Darden Restaurants, Inc.

Q3 2023 Earnings Conference Call


spk_0: the ten by your program is about to begin you need assistance on today's call please press stars the row
spk_1: it day and welcome to the darden fiscal year twenty twenty three third quarter earnings call
spk_0: your lines have been play some listen only into the question and answer session
spk_1: you ask a question you may press star one on your touched on foam
spk_0: please note to these conferences be recorded if you have any objections please disconnect at this time i will now turn the pall over to mr kevin caltech thank you you may begin
spk_2: thanks dad morning everyone and thank you for participating on today's call dreamy today are recording us stearns president and ceo and raj been on cfl as reminder comments made during his call include forward looking statements as defined in private securities litigation reform act ninety ninety five these statements are subject to the risk and uncertainties that could cause actual results to differ materially from our expectations and projections as risks are described in the company's press release which was distributed this morning and in it's filings with the securities and exchange commission your simultaneously broadcasting presentation during this call which is person investor relations section of our website at darden dot com today's discussion and presentation include certain non got measurements and reconciliations of these measurements are included in the presentation looking ahead with plans to release school twenty twenty three fourth quarter earnings on thursday june twenty second before the most market opens followed by a conference call during today's call any reference to prieto vid when discussing third quarter performance is a comparison to the third quarter of fiscal twenty twenty definately all references to industry results during today's call referred a black box intelligences casual dining benchmark excluding darden specifically olive garden long horn steakhouse and cheddar scratch kitchen during our third fiscal quarter industry same restaurant sales increased some point two percent and industry same restaurant guess counts decrease three percent this morning recall share some brief remarks on the quarter in our focus moving forward and raj will provide more details on our financial results and an update to our fiscal twenty twenty three financial outlook now will turn the call over rick
spk_3: thank kevin to morning everyone we had a strong quarter and both the top and bottom line with significantly exceeded the industry benchmarks for same restaurant failed and traffic outperforming more on traffic than we did on sale we also continue to under price inflation resulting in lower overall check growth relative to the industry our ability to make this investment and provide strong value to our guests reinforces the power of our strategy which comes to life to work for competitive advantages and executing are back to basics operating philosophy i i'm particularly proud of the were restaurant teams continue to execute at a high level by being brilliant with the basics this intense focus on providing great food service and atmosphere enables them to to consistently create memorable guess experiences during the holiday season olive garden and long horn steakhouse set new all time weekly sales records only to break them during valentine's week in fact all of our brains achieved record total sales for the quarter of course none of that would be possible without having the right people in the right rose ready to serve our guess a restaurant continue to be well staffed and our manager staffing remains at historic eyes our leaders work hard to ensure each of our restaurant is a great place to work during the quarter several of our brains were recognized as industry leaders by black box intelligence long horn and any these received the best practices award which evaluate a brand employee retention as well as sales and traffic performance olive garden the capital grill and season fifty two were honored with the employer of choice award which is based on workforce data including employee turnover and gender and racial diversity we know from our recent engagement survey results that our overall level of engagement is very high in our team members understand what is expected of them at work this is helping drive i guess satisfaction metric both internally and externally data from the american can cut to my satisfaction index shows customer satisfaction is down across all industries however across all of our brands our internal get satisfaction ratings remain exceptionally strong in fact cheddar scratch kitchen yard house and bahama breeze achieved all time high during the quarter additionally for the second consecutive quarter a darn brand was ranked number one among major casual dining brands in each measurement category with in technomic industry tracking tool even with the traffic growth which he during the quarter to go sales remain strong accounting for twenty six percent of total sales at olive garden fourteen percent at longhorn and twelve percent it shatters we continue to leverage technology to make it easier to order pick up and pay without having to pass the added expense of third party delivery onto our guests or teams are executing a premise experience at a high level for example to go orders accounted for thirty three percent of our garden total sales on valentine's day and they significantly improve their ratings for both on time an order accuracy for that day for the quarter digital transactions accounted for more than sixty two percent of all our from a sales and ten percent of darn total sales finally we open seventy restaurants are in the quarter across seven states a new restaurant opening teams continue to do an excellent job of hiring and training new team members and successfully opening these locations we're on track to open twenty five net new restaurants are in the fourth quarter and i am confident in our ability to do so because of are well prepared leadership pipeline and the tremendous support teams we have in place we are fortunate to have the best team members in industry and i am proud of the focusing commitment they continue to display on behalf of our senior leadership team and the board of directors to thank all of our team members for everything you do to nurse and light our guests and each other now i will turn it over to rush
spk_4: thank you wreck the morning everyone we had high expectations for the third quarter sales growth as we were wrapping our last january's on it got outbreak and several weeks of severe winter weather that combined to reduce sales my at one hundred million dollars in the third quarter of last year exceeded those high expectations hosting record total sales of two point eight billion dollars which was thirteen point eight percent higher than last year given by eleven point seven percent say much and sales growth along with the addition of thirty five net new restaurants
spk_5: it's a must and feels performance or face the industry by four hundred and fifty basis points and are same rest and gas cans performed even more as a exceeded the industry benchmark by seven hundred basis points eluded not owning for share from continuing operations or two dollar thirty four cents an increase of twenty one for point two percent of all last year portal a bit off was four and forty eight million dollars and were turned to her and seventy two million dollars of cast or shareholders this quarter and sitting up one her and forty eight million dollars in dividends and hundred and twenty four million dollars and share purchases photo pricing for the quarter was approximately six point three percent seventy basis points below total inflation of roughly seven percent
spk_4: how looking at a margin performance compared to last year food and beverage expenses rose hundred and ten basis points given by commodities inflation of approximately nine percent which was higher than we anticipated going into the quarter and significantly outpaced pricing of six point three percent
