This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk21: Good morning. Welcome to the Darden fiscal year 2023 fourth quarter earnings call. Your lines have been placed on listen only until the question and answer session. To ask a question, you may press star one on your touchtone phone. As a reminder, the conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Mr. Kevin Kalachek. Thank you. You may begin.
spk16: Thank you, Daryl. Good morning, everyone, and thank you for participating on today's call. Joining me today are Rick Cardenas, Darden's President and CEO, 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 these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 first quarter earnings on Thursday, September 21st, before the market opens, followed by a conference call. During today's call, any reference to pre-COVID when discussing fourth quarter performance is a comparison to the fourth quarter of fiscal 2019, and any reference to annual pre-COVID performance is a comparison to the trailing 12 months ending February of fiscal 2020. Additionally, all references to industry results today refer to Black Box Intelligence's casual dining benchmark excluding Darden, specifically Olive Garden, Longhorn Steakhouse, and Cheddar Scratch Kitchen. During our fourth fiscal quarter, industry same-restaurant sales decreased 0.7%, and industry same-restaurant guest counts decreased 7%. And during our full fiscal year 2023, industry same restaurant sales increased 2.7%, and industry same restaurant guest counts decreased 5.5%. This morning, Rick will share some brief remarks recapping the fiscal year. Raj will provide details on our fourth quarter and full year financial results and share our fiscal 2024 financial outlook. And then Rick will close with some final comments. Now, I'll turn the call over to Rick.
spk01: Thank you, Kevin, and good morning, everyone. We had a solid quarter to conclude what was a very strong year. Despite a tough environment, we significantly outperformed the industry benchmarks for same restaurant sales and traffic and met or exceeded the financial outlook we provided at the outset of the year. For the full fiscal year, we grew sales by 8.9% to $10.5 billion, delivered diluted net earnings per share of $8 and opened 57 new restaurants. We also opened nine new international franchise restaurants in six different countries, which is the most we have ever opened in a fiscal year. The market responded positively to our performance, leading to a total shareholder return of 32.6 percent for the fiscal year. We have consistently delivered strong, long-term shareholder returns. In fact, since Darden was spun off from General Mills 28 years ago, a period which spans multiple business cycles, the company has achieved an annualized TSR of 10% or greater over any 10 fiscal year period. Our restaurant teams continue to execute at a high level by remaining focused on our back-to-basics operating philosophy anchored in food, service, and atmosphere. Our brand's ongoing efforts to drive execution through simplification enable our restaurant teams to create great guest experiences as evidenced by record-level performance we saw from many of our brands on key holidays throughout the year. Nowhere is it more apparent than at Olive Garden, which achieved the highest sales day and sales week in their history during the week of Mother's Day. This focus on being brilliant with the basics leads to strong guest satisfaction scores, and our internal guest satisfaction metrics remain at or near all-time highs across our brands. At Longhorn Steakhouse, one of their most important metrics is their Steaks Grilled Correctly score, which is at an all-time high. To continue to drive these results, Longhorn recently completed their sixth Steak Master Series, which is their annual grilling competition and training program. Over the course of two months, thousands of culinary team members competed in this highly engaging training program for the right to be crowned champion and receive the $15,000 grand prize. Congratulations to this year's Stakes Master's Champion, Kylie Hall from the Longhorn Steakhouse in Farragut, Tennessee. I am particularly proud of everything the teams in our restaurants and at the support center accomplished in fiscal 2023. For example, Olive Garden successfully introduced Never Ending Pasta Bowl, which leveraged their iconic brand equity, was much simpler to execute, and significantly improved margin, while still providing tremendous value for their guests. Throughout the year, several of our brands ranked number one among major casual dining brands in key measurement categories within Technomics Industry Tracking Tool, including Longhorn for food quality and Cheddar Scratch Kitchen for value. And several of our brands were recognized as industry leaders in employment practices by Black Box Intelligence. Olive Garden, the Capitol Grill, and Seasons 52 were honored with the Employer of Choice Award, and Longhorn and Eddie V's received the Best Practices Award. Throughout fiscal 2023, our strategy served us well. In addition to our back-to-basics operating philosophy driving strong execution in our restaurants, Darden's four competitive advantages of significant scale, extensive data and insights, rigorous strategic planning, and results-oriented culture enabled our brands to compete more effectively and provide even greater value to their guests. Our significant scale allowed our teams to successfully manage through the highly unpredictable inflationary environment while continuing to underprice inflation over the long term. All four of our advantages are unmatched within the restaurant full-service industry. These advantages are leveraged by our portfolio of iconic brands, all generating high average unit volumes with extensive geographic footprints. Our strategy is the right one for our company, and our advantages were further strengthened last week with the completion of the acquisition of Ruth's Chris Steakhouse. Ruth's Chris enhances our scale advantage, fits our culture, and complements our portfolio of iconic brands. We are so thrilled to add such an outstanding brand and high caliber talent. and our experienced team is working hard to integrate Ruth Chris into Darden with as little disruption as possible. I'm proud of the results we achieved in fiscal 2023, and we will continue to execute our strategy to drive growth and long-term shareholder value. Now I will turn it over to Raj.
