Vaccaro at Raymond James.

Thanks and good morning. Just two quick ones, two quick clarifications as most of them might have been asked. But on menu pricing, are you currently at around 4% today or are you working towards that level? And where do you expect pricing to be as we move through Q3 into Q4 for your fiscal year?

Yeah, hi, Brian. We are not at that level. You know, the level where I would say we exited the quarter around three-ish, and, you know, for the Q3, we expect to be in the mid-threes, and Q4 would be a little bit north of, you know, in the low fours.

All right, that's helpful. And then the Thanksgiving shift, I just wanted to confirm that that was about a 100-bit headwind to the comps versus 19, and that should reverse in the fiscal third quarter. Is that right?

Yes, but I would caution that Q3 again is a high volume quarter, so just be careful how you, you know, read into that. But yeah, it was a headwind in Q2 and it should help in Q3.

Understood. Thanks very much.

We'll take our next question from Joshua Long at Piper Sandler.

Great. Thank you for taking the question and squeezing me in. And again, echoing congratulations to everyone on their next chapters. Gene, following on some of the comments you made about the kind of COVID fatigue and the experiential nature that we're seeing in terms of consumer dining choices, curious if you might be able to provide some context around your high-end brands, especially as we head into year-end around some sort of return to a more normalized celebratory occasion. Imagine that's more on the social high-end dining and some of your high-end brands, but curious if you're seeing any sort of business customer return or kind of what your thoughts are or what the team's thoughts on kind of the equilibrium there over time would be on the high end.

Yeah, I think we're still experiencing the business travel at the level of pre-COVID. But we are, you know, as you've seen from our results, we're experiencing some really, really strong sales. And I would just say, I would tell you that, you know, our holiday bookings are very strong. The demand for private dining is very strong. I would say it's smaller groups than larger groups, but overall demand for for fine dining experiences, holiday celebrations is strong. And I would expect it to be strong throughout. And so I think that business is going to be a very interesting business as business travel returns. I think that A lot of people have really enjoyed the experiential part of fine dining, and it's something they're not going to give up easily as we move forward. So I love the business. I think we've really positioned those well, and I think they'll continue to do well. Thank you.

With no other questions holding, Mr. Kalachek, I'll turn the conference back to you for any additional or closing comments.

Thank you. That concludes today's call. I'd like to remind you that we plan to release third quarter results on Thursday, March 24th before the market opens with a conference call to follow. Thank you for participating in today's call and happy holidays.

That will conclude today's call. Thank you for your participation. You may disconnect at this time.