spk_5: second dairy and grains continue to be categories experiencing the highest levels of inflation what each improved what's this prior quarter as we expected of our beef inflation increase from the second quarter levels and draw the majority of or higher than anticipated commodities inflation this quarter
spk_4: a labour was hundred and twenty basis points about them last year as we benefited from sales leverage and out as friends continue to run efficient labour despite our only outlet hourly wage inflation of eight percent
spk_5: a restaurant labor inflation was seven percent
spk_4: that's an expensive or forty basis points favorable to last year as we leverage higher sales the more than offset elevated inflation on utilities as well as high a repairs and maintenance expenses
spk_5: marketing expenses were ten basis points lower than last year driven by sell flowers
spk_4: dna expenses what forty basis points higher than last year driven by the timing of or intend to compensation actual and other expenses
spk_5: operating income margin a four point six percent or thirty basis points better than last year or effective tax rate for the quarter was thirteen point two percent and we ended the quarter with owning from continuing operations of two hundred and eighty seven million dollars now looking at our margin performance was this freak of it we brought we grew operating income by seventy basis points while underpricing inflation by more than four hundred basis points in pico it decrease food and beverage costs were more than offset by improve productivity reduced marketing another cost savings initiative looking at our segment performance on a for segments significantly are performed at a factory industry benchmarks on board traffic on sale built at olive garden grew thirteen point nine percent of all last year given by same russian sales growth the four point three percent average weekly sales at olive garden one hundred and eight percent of people we level segment profit margin of twenty two point five percent was one hundred and fifty basis points valid last year driven by sales leverage and labour efficiency on home sales good thirteen point five percent of all last year with same russian sales growth of ten point eight percent average weekly sales at longhorns one hundred and twenty seven percent of the people read level beckman profit margin of seventeen point four percent was a basis points below last year driven by elevated commodities inflation built or fine dining segment grew thirteen point two percent of all last year driven by same russian sales growth of eleven point seven percent and average average weekly sales what a one hundred and thirteen percent of the people who level segment profit margin of twenty one point eight percent was one her and ten basis points below last year given by elevated commodities inflation or other segments sales glued fourteen point one percent of all last year with the same us in sales growth of eleven point seven percent and average weekly sales what one her and nine percent of the peak or below segment profit margin of fourteen percent was twenty basis points better than last year driven by sales leverage and labour efficiency owning to our financial outlook for fiscal twenty twenty three we have increased or guidance to reflect out here today results and expectations for the fourth water we now expect total sales of ten point four five billion to ten point five billion dollars in russian sales growth of six point five percent to seven percent proximity fifty five new restaurant openings capital spending between five hundred and fifty million dollars to five hundred seventy five million dollars total inflation or seven percent to sound point five percent and annual pricing of six percent to six point five percent
spk_4: furthermore we expect commodities inflation between nine point five percent and ten percent
spk_5: annual effective tax rate of approximately thirteen percent never actually mainly one hundred and twenty three million deluded average shares outstanding for the year
spk_4: all resulting in deluded net earnings per share between seven dollars eighty five cents and eight dollars
spk_5: it's outlook implies foot water sales between two point seven three billion dollars and two point seven eight billion dollars emotions sales between three percent and five percent
spk_4: diluted not owning fit or share between two dollars forty three cents and two dollars fifty eight cents council implies higher commodities inflation then we lost communicated
spk_5: we now expect commodities inflation that is solidly in the low single digits range for the fourth quarter what is the closer to flat estimate we shared with you on the last ending skull
spk_4: increase in commodities inflation is primarily due to higher than anticipated be false
spk_5: or fiscal twenty twenty four when disappear opening fifty to fifty five new testament and capital spending between three hundred and three hundred twenty five million dollars related to new testament and another two hundred to two hundred and twenty five million related to ongoing lesson maintenance refreshed and technology spending and why we don't normally provide a commodity outlook this early for the next fiscal year we are anticipating loathing alleged inflation for the total commodities basket in fiscal twenty twenty four led by hi single digit inflation on beef on produce best like all other categories to range from slide deflation to low single digits inflation
spk_4: without i'd like to close by saying that we continue to be very proud of how our teams are managing their businesses to delaware strong results in this dynamic and mormon
spk_6: how will open it up for questions
spk_0: at this time as you would like to ask a question please press the star and one on your touched phone you may remove yourself from the queue at any time by pressing star to we as the to please limit yourself to one question and one follow up once again that is star and one to ask a question or first question comes from chris carol with rbc capital markets
spk_7: i the morning on it so h one guy talk or arrest or about the top line trends so i guess just given the chopping is no comparison last year could you talk about the progression of sales see the quarter maybe specifically what you saw following young the was a baby perhaps what you're saying in the current quarter just as we're trying to get a sense of were friends are shaking our kind of on a normalized basis and iraqi spoke of those strength around the valentine's day on so any detail beyond that point would be great
spk_8: because this is roger the morning
spk_4: so when we actually look at our underlying traffic plants or worse as be covered by excluding the noise from holidays and rather and promotions they've actually been fairly stable month to month and that has continued into the fourth quarter and and basically everything we know of in off the quarter to dad is incorporated in our guidance but when you step back and look at what is recovered it's pretty stable
spk_7: got it thank you and and on appreciate the a preliminary a commodity in place now looked her for f y twenty torso so thanks for providing that's morning any thoughts on or any guidance he can provide on area thinking about just pricey here i going forward and a just relative tear that commodity out and place outlook bigger as providing for f y twenty four
spk_5: yeah chris i think the where we think of or pricing is will look at total inflation and i think as we talked about or the last three years and we wonder price inflation by ward four hundred basis points in a and also we wonder price full service he be i buy or six hundred basis points so we created a significant gap between our competitors and are and positions as well as we head into the next year
spk_4: wilshere more thoughts on our fiscal twenty twenty four pricing plans and the next know in the june call
spk_7: got it thanks so much
spk_1: thank you are next question comes from brian harper with morgan stanley
spk_7: yes they give you the question a labour side another your have a very good place right now and and staffing do you still see you know as you look into next year just a stone visit taking up wages know continually and i think i you environment where it's important to kind of routine