spk12: Thank you, Rick, and good morning, everyone. Total sales for the fourth quarter were $2.8 billion, 6.4% higher than last year, driven by same-restaurant sales growth of 4%, and the addition of 47 net new restaurants. Our same-restaurant sales for the quarter outpaced the industry by 470 basis points, and same-restaurant guest counts exceeded the industry by 540 basis points. Diluted net earnings per share from continuing operations increased 15.2% from last year to $2.58. We generated $472 million in EBITDA and returned $183 million to shareholders. Total inflation slowed meaningfully this quarter to 4.4%, 270 basis points less than the third quarter, while the rate of pricing decreased from last quarter to 5.9%. Turning to the fourth quarter P&L compared to last year, food and beverage expenses were 30 basis points better given by pricing about commodities inflation of roughly 3%. Chicken and seafood experienced deflation this quarter, helping offset high single-digit beef and wheat inflation. Restaurant labor was 40 basis points better, given by productivity improvements. Restaurant expenses were 30 basis points better than last year, driven by sales leverage. Marketing expense was 1% of sales, consistent with our expectations, and 30 basis points higher than last year. This all resulted in restaurant-level EBITDA improving 80 basis points to 20.7%. Our general and administrative expenses was 40 basis points higher than last year, given by the timing of our incentive compensation accrual, as well as unfavorable year-over-year mark-to-market expense on our deferred compensation. Due to the way we hedged this expense, this unfavorability is largely offset on the tax line. Our effective tax rate for the quarter was 10.4%, and we generated $316 million in earnings from continuing operations, which was 11.4% of sales. Looking at our segments, Olive Garden, Longhorn, and our other segment increased same-restaurant sales by 4.4%, 7.1%, and 2.2% respectively. Each significantly outperformed the industry benchmark. The strong same-restaurant sales performance growth segment profit margin at each of these segments higher than last year, especially at Longhorn where segment profit margin of 18.6% was 70 basis points higher than last year. Same restaurant sales at our fine dining segment decreased by 1.9%, still outperforming the black box fine dining benchmark excluding Darden by more than 200 basis points. This resulted in segment profit margin below last year at the fine dining segment. This year, This year-over-year sales decline was more the result of a wrapping on resurgence of demand in the fourth quarter of last year, which drove traffic retention to 108% of pre-COVID levels. Looking at traffic retention trends over the past three quarters, fine dining has been consistently between 101% to 102% of pre-COVID levels. We expect continued year-over-year traffic softness in our fine dining segment as we wrap on the first quarter traffic in fiscal 2023 That was at 107% of pre-COVID traffic levels. We expect traffic to stabilize on a year-over-year basis after the first quarter. As we look at our annual results for fiscal 2023, we had strong same-restaurant sales of 6.8%, which outperformed the industry by 410 basis points, and our same-restaurant traffic was 510 basis points above the industry. The strong top-line performance drove $1.6 billion in EBITDA from continuing operations We returned $1.1 billion to shareholders and ended the year with $368 million of cash. Looking at our fiscal 2023 full year results compared to pre-COVID, operating income margins have grown 140 basis points. Food and beverages percent of sales increased 380 basis points driven by investments in food quality and pricing well below commodities inflation. Offsetting this unfavorability were improvements in labor productivity, reduce restaurant and marketing expenses, and G&A efficiencies. Our strong operating model generates significant and durable cash flows. Since 2018, we have delivered approximately 8% annualized EBITDA growth. At the end of fiscal 2023, our balance sheet was well positioned at just 1.8 times adjusted debt to EBITDA, well below our targeted range of 2 to 2.5 times. And when we look at our performance compared to our long-term framework over the last five years, we've been able to achieve annualized total shareholder returns of 14.2% as measured by EPS growth plus dividend deals. This is near the high end of our target and was driven by annualized earnings after tax growth of 10.2% above the high end of our framework. Cash returns were 4%, which is at the middle of our framework. As we look to the future, we still believe that over time our 10 to 15 percent target for total shareholder returns is appropriate. However, we're increasing the share repurchase range to better reflect the impact of our share price appreciation since we last updated the framework five years ago. The updated share repurchase range is $300 million to $500 million. Before we get into our Outlook for fiscal 2024, I want to provide an update on the acquisition of Ruth's Chris, which we completed last week. This was financed through a $600 million term loan and cash on our balance sheet, bringing our adjusted debt to EBITDA to approximately two times. As we move forward into 2024, sales and profits from Ruth's Chris company-owned and operated locations will be included in our fine dining segment, while revenues and profits from the franchise locations will reside in our other segments. consistent with the treatment of our existing franchise locations. However, fine dining same restaurant sales results will not include Ruth's Chris until they have been owned and operated by us for a period of 16 months. As we mentioned in our conference call in early May, we expect to achieve right synergies of approximately $20 million by the end of fiscal 2025, primarily through supply chain and G&A savings. We also expect Ruth's Chris will be accreted to our earnings per share by approximately 10 to 12 cents in fiscal 2024 and 20 to 25 cents in fiscal 2025. We anticipate total acquisition and integration-related expense of approximately $55 million pre-tax. Now turning to our financial outlook for fiscal 2024, which includes Bruce Critt's operating results but excludes the aforementioned acquisition and integration-related expense, we expect Total sales of $11.5 billion to $11.6 billion, driven by the addition of Ruth's Crystal portfolio, same restaurant sales growth of 2.5% to 3.5%, and approximately 50 gross new restaurant openings, including four relocations. Capital spending of $550 million to $600 million. Total inflation of approximately 3% to 4%, which includes commodities inflation of approximately 2.5%, driven primarily by beef and produce, while most other categories are flat to deflationary, and hourly labor inflation in the mid-single digits, an annual effective tax rate of approximately 12 to 12.5 percent, and approximately 121.5 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $8.55 and $8.85. And finally, our board approved an 8% increase to our regular quarterly dividend to $1.31 per share, implying an annual dividend of $5.24. And with that, I'll turn it back to Rick.
spk01: Thanks, Raj. All of us at Darden continue to work together in pursuit of our higher purpose, to nourish and delight everyone we serve. During the year, we served more than 410 million guests. We also promoted nearly 1,300 hourly team members into our manager and training program and promoted 320 managers to general manager or managing partner positions. And we continue to invest in our team members' development with new programs like Fast Fluency, which allows them to learn English for free, and our NextCourse Scholarship program that awarded post-secondary education scholarships worth $3,000 each to nearly 100 children or dependents of Darden team members. We also remain committed to nourishing and delighting the communities we serve through our ongoing efforts to fight hunger. As part of our Darden Harvest Food Donation Program, our restaurants donated 4.4 million meals to local food banks in fiscal 2023. We also continued our successful partnership with Feeding America with another $2 million donation from the Darden Foundation that helped provide mobile food trucks to 10 different Feeding America food banks. bringing the total to 25 food banks across the country. The addition of Ruth's Chris gives us the opportunity to nourish and delight even more guests, more team members, and more communities. As I said earlier, they are an excellent addition to our portfolio, and I want to welcome Cheryl Henry and the nearly 5,000 team members from Ruth's Chris. We are excited that you are now officially part of the Darden family. I also want to thank our team members in our restaurants and our support center for their outstanding efforts throughout the year. We are fortunate to have the best people in the industry, and I am proud of their commitment to caring for our guests and each other. Now, we'll take your questions.
spk21: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your questions. Our first questions come from the line of John Tower with Citigroup. Please proceed with your questions.
spk13: Great, thanks. I guess to start off, I'm curious to you had mentioned in your release the idea that the environment had gotten a little bit choppier in the fourth quarter. So I'm curious to see if you could articulate what exactly you saw in the backdrop with respect to consumer behavior, specifically at your own brands and perhaps industry-wide. And then I've got to follow up on that, please.
spk01: Hey, John, this is Rick. As we talked about the choppiness of Q4, it was really fine dining going up against last year's very strong bounce back from Omicron. And so this quarter, as we alluded to in the third quarter, was this quarter was going to be a little bit tougher for fine dining because of how they bounced back. And actually, Raj already alluded to that Q1 will probably be the same kind of toughness because of the bounce back last year. But that said, you know, the consumer seems pretty strong overall. And within the restaurant industry and based on our internal and external data sources, there appears to be only minimal switching between lower-priced occasions at this point. Not a whole lot of switching, but some. And overall, we're not seeing anything concerning. You know, what I will say, as you think about mix, we've talked about this before, we're not seeing material changes in our check trends across our core casual brands. There's no negative mix at Cheddar's, and we are watching add-ons and trying to understand if there's some cracks there, but we don't see any real cracks there. But one area we're seeing a little bit of check management is with alcohol sales, primarily at our higher-end brands. And we think part of this is because of the function of last year. Similar to the guest count trends we saw in last year, there was probably a little bit of euphoria in check last year. So that's kind of where we think about the consumer, and we didn't really think the quarter was choppy. We expected that to happen, and that's what happened.
spk13: Got it. Thanks for the clarification. I appreciate it. I'm just curious, on the unicrop as well, it looks like you're expecting – slower unit growth openings versus what you had previously thought? Is that just a function of integrating Ruth? And at the same time, CapEx went a little bit higher. So could you explain what's going on there as well?
spk01: Yeah, I think it's not necessarily integration of roots. You think about what we're seeing on openings, you know, CapEx was higher. And we're wanting to be prudent, as Raj said, in the last call, we want to be prudent and making sure that that we're earning a return that we really want to earn in our restaurants. And, you know, we've had some contractors starting to come back in and bid for sites that they stopped bidding for during during the pandemic, and even after the pandemic. which should make bidding more competitive. We're starting to see that. And so we wanted to be prudent and make sure that we have the right returns. And we still have great returns in all of our restaurants. And that's kind of where it is. It's not really because of Ruth. Got it. Thanks. Appreciate the question.
spk21: Thank you. Our next questions come from the line of Chris O'Call with Stifel. Please proceed with your questions.
spk07: Hi. Great. Good morning, guys. Roger, I had a question about the guidance. I'm just thinking if you exclude the 10 to 12 cent earnings accretion expected from Ruth in the guidance, it would seem to imply EPS growth below your longer term outlook, particularly at the low end. Are you seeing any indications today that the underlying business could be softening, I guess, or are you expecting it to soften over the course of this year? I'm just curious if you can give some color as to why the underlying business seems to be growing at a slower rate.
spk12: Yeah, Chris, I think, look, we're taking into consideration all the information we have, right? We think, you know, we build a plan based on all the information we have today. And if you look at what the consensus economic forecast is for the next year, it's flat-ish GDP. And, you know, in a year, if you look at last year where GDP was growing, the industry still had negative traffic, right? So while we outperformed quite a bit, and we expect to continue to outperform, we're taking that into consideration as we build a plan. But if you look at the midpoint of our guide, you do get to a decent base business growth, and that's kind of how we build a plan, and then the guidance range is to incorporate some variability around that. And that's how we really think about it.
spk07: So you're not seeing any softening today. You're just kind of keeping a more conservative outlook based on what the predictions are for the economy over the next 12 months.
spk12: Yeah, well, I would say that it's not a softening today. I mean, if you look at the last few weeks, I think our gap to industry is fairly similar. But as we talked about, Q1, we do expect some softness in fine dining. That's just a function of RAP. But outside of that, no, we're not seeing any recent trends that would indicate that there's a major change in the underlying environment for us.
spk07: Great. Thanks.
spk21: Thank you. Our next questions come from the line of Eric Gonzalez with KeyBank Capital Markets. Please proceed with your questions.
spk23: Hey, sure. Thanks. And Raj, just regarding the comp guidance, the two and a half to three and a half, can you maybe talk about what level of pricing you're embedding within that outlook and how that compares to where you exited fiscal 23, which I think was around 6%? And then also, do you have an underlying assumption for the industry's growth rate for the year? Thanks.
spk12: Eric, so the way we think about it is our comp guidance of 2.5 to 3.5, we expect to have pricing in the 3.5 to 4%, which would imply a traffic of flat to negative 1.5 for the year for us. That range would imply that. You know, you can extrapolate from that what the implied industry can be. We're not expecting, you know, our gap to be significantly different going into the year, but we focus a lot more on things we can control. And we look at all the factors we have year over year, you know, and taking into consideration the macro environment and then just build a plan that way. As far as, you know, exiting the pricing, yeah, we exited the quarter with closer to 6%, as we said, but we expect that to tick down throughout the year. So start with that, call it 6%, but by the end of the year, by Q4, we get closer to the 2%. A lot of the pricing actions we took last year already impact next year's by about 3%. So the carryover from prior year is probably close to 3%. And so that's really where we are.
spk23: Got it. And then just maybe as a follow-up to that, as you think about industry traffic remaining challenging and you mentioned GDP being flattish potentially this year, have you noticed any significant uptick in promotional activity thus far in As it progresses, how you think your promotional strategy might evolve and what levers could you pull if that's needed?
spk01: Hey, Eric, this is Rick. We look at what the competitor is doing, and you're seeing some promotional activity in competitors. We've got one major competitor that has launched a little bit more TV or jumped back onto TV. But that said, our strategy remains the same on the marketing side. You know, we're going to continue to have advertising in Olive Garden because it's a big competitive advantage for Olive Garden, but we're going to continue to use our filters. First, elevating brand equity by bringing the brand's competitive advantages to life. It's simple to execute, and it's not a deep discount. As we talked about in the last call, we're going to stick to our strategy of core guest count growth. We'll react accordingly if something really changes. But when we increase our marketing spend, if we do, we expect it to earn a return. So we don't necessarily expect us to go back into the deep discount craze. And that's our strategy, and we're going to try to stick to it.
spk22: Great. Thanks.
spk21: Thank you. Our next questions come from the line of Brian Bittner with Oppenheimer. Please proceed with your questions.
spk24: Thanks. Good morning. I'd like to just go back to the 2024 EPS guidance and kind of ask a follow-up. As Chris suggested, yes, when you strip out Ruth, you do have this lower implied core business earnings growth relative to your long-term framework. you know, the same store sales guidance is slightly above the framework. So I just want to dig in there a little bit more. Is it being driven by underpricing inflation? I know you said kind of pricing at three and a half to four, but inflation is three to four. So it doesn't seem like you're planning on underpricing inflation that much. Just, again, trying to understand those dynamics a little better, given the comp guidance is above your long-term framework.
spk12: Yeah, Brian, I think the way, you know, we look at it is if you look at our framework or actually even excluding, you know, roots of, you know, the middle of the guidance for roots is that 11th and accretion. If you take that out, we're still in that, you know, TSR that's north of 10% at the middle of the guidance range. Now, one of the things I want to point out is we haven't been able to buy back shares for almost three months now because of, you know, trading blackout. And so that has an impact on EPS for next year. But even with that, you know, like as we said, we still get to that, you know, double-digit TSR when you incorporate the dividend yield and the EPS growth.