spk_1: and people and continue to pay better than your peers how does that kind of factor into what you out what you expect from a wage inflation perspectives going forward
spk_3: a brand this is rick bayless talk about our staffing as we mentioned on a car we're very well staffed we have more managers for restaurant than we've ever had in our history to zero good about where we are we're not going to talk necessarily about what are our wage growth will be next year i will say that even before covered wage inflation was in the month mid single digit so we will continue to to to work with whatever the economy comes where our way and however we can handle that but we have a great employment proposition are turnover is significantly reducing is getting closer to our pre covered levels and we still think we've got room to improve you've our turn over were hiring great people and were being as discerning as we had been before coven so we feel really good about where we are on the will talk about our inflation target in our pricing in in all of those things in june
spk_7: thank you and maybe is that capital spending i know you can it took up the low end of that but what what's driving that is there is that what inflationary thing or is there any sort of bucket of spending that's that's running a higher at this point
spk_4: well i think you know we've talked about inflation being one of the big things so when you look at cause such and costs have gone up quite a bit especially when compared to people were and we're ramping up growth so we do have in i think this year we said were approximately fifty five new units and and then we talked about next year in a kind of in that fifty two fifty five as
spk_5: well so it's really a function of the you know increase in construction costs i think on that construction costs for an especially the you know ff and any out for new restaurants has been going quite a bit and so that you know it's say you're seeing in our twenty five plus percent increase in those costs will lead you to be covered
spk_4: so those are really the big guy works but having said that in a given the improvements we made our business models and where are you need to economics are we still have pretty strong returns on our new units and we continue to wanna go that and that's why we do want to try to target you know as much growth as we can now we're going to be disciplined and how we do that but we we we have you know we're being a little bit more selective but still we we feel like we have opportunity to take share
spk_0: thank you
spk_9: thank you are next question comes from david perron tino with baird hi good morning
spk_5: my question i guess that raj if you could just tell us what my what pricing you are running in the fourth quarter or and a are just trying to to frame of the club guidance of three to five percent them what might be implied for traffic perspective and that number
spk_9: ah yeah david i think we have a basically we're going to be under six percent so call it in a fireman have to six is probably what we're running out of next back to be running into for got it and then yeah i guess then the guidance implies very slightly negative traffic and i was wondering if if you are wrecked can comment to son or my you think that is and yeah oh is that a macro issue or a day and something else in your view and and maybe record i'd love to hear your thoughts on the a current macro environment do and all that the volatility was seen lately just me or are you
spk_10: thinking about oh canada the outlook for the next several quarters
spk_3: but moving yeah david with talk about the macro for the for the macro consumer a but if you think about where are our guide is for the next quarter you look at it his creek ovid you take out the omagh crime change in the minute it never any pastor airborne change that we didn't you do you think about recovered are trains are very similar even even what we're thinking about ricky for so but as you think about the state of the consumer in this day the economy we've said this in previous cause it's been a shift and spending from durable goods services restaurant missouri are benefiting from that what's interesting is for most of county or twenty twenty two and customers segment with sentiment was pretty bad but consumer spending was to get significantly high so even though they were thinking that things were bad there were still spending and so we think as long as the unemployment rate is low and wages are increasing consumers should continue to spend casual dining say much ourselves improves sequentially each quarter during a fiscal year and are positive gaps in israel proved especially in traffic so we feel that like what we're doing is really helping us you know i will also say the data from our proprietary brand health tracker suggested most consumers are not pulling back from restaurant visits and they do not appear to be trading down from full service to limited service based on the day that we have am now there is a tension between what people want and work in what they can afford you know consumers continue to seek value which is not about low prices consumers are making spending trade offs and food away from home is one of the most difficult expenses to give up because going out to a restaurant and still an affordable luxury for them
spk_11: and so what does that mean for us you know for our brands we believe that operators think that can deliver on their brand promise and value will continue to appeal to consumers to buy despite economic challenges and that's what we remain focus on doing no matter what happens in the industry and whatever happens the category
spk_0: like sex and thank you
spk_12: thank you are next question comes from jeffrey bernstein with barclays
spk_13: great thank you very much to question the first one just on the imply fourth quarter earnings guidance looks like that's grocers eight fifteen percent analysts for you talked about maybe the third quarter on the fourth quarter should be pretty even in terms of growth both quarters
spk_5: the third quarter grew twenty one percent sort of looks like yeah maybe tempering the earnings growth algo for the fourth quarter relative third does wondering whether you view that as conservatism or perhaps it's that modest uptick in inflation connor how you think about that sequential trend from earnings perspective and forth relative to the the third quarter and i had one thought hey jeff
spk_13: it's actually what you said it's the commodities inflation we didn't we as he said last call we thought you for was going to be in a flat closer to flat and then now that we're in are saying that in the in a solidly in the in the loathing diligent so of you kind of layer that and that's where the growth is a little bit less but outside of that's that's really the primary dynamic that's different
spk_3: understood and then just and follow up on that the macro question with interest rate still on the rise of just wondering how was that and your business or how you manage it if it'll all in terms of the unit growth which seems still be stable or i think that borrowing missouri where do you think it impacts conserve heavier a the any return of cash to say asians like how does that come into play if at all as you i managed a business thank you the idea is rick you know the interest rates really are making huge impact on our business you know we we actually have a significant balance and cash so higher interest rates of actually given a little bit more interest over time yeah i think about our new restaurant openings know that we have seen inflation is raj mentioned and so we're being prudent and looking at some of these deals and saying you know what we might we might wait just a little bit of time to see if we can get a second a second term a second bid sometimes during during this year we're only getting one bid for some of these sites to we want to be prudent but the interest rates really haven't done anything for us and a you think about the consumer they're still spending the you know we'll see what happens when when these credit card balances which are which were at record highs in december they can do but they're still spending today so so far nothing in our in our stay in our space as it pertains to return of cash we have a very strong dividend as we noted again today we feel like that that's that's one way return i cash shoulders will talk about our capital returns coming up in june but it hasn't really changed our outlook in what we think about a long term framework says you go back to our framework and how we return cash shareholders we've got targets for our are rough