spk24: Okay. And follow-up, just as it relates to the total cost inflation outlook, 3% to 4%, obviously realize commodities are up 2.5% within that total framework of three to four percent. Can you just touch on some of the other assumptions that's pressuring the inflation to be above the commodity outlook?
spk12: Yeah, Brian, it's really labor. You know, I expect, you know, the hourly wage inflation to be in that call it mid single digits and then the salary to be also closer to that. And some of that is a function of how we choose to pay our people. You know, our merit increases have been above the industry, and we think that's prudent. We want to continue to do that, and that's the type of investment we make to help us sustain the types of performance that we've been able to deliver. You look at a 400 or 500 basis point gap to the industry, that doesn't happen magically. There are a lot of things that go into that, and, you know, we are very thoughtful about how we make those decisions.
spk24: Thanks, Raj. Thanks, Raj.
spk21: Thank you. Our next questions come from the line of David Palmer with Evercore. Please proceed with your question.
spk02: Thanks. I wanted to ask you about your assumptions on same-store sales through the year, and in particular, if you have any thoughts about or often a concern about multi-year trends slowing over this next fiscal year and how you're thinking about that potential in your guidance.
spk12: Yeah, the way we are thinking about, you know, in terms of how we build the plan is that we expect retention levels to be fairly similar to moderate a little bit relative to pre-COVID from where we were, you know, this fiscal year. So not a significant drop off, but a little bit. But then I think from a same Russian sales perspective, it's going to be driven by the pricing differences. The fact that, you know, we're going to start off with a higher price and then the price, you know, moderates down to the rate of pricing goes down to 2% by closer to 2% by Q4. That will have an impact on same restaurant sales. As we think about guest counts, as I mentioned, the retention, we expect it to be fairly consistent quarter to quarter relative to last year.
spk02: And with regard to advertising, what sort of assumptions are embedded into your earnings guidance for advertising spend?
spk12: We basically are assuming somewhere in that 10 to 20 basis points more than what we spent last year in total marketing. So that's kind of, you know, not that different from what we did in fiscal 23.
spk02: Got it. Thank you.
spk21: Thank you. Our next questions come from the line of Andrew Charles with TD Cowen. Please proceed with your questions.
spk10: Great. Thank you. Given the slow macro forecast for 2024, I'm curious how that impacts your thinking around never-ending pasta at Olive Garden, the one value-oriented promotion that fits your promotional framework. I guess the question is, are you open to changing the time of the promotion or perhaps even running it at two different times during the year to keep pace in the potentially slowing macro backdrop?
spk01: Hey, Andrew. For competitive reasons, we're definitely not going to talk about plan details. We do believe that Never Ending Possible is a really strong promotion for us, especially with the changes we made last year. And so, you know, we'll look at NEPB and if there's things that we can do with it, but definitely not going to talk about if we're going to do it twice. Okay.
spk10: And then, Raj, can you tell us what's embedded within 2024 guidance for G&A?
spk12: Yeah, I think so, especially with routes coming in, you should, you know, our We ended the fiscal year with closer to $390 million. I'd say at this point our best estimate is probably, you know, still maintaining closer to that 3.7% of total sales, which would get you closer to the, you know, call it $430 million for the year, you know, obviously plus or minus 10 there. But that would be the number we would – that is embedded in our guidance.
spk10: Helpful. Thank you.
spk12: Hey, by the way, as we talk about GNA, I just want to clarify one other thing. We do expect, you know, the cadence to be a little different. So Q1 is probably going to be the highest level, call it closer to $115 million. And then, you know, kind of take down $5 million a quarter throughout the, you know, for the next few quarters is how we think about it, just from a cadence standpoint. So there are some things that, some specific variables that are influencing Q1 to be higher.
spk21: Thank you. Our next questions come from the line of Chris Carroll with RBC Capital Markets. Please proceed with your questions.
spk11: Hi, good morning. So just returning to the same restaurant sales growth guidance for 24, can you provide any more detail and how are you thinking about your largest brands, Olive Garden and Longhorn and how they fit into this? I mean, you've been pretty clear so far on fine dining and how you expect comparisons to impact that segment in the very near term. But just curious if you could provide any additional thoughts on your largest brands and how they factor into the comp guide.
spk12: Yeah, I would say the way we're thinking about it is our core casual brands are probably closer to the, you know, I guess let's just go through the big brands. Olive Garden is probably, you know, would be in that middle of the range is our expectation going in. And then Longhorn would be outside of the range to the upside, primarily because of stake inflation and the pricing there is probably a little bit higher, would need to be. And then, you know, fine dining to be a little bit south of that. And that's really how we're thinking about it.
spk11: Okay, great. That's really helpful. And then you mentioned productivity improvements help to drive the improvement in labor in the 4Q. So how are you thinking about productivity improvements from here maybe in the context of roots and an X roots and just how much of a tailwind that could be in 24. Thanks.
spk01: Yeah, Chris, you know, as we've said before, over the last years, our brands have done a great job improving productivity. We would expect to continue to have some productivity improvements over time, but not to the extent that we had during COVID. You know, as we continue to look at improving training, having turnover come down, that should help productivity a little bit. We're not going to have to discuss Roos right now. We've only owned them for eight days. So we'll have to just get through the getting through integration is going to actually probably be a productivity downer for them for a little bit. So let's let us get let's let us get Roos under our belt for a little bit longer than eight days before we talk about the details there. But as I said, labor productivity, we should expect it to tick better as the year progresses, as we continue to improve on our turnover and as we and as we continue to improve our training.
spk11: Great. Thanks so much.
spk21: Thank you. Our next question has come from the line of David Tarantino with Baird. Please proceed with your question.
spk19: Hi. Good morning, Rick. I wanted to ask your thoughts on the current macro environment. And I guess, you know, your comments that the consumer, you know, seems pretty strong right now. you know, don't actually line up with what the industry is seeing in terms of traffic. I mean, traffic down 7%. You know, we haven't seen those types of numbers since maybe 08, 09. So I'm just kind of wondering, what's your thoughts on traffic? And I know Darden's been outperforming, but I think even your traffic was slightly negative in the quarter. So I guess, what's your thoughts on what's weighing on the traffic and the overall environment?
spk01: Yeah, David, thanks for the question. I did say earlier that we have not seen an impact in the consumer as much as maybe our competitors have. And I think there's a couple of reasons for that. There's a tension between what people want and what they can afford. And, you know, even in a slowing economy, consumers really continue to seek value. And it's not always about low prices. It's about execution. It's about the experience they get in the restaurants or wherever they are. You know, they're making spending tradeoffs. And as I said before, food away from home is really difficult to give up if you're executing. And so what we think about is what it means to our brands, what it means to what we do every day. And we believe that operators that can deliver on their brand promise and the value that appeals to guests despite economic challenges is what's going to get you to win. And that's what we've been doing. So whatever's been happening to the consumer and the economy and the restaurant space, we're going to control what we can control. And what we can control is the experience that our consumers get in the restaurants every day.