spk_13: dividend as a percent of earnings and how much we my back and shares this year we brought back you know somewhere in the four hundred and some a million dollars and you know our our or share count target that we gave you would imply a little bit more in the fourth quarter but we'll talk more about are returning cash or long term framework engine and requests to clarify that you mentioned before that it's a relative stability in sales through the fiscal third quarter and even into march from the outside looking at me with the most recent
spk_3: spanking noise and things like that over the past few weeks to that later great about thirty day to day or week to week could he really not see it and leave and the restaurant sailed line despite all the headlines that create so much noise for the put a macro
spk_12: whatever they give you think about march you know when you think volatility will happen in march just because of ships in spring break so you have to take that into account but you know trends are fairly consistent so when you think about you know a a state my change when there's where the spring breakers to those your volatility at restaurants but and general we've we feel
spk_0: like are are trends haven't really changed much
spk_14: great thank you thank you my next question comes from josh along with stevens
spk_7: great thing is getting the question in in terms of the context of relatives ability and you do this
spk_3: how are you think it about the marketing in the messaging opportunity as we go into the back as a year than in the fiscal twenty four need to still at be lower levels versus what we've seen on a marching spend days it's vs prior years are you comfortable with that is there any reason to kind of a just that strategy as going to look at the more challenging earth is it a volatile macro economic environment such as this is wreck when i going to and is too much detail on promotion plans but i would say that i'm marking spend isn't going to be significantly different year over year it might be no ten to twenty basis points either way up or down as we think about next year but you know as we've said before advertising thousand be part of olive garden mix because the scale advantage they have and to look
spk_14: continue to leverage their skill advantage with olive garden and will use the filters that we mentioned before to to values any marketing activity elevating the has to elevate brand equity it has to be simple to execute and is not community discount and so we plan on sticking a strategy but if things dramatically changed will react accordingly and as we've said many times in the past if and when we increase or marketing spend with expected to earn a return compared to where we would have been without it so it should be a positive our ally and it shouldn't impact or is shouldn't hurt or margins
spk_3: understood that a woman's maybe one solid for me in terms of talking about the restaurant manager pipeline in the sack image of having more restaurant managers and you've had and your history to keep talking about the benefits and get is just the opportunities that unlocks friends either service component or how are you should think about how we should think about that a possibly impacting get experience as we go forward and spivey helping to drive that gap versus the industry a bit wider overtime yeah josh you know the manager role in our in our restaurants for the most important role we have especially the general manager the managing partner and being fully staffed their gives them more time to spend with their team and train their team develop them make them stronger and and just spend that time forecast in your business and spending time with guests you know if you are understaffed managers the restaurant doesn't run as well
spk_1: but the other thing about being fully staffed with managers never hi staffing in our in our in our history is that that helps us open restaurants going forward right if you think about our pipeline of new units we have
spk_15: know about twenty five net openings coming in this quarter and we are ready for it with the managers that we have so there's a lot of benefits about of the of being fully staffed managers can spend more time with their team they can spend more time with guests and we have the manages to open a restaurant
spk_3: like you thank you are next question comes from the new logo go with bernstein morning rick you mention that the ability to price below inflation is getting dog and get ready to grow faster than the marketing interferes and traffic to are you expecting the same momentum to continue his inflation decelerate and for the whole me place and perhaps increases are lower paid compared to the foot away from home inflation
spk_15: well you know our strategies been the strategy for quite awhile and and we plan on sticking to it it's really helped us over over the long term on whether in places been higher inflation than low you know if inflation come down or things slow down a lot of our pricing is already built in for next year based on where we are right now and so will be able to react accordingly in the long run we plan on pricing below inflation but in any twelve month period it might be a little bit higher little bit lower than inflation that said we believe that are scale advantage gives us the opportunity to find cost savings so that we can price below inflation in the long run to drive a better value for our guess
spk_5: and as we said earlier guess a appreciate value especially when or if the economy slows down a little bit they go for places that they get a great value in a gate great consistent experiences and that we intend to provide
spk_4: thank you and maybe right on what what caused the marginal the federation expectations on nine your unit and it you can also comment on
spk_5: the recent comments are strong return in that new unit
spk_16: that you're gonna be a little be more selective so can you set out the really strategy evolving or time
spk_5: yeah saw a couple things that the new he an exciting we talked about the in our part of it is just the construction delays and the bit in a challenges we've had ah
spk_4: and you know we we are still opening quite a few i mean our expectation for this year is a an approximately fifty five new opening so we're opening quite a bit odd
spk_0: as far as that comment on that are times when we look at you know our new units actually the it especially that he and opening have actually outperformed on the top line more than we expected going into so they're actually opening and and most of our brains their opening at volume that are exceeding what we would have estimated going into the up
spk_7: you know when we approve the prior the capital for the project so overall you know we always had enough lot of headroom in our in terms of the that that it turns out what's this all cost of capital and so we we are exceeding the hurdle
spk_5: by a wide margin even even with the increased construction costs
spk_8: thank you are next question comes from dennis geiger with you yes
spk_5: great thank you i wanted to ask one more on margin the maybe raj of event any update how you're thinking about holding onto games longer term that you've seen since as since the pandemic a i know you've recently kind of spoken more to a long term total were sort algorithm rather than sort of an annual margin ralph number to just yeah
spk_4: or as if any do observations are or thoughts on sort of longer term margin trajectory given what you've seen recently
spk_7: yeah dennis i think we've talked about in our this year what we were we we been purposeful in delaware and in the actually in are choosing to price