spk19: and the value we provide and we we continue to hope that we're going to buck the trend of of of guest counts uh that the industry has and we would expect to have a gap to the industry right maybe maybe just one follow-up on that i mean do you think pricing for the industry has has become one of the issues you know as it relates to traffic you know i know You know, you've priced a little less in the industry, but do you think that consumers are becoming more price sensitive in today's economy?
spk01: You know, I think there might be some price sensitivity in consumers overall, whether it's in the restaurants or what have you. But you think about GDP trends. So for the last four quarters, GDP has continued to tick down, and that would mean that traffic would tick down everywhere, whether it's at a restaurant or it's in a retail establishment, wherever it is. As GDP continues to tick down, you would expect traffic to tick down. Yes, the industry saw a little bit more of a hit to that. And I do believe part of that was because of the bounce back from Omicron last year in Q4. I don't think we were the only ones that benefited from that. I think others did. And so let's see how this all plays out. We've given you our guidance for the year, which does assume negative traffic and actually assumes less negative traffic than the industry. So that should tell you we think there is a little bit of softness there. But we're going to continue to perform and do the things that we do every day to bring guests into our restaurant.
spk19: Great. Thank you.
spk01: Thanks.
spk21: Thank you. Our next questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.
spk05: Great. Thank you. The first one was just on cash usage. The share repurchase as part of your long-term algorithm is, I guess, at the midpoint going up by like $200 million. And you bumped the dividend by close to 10%, and the CapEx is going up a little bit more than perhaps what you previously thought. I'm just wondering, what's going in the other direction? And I think of that in the context of M&A. I mean, I know you've returned to the market with the Ruth acquisition. I'm wondering whether you're seeing potential for more. Maybe the valuation challenges that you previously noted have been easing. Any thoughts? That would be great. And then I had one follow-up.
spk12: Yeah, let me talk about the cash, and then I'll turn it over to Rick for the M&A commentary. So as far as cash usage, if you look at our business, we generate somewhere around $1.7 to $1.8 billion, our guidance would imply, in terms of operating cash flow. So between the dividend and the CapEx, and with the share repurchase, we still would be building cash. Maybe if you take all the midpoints of all of those ranges, we would still build a cash balance of call it maybe close to $100 million. So we're really not tapping into any borrowings or that to meet these commitments we have embedded in here. As far as the long-term framework share repurchase range, that is really to reflect the change in our share price from five years ago because we haven't updated the framework for five years. So all that change, you know, as much as it feels like it's doubled, that's basically reflecting that our share price has doubled during that time frame. And so now with that, I'll just turn it to Rick.
spk01: You know, I'll just add something to that. If you think about the cash flow or EBITDA, you know, pre-COVID, our EBITDA was about $1.2 billion. And today, you know, based on what Raj is saying, it's 1.7, 1.8. So that gives us a lot more cash to do those things and increase our share buyback and M&A. And so if you think about We've talked about M&A often. M&A adds to our scale, which is our biggest advantage. And we continue to talk to our board. Management continues to talk to our board about our best uses of capital, and M&A is one of those. But we just got done with the roots deal, so let us do a little bit there. It doesn't mean that we wouldn't be back in the market down the road. But, you know, we've got plenty of cash. We've got plenty of debt capacity. Raj said we're at basically two times adjusted debt to adjusted EBITDA, and that's at the low end of our range. So we have plenty of capacity to do more things.
spk05: Got it. And then just a clarification, just wondering if you're going to provide pro forma restated maybe Darden results for the quarters of fiscal 23 as if you owned Ruth the entire year. I know it's tough. for us to model with the different quarter and year ends and with Ruth operating a 50-50 company franchise model, just trying to get some color as to whether or not you'll provide any help from a modeling perspective or any pro forma type results to give us better insight into the growth rate going forward. Thank you.
spk12: Really, the fiscal calendars, when you look at the quarters, were only a month off. We don't plan on restating the history. I think, and I also want to think about, you know, how material it is to the overall Darden P&L.
spk21: Thank you. Our next questions come from the line of Sarah Senator with the Bank of America. Please proceed with your questions.
spk18: Great. Thank you. So first, a clarification, which is you talked about the cadence of pricing over the course of the year. Is it fair to assume that you're thinking the cadence of input inflation will follow suit in the sense of kind of rolling off over the course of the year? Or is there a reason to believe that maybe the gap between pricing and inflation might look different, and therefore the implications for margins might be different over the course of the year? So that's the first question, and then I'll have another one about this, please.
spk12: that there are a great question as we think about inflation uh... you know we don't expect uh... indicated to be significantly different i think we have a little bit in a little bit more in the first quarter but not a huge difference we're talking about fifty to sixty basis points may be different from quarter to quarter uh... you know so that three to four range is what we provided for the overall you can expect first quarter to be closer to four and then the other quarters might be close you know a little bit less than that but then you know, there's really not a meaningful difference between quarters. So that would imply that year over year, there is a little bit of delta in pricing versus inflation, because we are starting with a higher price as we get out of Q4, where we exceeded the Q4 levels. So I know you also said you had a second question, so we'll wait for that.
spk18: Yeah, thank you. And then actually just to clarify on that one, and then I'll ask the question, which is, So is the implication that by the fourth quarter you'll be needing to find more productivity gains or something else if you have less price but sort of level-loaded inflation over the course of the year?
spk12: Yeah, I think we do expect the gap to reverse by the time we get to the back half. In fact, the way we look at it and we look at our quarterly earnings that are embedded in our guidance, the cadence, while it's more balanced than last year, We do see Q2 providing the highest growth, while Q4 providing the lowest from an earnings standpoint. And Q1, Q3 more in line with the annual growth that we provided.
spk18: Okay. Thank you very much. And then just a question. I know, Rick, you said you've only had root for eight days, but presumably there's a lot of diligence that went in ahead of that. So I know you mentioned $20 million roughly by the end of fiscal 2025 primarily coming through supply chain and G&A. If I look at the restaurant-level margins for Ruth versus, like, your fine dining, is supply chain or cost of goods, is that the primary difference as I think about the potential to bridge that gap?
spk01: Well, we've said in the past that most of our synergies come from G&A and supply chain. So, you know, when we've in the past said it's about half and half, whenever we've done acquisitions before. So yes, Ruth should get in the long term benefits from cost of sales. Now that said, we may reinvest some of those cost of sales and our other brands will get some of the benefits too. So it won't all flow to Ruth's. I will say that there aren't many brands in the industry that we could acquire that actually improve our EBITDA margin at the restaurant level and Ruth's does. So across Darden. Now they might not be As high, depending on how you look at it, as Capital Grill, they might be higher or a little bit lower, depending on your definition of restaurant margin. But they're pretty close. And because Capital Grill is higher than Darden's average margin, Ruth's helps Darden's margin. So that's a pretty good deal for us.
spk18: I see. Thank you both so much. Very helpful.
spk01: Sure.
spk21: Thank you. Our next questions come from the line of Jeff Farmer with Gordon Haskett. Please proceed with your questions.
spk15: Thank you. Just following up on modeling post-Ruth acquisition, you shared some information on G&A, but anything you can share as it relates to how we should be thinking about both interest expense and G&A moving forward?
spk12: Yeah, Jeff, I'd say interest expense is likely going to be, I think for year over year, we're probably looking at a total of $15 million, of which $40 is related to roots acquisition. And then the other is just the lease interest and other short-term interest rate in exposure we have. So that's the thing on the interest. And the DNA, I would just really take into consideration, you know, the Darden's DNA and then later on roots from what you have. There will be some purchase accounting that we're working through. So, we'll have some updates on that, but that will be more of a geography, more so than a huge impact. We've embedded some incremental step-up in our valuation and in our P&L, and that's incorporated in our guidance, but we're not ready to share those details yet.
spk15: Okay. And just one more. One of your named competitive advantages over the last several years has been this extensive data and insights. But can you share maybe one or two examples of how you were able to leverage that data in 23 and potentially some untapped opportunities as you moved forward in terms of harnessing or really analyzing that data moving forward?
spk01: Yeah, Jeff. This is Rick. You know, you think about what we're starting to do with data. Were you starting to use a lot of AI and machine learning to help guest count forecast and help our restaurants forecast their business better? And that would move all the way down through the, through the company, right? So if you forecast your traffic better, You order better, you receive better, you schedule better. That's one of the big things we've looked at is using machine learning and AI. But you've got to remember, one of the things that we do every year is we use data to help look at what our guest patterns are, what we think about guests and how do we market to our guests. We also improve operations execution. with the data that we have. But I would say, if you're asking for one big thing, is analytics through pricing, too. So, you know, we've got a great analytics team here that does help with our pricing. They look at restaurants. They look at categories. They look at items. They look at elasticity. And we can do all that in-house because of our scale. All right.
spk21: Thank you. Thank you. Our next question has come from the line of Danilo Gargiulo with Bernstein. Please proceed with your questions.
spk20: Good morning. I'm wondering, what is the integration timeline that you are embedding in your EPS acquisition expectations? And how is the previous acquisition of Cheddars impacting the timeline that you are expecting? And, you know, what will it take for this integration to accelerate? And I'm talking even beyond, you know, the 2024 timeline that you shared today.
spk12: Daniel, we're still working through the steps, but our expectation is a lot of the stuff happens over the next 12 to 15 months. And so that's why some of those synergies come later, because we're trying to be prudent. We're going to be thoughtful. We've got to design this right, do this right, because we want to set it up for success long term. And we want to make sure we minimize the disruption to operators. And so everything we're doing, we have a great team working on it that's actually being, you know, very thoughtfully phasing in these parts of integration and how we integrate different parts of the business. And we've learned a lot from our Cheddars acquisition. Obviously, Cheddars was more complicated with, you know, essentially three different businesses being brought under one roof. With Roots, it shouldn't be as complicated, but a lot of the learnings we have from our prior acquisitions are incorporated into our business. are actually taken into consideration as we plan for this.
spk20: Thank you. And what set of factors will prompt you to drive higher unit growth versus the data safety? I know you mentioned more competitive bidding is actually starting to happen, but have there been any internal discussions on potentially international expansion given your recent quarter and also the recent acquisition of Roost?
spk01: Hey, Danilo. You know, if you think about our pipeline for this year, most of the pipeline you have to have already started construction by the time the year, almost by the time the year started to get them open. because it takes a little longer to open a restaurant or build a restaurant today than it did before covid so if it's not started by the end of q1 it probably doesn't open this year maybe even if it doesn't start until by july it's hard to open this year so that's why we've got our our kind of guide of about 50 gross openings when you when we talk about international that doesn't incorporate that's not incorporated in our unit count because we are are committed to staying a company-owned model only in the U.S., not that we wouldn't have franchises in the U.S., but we will be only franchised outside the U.S. and Canada. So all of our restaurants outside the U.S., the ones that we opened last year, were all franchised, and anything that we open going forward is likely to be franchised as well.
spk20: Perfect. Thank you.
spk01: Sure.
spk21: Thank you. Our next questions come from the line of Brian Harbor with Morgan Stanley. Please proceed with your question.
spk17: Yeah, thank you. Good morning. I had a question just about fine dining sales. Is that really just kind of about the lapping dynamic or could you provide any comments on kind of some of the different customer sets, whether it's, you know, business type of customers versus like a more aspirational customer if you're seeing anything different there?
spk12: Yeah, Brian, I say, you know, first of all, you know, as we said in the prepared remarks, we actually saw a fairly consistent retention relative to pre-COVID for the last three quarters at fine dining. What we're seeing is we are seeing a little bit of pullback on the alcohol sales, and we still think that's also a function of, you know, wrapping on a significant increase a year ago. Now, as we just generally speaking, what we're seeing with the demographics is, you You know, consumers below 35 are above pre-COVID, but they're below last year. And then whereas 55 plus is still below pre-COVID, but they're similar to last year. So there's a different dynamic year over year where you're seeing the younger demographic pull back a little bit year over year. And then similarly on the income side, we're seeing that lower income is above pre-COVID, but still below last year. whereas higher income is flattish to last year or similar to last year, but they are still below pre-COVID. So those are some of the insights I can share on finining.
spk17: Okay, thank you. And then maybe just on kind of the labor line, did you comment on what labor inflation was in the most recent quarter? It sounds like it was still like mid single digit range. And is there any kind of like slowing in that pace assumed through the course of this year? Or is it going to be pretty steady? Or how do you kind of expect that to play out?
spk12: Yeah, our labor did overall labor inflation take down about 100 basis points from Q3 to Q4. We were at 6% in Q4. That included wage inflation close to 7%. So that's also a takedown from prior quarter, a meaningful step down. And that actually was a little bit better than we thought going into the quarter. Now, as we look to the future, as we said, you know, so we ended the year with 6.9% total labor inflation. And we said, you know, we expect that to, you know, step down by about 100 basis points as we go to next year. That's why we talked about that mid-single-digit inflation.
spk21: Thank you. Thank you. Our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.
spk09: Thank you. Raj, I'm just curious if there's any update to share on how you're thinking about continued margin gains longer term. I know you've spoken a bit more to the long-term total shareholder return algorithm of late, but just curious if anything new on long-term margin considerations and if 10 to 30 bps annually is kind of the right way to think about it still.