spk_4: it where we price right over the last few years because of the games we have had was his record our intent would be to try to grow from these levels but any given year it can be different ultimately you know we do go back to that tend to fifteen percent
spk_5: a tsr that's the deal in our a ps growth plus the dividend yield and and how we get there any given year might be different
spk_17: but but from where we are starting at the end of this fiscal year we expect to build margins overtime
spk_1: it's great to appreciate that at just one more just on that the twenty four new openings get can you speak to other that the breakdown by brand will look similar sort of what you've seen in prior years thank you
spk_18: yeah i think you're going to see a little bit more of olive garden openings are just because the that you know they have the best returns in the portfolio in our and they have them dab in a we have a shared that that we think that is more opportunity for growth are coming out of the pandemic saw you know you might see twenty and twenty years and in front of them and then you know in a machine for long horn and then everybody else making of the rest
spk_5: right they cross
spk_4: thank you are next question comes from jeff farmer that gordon task it
spk_18: our greatest i'm following up on on margin some the such as just discussed what he did touch on marketing but your restaurant expensive judaize percent of revenue are running that looks like roughly one hundred basis points below pre covert levels
spk_19: do you think that lower costs structure about the restaurant corporate level is sustainable moving forward
spk_3: yeah we we always focus on that the opportunity for us when we talk about our scale benefiting we all have a son trying to take costs that are not directly impacting the guess so that's really the us and expenses and je ne are the to places where we think are scale benefits of the most in terms of being able to take costs out leverage skill and so we do expect those to continue to be maintain a wider a gap to people it positive as and then just one more on the follow up on that the lower income income could customer sort of the man profile he walks with pointed to some some slowing the man there but i'm just curious how that manifests itself is that sort of reduced visit or check management how does that show up on that lower income customer change their behavior yeah in the past we had talked about are lower income income consumer of last few quarters the mix shifting down a little bit but still being were recovered the good news is we haven't seen material change and mix from the last time we talk to now in that lower and consumer but if it manifests itself it generally starts with managing check generally consumers will manage your check first and then they'll manager visits later and so far we really haven't seen a whole lot of check management
spk_0: so that tells you face and what i said earlier
spk_20: you know
spk_21: consumer sentiment was pretty bad and twenty two but consumer still spent and you know it's people shifted to restaurants we benefited so we haven't seen it yet we may see it and when we do it'll start at check probably and then it will impact
spk_13: you know probably more likely impact are lower and consumer brands not that they're lower and brands are just have a bigger mix of lower and consumers and old impact less are high and brands but that's the benefit of a portfolio and the poor further that we have that we can withstand shocks to one segment of the population
spk_3: thank you thank you are next question comes from andrew charles with tb gallon great thanks one quit god bookkeeping question arises we think about twenty twenty three vs got it says is roughly three hundred ninety million dollars so the right number fujian a yeah that's right great okay and then i realize that you guys your provide twenty twenty four got it for to call but just in a backdrop of this uncertain macro environment on to that with inflation as has proven stubbornly high to talk about your confidence in ability deliver ten percent plus tsr assign twenty twenty four and just a different avenues to get there if we were to see as long as we're backdrop up next
spk_1: the of this is wreck you know
spk_22: i will say that if you think about our confidence is returning a tsr of ten ten to fifteen percent in one year we've said many times said in any when you could be below that are above that and remember that earnings growth and dividend yield i will say go back to in our history since we've been a public company we never had a ten year period that we have had less than a tenure ten percent annualized or she'll return so we feel confident over the long run that we're going to get ten to fifteen percent a we're not going to talk about next year that i would feel like we're we're pretty confident we should be able to get there figure thanks
spk_3: thank you are next question comes from john tower with city awesome great thanks for taking the question hope we can hear me okay i was really that was struck by the commentary about your your own consumer survey suggesting that your customers are not trading down from limited service skinny away from poor service in the limited service i could tell her that the what we've been hearing from a handful of operators in recent weeks so i'm i'm curious to hear from you or is that broadly speaking about just your or that speaking specifically about your brand or that more broadly about the full service category number one and number two can you talk about what these customers or telling us to why they're sticking with your brand
spk_22: versus trading down elsewhere either using you differently now than say in years past
spk_3: you know when when thinking about their own budgeting for going on out out or eating away from home eugenics wreck you know what we said earlier is most customers are another does that mean that aren't any customers shifting from full service to to to limited service but most aren't and we're not really seeing that in our in our in our results others might be but what we have been doing is providing a great value we've actually taken a lot less pricing the most of our competition to that my be a reason that others might be seen that we're not and we're improving our guest experience so at the same time that we've taken pricing let that was lower than inflation by russia for
spk_11: five hundred basis points vs brick of it
spk_7: we've been improving our experience our customer satisfaction is growing we've had records at chatters and and yard as as i mentioned already am so i think that's what people crave when when environments get a little bit tougher they crave things that provide them a great value and that gives them consistent experience and weep
spk_22: been doing that and will continue to do that
spk_7: okay so you're suggesting that the span survey work you did it is more specific to your brand's then necessarily the whole for separate category
spk_3: nah i'm not i'm not suggesting that it's only are brands what i'm saying is that most consumers aren't trading down some are the most aren't and in prior big downturns or things like that we had a lot of the had a lot more consumers trade down we haven't seen that now when i talk about specifically our brands are satisfaction is up or values is better than it was before so there's a little bit of both in in my answer industry and us got it okay just and second back to the marketing question i know we get out a few times already but i'm curious what the trigger might be you are you going to be a little bit more reactionary in terms of waiting to see some slowdown or if there is one that comes before necessarily pulling that trigger in a i understand the context put around how you would go after increasing marketing by not necessarily offering deep discounts but just curious to know what what sort of triggers you're looking for i in the marketplace may each just the slippage and traffic
spk_22: either what relative or absolute before you start that spending a little bit more and the marketing sides
spk_1: the giants wreck you know when i'm next are going to talk about specific triggers would i can say is going to be very prudent and on marketing spent we've done a lot over last few years to simplify or business to make it easier to operate
spk_7: and we've done a lot of testing during this time on what what marketing really does drive and when things change dramatically we may change but right now we're going to continue to stick to our strategy
spk_20: of making our communication be much more branded elevating brand equity simple execute and we don't expect to be a deep discount so we've we've are you know this gone granted it's before
spk_7: buying gas in we're we're not ones that are going to go out and i guess we're going to continue to do what we do and and strengthen our business and if things change then we may react thank you will die
spk_3: thank you are next question comes from john a bunko with jp morgan i'm hi thank you get a follow up on that i think i'm i know we've talked about most consumers not trading firm full service for limited service and it certainly getting up in our dining out of you know something that people don't wanna do especially when they're employed by you know your guide to the an item a lot of guidance up over the next three months or so is assuming a negative same store traffic so i if i guess the question is in a grocery in terms of total number of meals consumed still bigger than in a restaurant actually met your multiple made it to plus actually get a restaurant the paying and how you want to calculate it grows you pricing it's actually been well in excess of restaurant writing it remained so now you want you guys think in a think for it's either that this is a idea get support looking quo se really a deal of your registry yelp grocery prices up to time solid commodities commodities are expected to drop just in europe your own language from what was template percent very low single digits it it it didn't deserve blakeney a way to kind of be prepared for via gross you can have retaken relative value well to the restaurants and you know that something that you know that you think about eternally he may be to john howard's question of the maybe bring it back mavericks hiding bring it back so promotion just to make sure that the you're keeping customers you know maybe the bottom five
spk_7: for ten percent whatever you wanna say you're still coming year rebranding using the branch you don't even if you ever your grocery store in other brands perhaps we're limited service included yes starch emerge as a young as uprising opportunity for them
spk_1: yeah yeah thanks it's rick in a one of things i want to to let everybody make sure the here is we're not going to risk margin significant margin decline because of what happens in the economy if if if food costs go down in a think about what we said in the past a one percent decline in commodity carter inflation will offset a two percent decline in traffic all else equal with us doing nothing so if commodity costs come down inflation come down weekend whether a little bit of a traffic decline and still get the seine to die
spk_23: though a know i think we have to think and the industry has to think long term about how they drive traffic to discounting and we have made that shift and we made their shift even started it before covered to drive traffic to better experiences better overall value and not discounting to very small popular
spk_3: a small portion of our guess this so that's our that's our strategy going forward if things change will enter lol is and i think that's very clear to left and permanently learn not temporarily large and let that's important i'm certainly the here and express it thank you thank you are next question will come from chris oh cole with stiefel thanks to my guys ricky is tied the traffic our performances quarter to less pricing and the competition so i'm just wondering why you believe consumers are now noticing that difference and relative value as there was some sort of trigger with a marketing or advertising effort or what what would you think is called that change this quarter a chris i would say that i don't think it's just as quarter i think it's been a long time what we've been doing we've been we've been underpricing inflation even before covered we started price inflation and we've been putting more on the plate and so we've actually invested while underpricing and so if you look at you know variable margin contribution margins me just take allegra for example you can't do math but if you look at contribution a margin olive garden it's lower today than it was before coming but their margins new camera
spk_1: so our consumers are seeing that they're getting more value when they come into the restaurant
spk_3: and that doesn't take it doesn't take a week to figure that out it takes them a long time to figure that out and that's why when we talk about what we're doing you have to think about this over the long run because we're not shouting out the rooftops that we've done this the closest that we did to that was brought never any possible that at a three dollar higher price to show people that we still have some great value in our restaurants an olive garden being on t v talking about the things that make their brand special yeah right now we're we've got back on our advertising is sauce is so and talking about our our freshly made ska says every day while we starve a fifteen second spot talking about our never any first course and so and that never any first courses on us there aren't many brands that actually give you never ending that for every item that you order and so again it's not something that we can that we necessarily talk about we don't go out and shout from the rooftops that we have lower prices than than others do or with priceless they see it and as they come in our restaurants and that builds overtime
spk_24: that's great and eight and are you guys have a rich consumer data said any does your data indicate that certain consumer segments of increase their frequency of this it's actually an olive garden
spk_0: wow says versus pre covered
spk_25: our data would tell us that are that we're getting a little bit younger than we were before coven across all of our brands and as and that's somewhat driven by
spk_3: in increase in to go business but the great news is a lot of these folks it actually used as for to go for the first time in that their first visit us are actually starting to come into a restaurant too so it was kind of a handshake to come in and so were slightly younger that our consumer segments are are fairly similar to what they were before and that's great that's great news for us we're also getting a little bit more frequency in our in our core guests and that's really all been focusing on so the good news is or consumers are not that different they're slightly younger that means that we don't have to really change what we're doing because we keep talking our consumers just like we have been before great thanks
spk_26: thank you are next question comes from sarah and a tory with bank of america
spk_0: i thank you this is catherine griffin andre sarah anne i just wanted to ask again and markings are eight address you get speak out of a about what you're seeing at other restaurants if you're seeing them ramping up on on marketing and promotion or spending
spk_7: the catherine this is rick you probably see a just as much as we do but i can tell you that you know there's a there's a big competitor just went back on tv and they talked about it before they did it and you know we've got some of these other competitors are out there a little bit more on television and they were before
spk_3: that said olive garden still is usually the top two or three of advertising spend in arse in our space and we're doing that through to branded canada advertising versus versus deals hm
spk_7: thank you are next question comes from andrew strauss sick with ml even money basically the question on a side ask about that the gutters as successful as you mentioned and he talked about records i believe are all time highs at a generous in our house or maybe bahama breeze his the not l got garden longhorn it does sound like they're up but you know not not maybe as much as some of the others i guess i'm just curious mature perception is as the difference between the t y a sign up as as much as an