spk12: Yes, Dennis, we do think that 10 to 30 is the way to think about from where we are starting this fiscal year. So that's why we restated our framework. And the only change we made is to the share repurchase because we still believe that 10 to 30 is a good target for us to have for the foreseeable future.
spk09: Thank you. And then just on the to-go sales across the portfolio to some extent, just Curious sort of where you sit now and if any kind of latest thoughts on what that could look like, either, you know, growth there, sales mix, opportunities as we look to 24. Thank you very much.
spk12: Well, so our to-go sales are actually pretty consistent with where we were in Q3. So I think we're still running at Olive Garden close to 25%, Longhorn around 14%, and Cheddar's at 12%, which is not that dissimilar to what we had a quarter ago. And we're doing that without third-party delivery. And we continue to see that we're able to kind of still get overall sales growth and outperformance on the industry. while not tapping into these other channels. And actually, we're managing the experience better. And we feel like, you know, we have opportunity to continue to execute on that. As we've said before, this is higher than we would have expected a couple years ago, but we're very happy with it. And our teams are focused on executing at the highest level possible to make sure that we can sustain and grow from here.
spk09: Great. Thank you, Raj.
spk21: Thank you. Our next questions come from the line of John Ivanko with JP Morgan. Please proceed with your questions.
spk14: Hi, thank you. I know you have actually famously done a lot of brand level customer segmentation work. You used to talk about that in analyst days many years ago. So I guess using that data or using your current thinking, can you explain how you think about the upcoming repayment of student loans? That's not something that you've been Asked about today, it's coming, you know, I think in September, obviously the press, you know, itself has kind of, you know, gotten smart that that's something that's coming and actually might be, you know, a fairly significant change for at least some cohort of the population. You know, can you think of, is there any impact, you know, to Darden specifically? Have you thought through that, you know, and what might potential responses be?
spk01: Hey, John. Yeah, we think through that all the time, and we do still do those consumer segmentation studies, and we still do market structure studies. We don't necessarily talk about them externally because we don't want everybody else to see them, but thinking about the student loan impact, you know, yes, they'll start being repaid in, I guess, September around there, but it shouldn't be a material headwind. It'll be a headwind. Anytime you take money out of consumers' pockets, it's a headwind, but it shouldn't be a material because Student loan payments are a very small component of GDP, and it's probably already baked into the economics forecast for GDP growth that we use for our plan.
spk14: And just in terms of, like, that specific cohort, I mean, whether it's 25 to 44 or what have you, I mean, I know Olive Garden, you know, historically is kind of skewed older, but, you know, is there anything that you can, you know, kind of, you know, help us with is just saying, hey, you know, you have some big percentage of the customer base that's just not going to be affected by it by all. Is there, you know, a little bit more information you can kind of give us as you triangulated? Thank you.
spk01: Sure. I think Raj talked about our consumer demographics a little bit ago. We're still above pre-COVID on our consumers in the 35 age range or below 35, which is probably the ones that are in their student loan repayment period. And the 55 plus are below pre-COVID last year. So You know, there's probably still some room for some of those 55-plus to come back, and I'm doubting that they're paying student loans back unless they're paying them for their kids. And if you think about our population, we still have a high percentage of our consumers that are above $100,000. So hopefully a student loan repayment wouldn't impact them too much.
spk14: Okay, that's helpful. Thank you.
spk01: Sure.
spk21: Thank you. Our next questions come from the line of Andrew Strzelczyk with BMO. Please proceed with your questions.
spk04: Hey, good morning. Thanks for taking the questions. Two for me. The first one is on the commodity side. I'm curious if you feel like your visibility into the food cost outlook is improving or the duration to which you have visibility is improving just as the rate of inflation is moderating here. And then the second question is on the unit growth side. You talked about you know, the bidding side and some favorability potentially there. I'm just curious in terms of permitting supply chain equipment, are there green shoots on that side or how are you seeing that evolve?
spk12: Thanks. Hey, Andrew. This is Raj. So on the commodity side, we do have better visibility today than we did a year ago. We actually have, for the first time I think in four years, probably have coverage That is actually pretty similar to the way we used to before COVID. I think we have, you know, as we talked about for the first half, we have a total coverage of 65% of our basket covered and close it to that 25 to 30% in the back half covered, which is, again, pretty much back to the levels we used to have pre-COVID. So we definitely feel like we have a lot more visibility today than we did before. And then as far as the development side, we are starting to see some signs of improvement. Rick talked earlier about, you know, some of the bids coming in better or multiple bids coming in. You know, there's still some delays in permitting and utility connections with local agencies and stuff like that. But, you know, but all that said, we do see some green shoots. We think that we believe that the inflation on the construction side has peaked. You know, now it's still elevated, but it's not it's not going continuing to go up. And in fact, I think we you know, the last few bids we've had last few construction starts we've had. they were in line with our budget or better. So just starting to see some positive signs there.
spk04: Great. Thank you very much.
spk21: Thank you. Our next questions come from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.
spk06: Hi. Thank you. Good morning. I just wanted to circle back on the strengths at Longhorn. It seems like the brand took another step up, at least through the lens of average weekly sales volumes, which I think are now up in the mid-30s versus pre-COVID levels. And I know the brand has gained a lot of share through the pandemic, but anything incremental worth highlighting that you think is driving this incremental uptick?
spk01: Yeah, Brian, you know, Longhorn has been executing well for the last few years, and I want to commend Todd and his team. They've been on this journey in quality, simplicity, and culture. That's what Todd talks about every day. Investing in quality and portions that continue to pay off. They had almost 7.1% same restaurant sales growth in the quarter. You know, that was driven by some pricing. You know, they've had more inflation. But they also have had record weekly sales in Mother's Day week. And, yes, they're 34% above pre-COVID levels in sales versus Q4. And traffic is positive. over pre-COVID. So I can't tell you it's any silver bullet. And we've talked about that in the past, that there aren't silver bullets here. It's about having great execution, investing in your team, investing in your product to drive profitable same restaurant sales growth. And that's what they've been doing.
spk06: All right. And then I also just wanted to circle back on the roots acquisition and your customer segmentation work. And Could you elaborate a little bit on the overlap or maybe more interestingly, the key differences between Ruth's customer base versus your other fine dining brands or any other differences you think are worth highlighting regarding the brand?