spk_3: how that maybe as guiding your size you going for thanks andrew has wrecked our let me start by saying that satisfaction at olive garden and longhorn are significantly higher in our the brands are fine dining brands are very high and so it takes a little bit more to move them up significantly versus what we've seen it shatters in order shattered in your ass and and others have made significant improvements their brand significant improvements to service and significant improvement value and customers see that and so we've had great performance are at our at those brands that i mentioned having having record highs but i wouldn't tell you that the others aren't at or near their records it's just chatters and yard house actually made a record this discourse
spk_27: gallup does that make sense and a maybe just one other one arm of about it i proposition and odyssey a very positive alex driving the castle we're coming out of a jury in our or depressing environmental romney cease to be settled well then i'm curious if you've gone to the exercise or images an ongoing exercise when you've looked at where your brain
spk_0: stand and where where the is them and you see a now choices there's any opportunities to address
spk_28: within manager with within brands now that maybe things have settled little bit decks yeah i think we always look at what were we have opportunities within menus within brands within readers of the country in and will never stop would i would tell you we feel really good about where i pricing is and we feel really good that we've been able to price well below what most of our competitors have done and that gives us is raj said some room to take a little bit more pricing if we want to take a little bit more pricing
spk_29: and so we will always look and we generally try to price restaurants in the strength and not in a weakness and we have a lot of great data scientists hear that help us look at that and we also talked to operators and and get their perspective so that won't change the matter what happens in in the economy or what happens with others will continue to do what we do and we feel like we've we've earned the right to keep doing what would done thank you very much
spk_3: thank you are next question comes from the david palmer with evercore i sigh thanks and good morning i think investors are looking at the industry trend in their thinking about comparisons on a multiyear basis and they're thinking the the industry's gonna go flat you know something like that in the second half of counter twenty three and i in so that's sort of where people's heads are with regard to casual dining i wonder do you think that is too pessimistic mm based on what you're saying because obviously for your trends don't need to stay stable but if that were to happen your get your gap is positive to the it that industry at this point and you've been very clear on this call about you're not wanting to pull levers unless it really got bad but you know if you're doing to plus points better than that in your home a long and in a low single digits would you not really change your mix too much with regard to the advertising and the value marketing and kind of stay the course
spk_28: it a bit of i don't want to talk necessarily bad the second half of physical type of counted twenty three that's just the twenty four for us but you know i think if you look back in history and you look back in in other slowdowns if that is what happens
spk_29: in you look at some of our brands olive garden significant performed during that time because guess go for were about where they see value and they got a trusted brands and i think i'll go to the most trusted brands out there
spk_3: so we would we would expect that we could outperform i can't say well but i think we i think that's what our history was day and so we're going to look at our marketing mix just like we've done the last few years and you know we may move it yet couple attempts here there but unless something dramatically changes we don't anticipate doing anything different the other thing i was wondering about is seen as cheddars scores be number one in value for saw can graduate congrats and all these scores but at shutters has a big can potentially him in very many was a big thing originally this might have been sought to be biden become a good bar grill killer in out that very
spk_1: menus a bit big category and value squares are going to help you move into the center the country much better better returns so any thoughts about maybe metrics on returns and get a you're growing eleven twelve units right now a year why can't that maybe go up quite a bit as as you seem that
spk_30: rand where it is today thanks
spk_3: yeah david yeah i would say when we bought shatters we thought they had a lot of up to that of them we still believe they have a lot of opportunities ahead of them and you know we're going to be prudent on their growth you know as as we make sure that they have the leadership team for the restaurant to grow i said it it i see our that the in the world is littered with brands agree too fast and were very very strategic and how we how we open our bread grow brands and so you know the days of ten plus percent growth for a brand a darden that doesn't happen very much and so with chatters you were going to be prudent we're going to open
spk_30: in the single digits were little while to see how other continue to do and we as we as we infill markets that they already have restaurants in and we find ways to to get into new markets
spk_3: as long as we have the people do it we can grown and i will tell you that the jungle to send in his team had done a great job developing their people to have people ready to open his restaurants and the more pipeline we have of people the faster we can open thank you thank you are next question comes from line silberman with credit suisse
spk_31: thank you thank you that on the quarter on the traffic our performances that as a basis points cat is this level of outperformance as sustainable adding onto that yeah performance
spk_1: a line this wreck me or seven hundred basis points about performance is pretty strong you know that you know it it all really depends on what the total traffic growth is for the industry you know if if we do if the industry's growing at one percent do we expect to get seven percent every quarter and our performance
spk_32: now
spk_13: and if if anybody would say that i think that's that's a little that thinking a little bit too hard we're very pleased with that our performance of seminar basis points this quarter
spk_7: but we wouldn't expect to be seven hundred basis points every quarter and you know there might be quarters that we have lower performance and traffic than our campus competition but we think about this over the long term and over the long term we expect to outperform
spk_13: okay thank you for that and then just an eminent i thought that that is passing on and other brands at it's what are you seeing in the current environment any time is because you guys are getting evaluation
spk_5: you know i i don't want to get in it he does detail on cause we're getting or or valuations we're getting all i can say is where we've said before biggest competitor vanish we have is or scale and one the ways to to build a scale as to by other brands
spk_4: and you know as valid volatility reduces price discovery improve and so and that's what we've gotta continue think about and you know interest rates have made some change though so we still feel like will talk to our board when the right opportunities come to play and will be ready when they do
spk_5: thank you very much
spk_4: thank you are next question will come from brian bittner with oppenheimer
spk_32: a good morning
spk_13: just as as we look at the the quarter you're a bit margins are obviously expanded this quarter but it was the first time and and many quarters that we saw a bit margin expansion and it seems to be primarily driven by our garden when we look at the segments our garden was the only segment they showed measurable margin xp
spk_32: hansen this quarter a the other segments were actually down on average so can you talk about the drivers of the bifurcation a mars your performance for our garden verse the rest of the segments and is that kind of how the margin train should continue
spk_5: over the next couple quarters hey brian any given quarter i think of the brand to brown it's a function of the pricing what is inflation so if you look at and and frankly in either mentioned the third quarter beef was the biggest surprise right so you know for instance or longhorn and i know to some extent are fine dining bands they weren't prepared for that level of
spk_1: inflation so the pricing hadn't been in place and and know and like i said in the past the way we think about pricing is you know we're not going to overreact to the or term fluctuations we kind of thing keyboard what's truly the the most secure part of the inflation and try to price for it and so there was a little bit of really noise on that front this
spk_33: quarter that impacted you know the other segments with that said in olive garden is our largest brand i mean that is in our makes up in all over fifty percent of ourselves and in approved five percent of our more the for profit source for us to grow you gotta see olive garden to have some growth are it takes a lot of heavy lifting from everybody else to make up but the other thing with olive garden was we did you know how the costs did it in a moderate from where they wanted the second quarter so if you recall second quarter it was the other way at i'll read the margins water during and the third pieces
spk_3: you know olive garden was disproportionately impacted by ah mccraw last year we talked about that last year not as read up on it they're benefiting from saw that they were labeled inefficiencies last year so especially for them because of the geography and because of the demographics mix of the guess it hurt the most and now you're you're seeing them outperformed of most they said they said a clear answer their raj and then just follow up that the labour margin leverage for the consolidated model was incredibly strong this quarter relative to any recent quarters in the past and i realize your sales were strong this quarter above average but with there anything else go going on within the execution of the labour margin this quarter i'm outside of strong sales that you can point to that that help that leverage amplify this quarter so you think about how labour can potentially be executed movie forward yeah a brain i think a is so obvious as you mention sales is the biggest part but the but we are seeing you know to an hour to get better and it and and i think we call out last year we had a lot of you know sick bay and some inefficiencies in labor last year because of ah con and so that sexual also helping but i but you do see a quarter to quarter or improvement right i mean i think we progressed by or hundred basis points from second quarter third quarter and that's you know that's really the functional sales delta in a we had almost three hundred million dollars more in sales and that helps him with a lot of leverage and then the last piece as a said earlier that attention is getting better and that let that helps improve productivity
spk_33: thank you
spk_1: thank you are next question comes from gregory frankfurt with guggenheim security a up a thanks for the question i'm rick up my question just on on your baby how to think about margins not in twenty four but the next few years is if he is within your long term framework of tend to thirty basis points know when i look at this your you had a big step down and a lot of that was food costs pressure and i'm just wondering if you think that ten to thirty days points is the right way to think about it and maybe it's more of that come on the door level margin insiders the dna the next several years there any updated thoughts and i'll be helpful thanks
spk_3: a greg think the question what i would say first of all is you know we've got that long term framework of tend to thirty basis points of margins expansion we had significant margin expansion during coven and we talked about it last year that we probably would we'd probably give some of that back this year we had significant expansion and during coded of over two hundred basis points to to thirty and now we're closer to one fifty be prieto vid and so as we think about going forward you know we get to our long term framework and we we still think our long term framework will hold over time and some of that will come probably and you know it maybe a third to half of that will come below the restaurant level he knows we think about leveraging other costs
spk_1: but you know is traffic grows and same restaurant cells grow we should still get some from the restaurant but gene a should be some of that saving don't vote awesome thank god for shit
spk_4: thank you are next question comes from brian vaccaro with raymond james
spk_34: hey i think you're squeezing may end up i have a question was just on labor and and operations and there's obviously been a lot of new hires across the industry in the past six to twelve months and a very metrics you can share that speak to the proficiency at your staff and how that's benefiting operations and just gonna to what degree think that the
spk_5: it to be driving your whitening performance get to the industry and then also would you be willing to share cut away your manager and how the turnover is currently running
spk_4: debruyne let me start by saying you know we've had a reduction in turner in turn over which has been helping us
spk_35: our team members are starting to learn more about what they do especially the new team members and as i mentioned earlier manager staffing is at a pretty high levels and so they can spend more time teaching their team and getting more productivity either team
spk_1: without getting into too much detail on turn over or turnover is closer to recover levels than than than kobe levels and we would intend to get it back towards those levels would i would also say is our gap to preserve it isn't that different than it was so as the industry gets better we're getting better
spk_36: and so we feel like will continue to improve and what we've seen over the last couple of quarters is a really big improvement in turn over so i think people now feel like the understand how the heather with their job is and how to do it with actually spent a lot more time as i said in art as i said in alaska
spk_3: while every one of our general manager managing partner conferences in august talked about how to make our each whatever brand a better place to work i'm an even better place to work with our degree place to work and those things are are bearing fruit so our turnovers getting better or first ninety day turnover is significantly improved from where it was just a six months ago because of the focus it were putting on training and making sure that those team members feel up to speed before they get thrown out on a busy friday night i agree that helpful and and the i guess my could follow up just on pricing raj i heard your comments or on your expectation for the fiscal fourth quarter but could you let us know how much have you taken our almost did you take in the fiscal third quarter or have plans to take in the fourth quarter and and just thinking with a little more pressure on commodities has you're thinking changed on sort of the art of your pricing and how quickly you might look to let that moderate over the next three quarters thank you
spk_0: yeah brian i think i am i going to comment on past queue for but but i will tell you that you know if you look at you know where the pricing has been on a second quarter was six and half third quarter that we just completed was six three we expect for water to be under six so the peak pricing for us on and and
spk_2: you'll bases is behind us
spk_1: i think the idea it's going to a and unless something dramatically changes we see pricing coming dawn and i can and i and i know you know not not to compared to some everybody else but the noi in of and you look at what's happening in the market i think most people are on an upward trend on pricing we think we're actually from here on one on a downward trend

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