spk01: Yeah, Brian, let me talk about differences and why we believe that there is not a whole lot of overlap between a Roos customer and a CapitalGrowth customer. But I will preface this by saying we've only owned them for eight days, and before we closed the deal, we were not allowed to see their consumer data, right? We were still competitors, and we couldn't see their consumer data other than looking at third-party data that we would have. So we want to start looking at their data to understand it a little bit better. But one of the primary reasons is geography. If you look at, you know, they have 150-ish restaurants, including the franchise system, and they have restaurants in markets that Capital Grill doesn't have restaurants in. And even in markets that Capital Grill has restaurants in, they're not necessarily close to each other in a lot of those markets. So there isn't as much overlap as you would expect. And that's a good thing for us, and that's a good thing for Ruth's Chris, and that's a good thing for Capitol Grill. But then I would add that if you think about Eddie V's and Capitol Grill, we've had this kind of scenario for many years where Eddie V's guests may go to Capitol Grill, but they go for different occasions. And we want to learn a little bit about that at Ruth's on the occasion differences. And then finally, I think Capital Grill is a little bit more, going back to geography, a little bit more mixed in urban than Ruth's is. You know, an urban core versus Ruth's Chris, where Ruth's Chris, you know, for example, if you have a restaurant in Birmingham, we don't have, or in Destin, Florida, there's a Ruth's Chris. We don't have a Capital Grill there. So there's reasons that there isn't as much overlap as you would have thought.
spk06: All right, that's great. I'll pass it along. Thank you.
spk21: Thank you. Our next questions come from the line of Jake Bartlett with Truist Securities. Please proceed with your questions.
spk08: Great. Thanks for taking the question. Mine was on labor productivity. You mentioned that you expect some labor productivity improvements in 24, but not a whole lot. I guess my question is around turnover. I would have thought that just improving labor environment, staffing is kind of, I think, back to pre-COVID levels, but turnover is going down. So productivity should be going way up. In terms of at your brands, have you already benefited? I mean, I guess maybe was your turnover not so bad before that's where you're not gonna get much of an incremental benefit. If you could just talk about how the labor dynamics and what that could or couldn't do to labor productivity.
spk01: Yeah, Jake. Yes, you would expect that as turnover goes down, productivity gets better. And we've started to see that already this year. So our turnover is improving and our productivity is getting better. So it's not like we're going from the highest turnover we've ever had to the lower turnover next year. We've actually started gradually moving to it. And one of the places that gets you the biggest productivity loss is the turnover in the first 90 days. And that's had a very big improvement for us. So You have less productivity loss if you have less 90-day turnover. And so we've seen an improvement in turnover. We're still above pre-COVID levels, but we're a lot closer to our pre-COVID levels than we were just last month and the month before that and the month before that. And we'll continue to improve. I don't know if we'll ever get back to pre-COVID level turnovers, but if we do, then that should give us even more productivity enhancements.
spk08: Great. And then I had a follow-up on unit growth and gave guidance for 2024. A couple years ago, you had mentioned your expectations kind of moved towards the higher end of the range, so closer to 3% from the 2% to 3% range. Is that still valid kind of going forward? And it's going to be lower in 2024, but longer term, should we think of the higher end of the range as the right point, or are we kind of getting back into maybe the middle of the range longer term?
spk01: Yeah, Jake, our goal is still to get towards the higher end of the range. It might take us a little bit more time to get there than we originally thought. COVID slowed a lot of stuff down in development. The permitting that Raj talked about, equipment that Raj talked about, those things are getting better than all the way back. It would be great if we could get permits. as fast as we used to get them. It would be great if we can get utilities turned on as fast as we used to get them. That's just not come back anywhere near where we need it to be. And as we think about construction costs getting back to a more normal level, Raj mentioned that we've had the last few contracts that we've bid out have come in better than what we expected, and that's a good sign for us. So that'll help us get back to that higher end of our framework. And I would also remind people, we don't talk about this very much, But that framework includes M&A. And while we would like to get to the high end of the framework just with organic growth, M&A is part of the framework. And the thing is, when we shared that framework earlier today, the five-year delta, the five-year impact to the framework had no M&A in it. And we were still within probably the mid-range of our unit growth. M&A is part of that. It is part of our capital allocation. But we would still like to get to the high end without M&A.
spk08: Great. Thank you so much.
spk21: Thank you. Our next questions come from the line of John Park with Wells Fargo. Please proceed with your questions.
spk22: Hey, good morning. I guess as we think about the segment profitability into 24, are there any segments that you guys see as outliers, either in terms of improvement or pressure that you're expecting?
spk12: Well, I think it's fair to expect that, you know, as we talked about, fine dining is going to have a tough wrap in the first quarter. But as far as how we think about year over year, we expect all our segments to get a little bit better. That's kind of how we plan the year, and that's what we push our teams to do.
spk22: Got it. And then kind of just on the pricing side, similarly, I guess just given the beef inflation that you're seeing, is it fair to assume that the Longhorn and fine dining pricing is above that range and Olive Garden and Cheddar's is below?
spk12: Yes, that's a fair assumption.
spk22: Great. Thank you.
spk21: Our last questions will come from the line of Gregory Frankfurt with Guggenheim. Please proceed with your questions.
spk03: Hey, thanks. I just have two quick follow-up on labor. The first is, I guess within that 5% labor inflation that you're expecting, how much of that's going to be statutory this year and how much of it's maybe still market pressure? And then maybe a corollary question is, as you guys are going out there to hire new workers, you're talking about turnover, the wage that it costs to hire somebody new today, have you seen a break in that or a material break in that wage? I'm just curious as I think about how much easier it's gotten for you guys to hire people. Thanks.
spk12: Hey, Greg. So just let me start by clarifying. We did not say it's 5%. We said mid-single digits, and I want to make sure that it's not treated as a 5%. I think our plan actually assumes a little bit north of that, but a guidance range embeds something closer to that 6% for wage inflation. So I just want to clarify that. And then as far as the... The regulatory piece, the minimum wage impacts, that's about just under two, I think, for the full year. Maybe 1.5 to 2% is what we have there. And then beyond that, it's just the normal merit increases and other stuff. Now, as far as the question around Wages and, you know, clearly the environment has gotten a lot better. We are doing a lot fewer out-of-cycle adjustments than we were doing even six months ago. So from that perspective, there is clearly, you know, a lot of, I would say for lack of a better term, positive signs in hiring environment, in the starting wages, all those things getting a lot better than where it was a couple quarters ago.
spk01: And if I can just add one thing to that, you know, if you think about our turnover coming down, that means we don't have as many people we're hiring as we were before. So we didn't have to hire as many people now than we did before. And so the wage, even if the wage break didn't happen, it's still not as big a deal for us. But the wage break is starting to happen. But the fact that we don't have to hire as many people helps us as well.
spk13: Awesome. Thank you, guys, for the perspective. Appreciate it.
spk21: Thank you. There are no further questions at this time. I would now like to hand the call back over to Kevin, excuse me, Kevin Calacac for closing remarks.
spk16: Thanks. That concludes our call for today. I'd like to remind you that we plan to release our first quarter results on Thursday, September 21st before the market opens with a conference call to follow. Thanks again for participating in today's call and have a great day.
spk21: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Disclaimer