Darden Restaurants Reports 14% Increase in Third Quarter Diluted Net Earnings Per Share and Announces Quarterly Dividend of 32 Cents Per Share

Darden Restaurants, Inc. (NYSE: DRI) reported sales and diluted net earnings per share for the fiscal third quarter ended February 27, 2011.

"The casual dining industry's same-restaurant sales results this quarter, despite severe winter weather for much of the period, is further evidence that economic conditions continue to improve," said Clarence Otis, the Company's Chairman and Chief Executive Officer.  "And we're pleased we were able to leverage the better environment to once again produce strong earnings growth.  Even with the economic improvement we're seeing, it's important to have product news that's highly relevant given today's still more fragile than normal emotional and financial circumstances.  The final month of the quarter, Olive Garden's promotion was not as effective as we'd hoped while we enjoyed much stronger than anticipated promotional effectiveness at both Red Lobster and LongHorn Steakhouse.  Looking ahead, we're confident in our promotional and other strategies and that we're well positioned to continue to grow market share and deliver competitively superior earnings growth."

Operating Highlights

OLIVE GARDEN'S third quarter sales of $907 million were 4.3% above prior year, driven by revenue from 33 net new restaurants.  For the quarter, on a percentage of sales basis, lower restaurant labor expenses and restaurant expenses were partially offset by increased food and beverage expenses, selling, general and administrative expenses and depreciation expenses.  The net result was an increase in operating profit and operating profit as a percentage of sales for the quarter.

RED LOBSTER'S third quarter sales of $663 million were 1.2% higher than prior year, driven by revenue from two net new restaurants and a U.S. same-restaurant sales increase of 0.1%.  For the quarter, on a percentage of sales basis, lower restaurant labor expenses and restaurant expenses were partially offset by increased food and beverage expenses, selling, general and administrative expenses and depreciation expenses. The net result was an increase in operating profit and operating profit as a percentage of sales for the quarter.

LONGHORN STEAKHOUSE'S third quarter sales of $268 million were 12.6% above prior year, driven by revenue from 21 net new restaurants and its same-restaurant sales increase of 6.1%.  For the quarter, on a percentage of sales basis, lower food and beverage expenses, restaurant labor expenses and depreciation expenses were partially offset by increased selling, general and administrative expenses, resulting in an increase in operating profit and operating profit as a percentage of sales for the quarter.  

THE SPECIALTY RESTAURANT GROUP'S third quarter sales of $139 million were 25.0% above prior year, driven by same-restaurant sales increases of 8.4% at The Capital Grille, 3.4% at Bahama Breeze and 4.2% at Seasons 52.  Additionally, sales growth reflected revenue from four new restaurants at The Capital Grille, one new restaurant at Bahama Breeze and six new restaurants at Seasons 52.  

Fiscal December, January and February 2011 U.S. Same-Restaurant Sales Results

Darden reported that U.S. same-restaurant sales for its three large brands for the fiscal months of December, January and February as compared to the prior year were as follows:

A number of factors affected monthly same-restaurant sales and traffic results for all three brands this quarter.  These include (1) a Saturday Christmas Day and New Year's Day this year vs. a Friday Christmas Day and New Year's Day last year (which adversely affected December results for all three brands); (2) a Monday Valentine's Day this year vs. a Sunday Valentine's Day last year (which positively affected February results for all three brands); (3) a later start to the Lenten season this year (which adversely affected Red Lobster's, and positively affected LongHorn Steakhouse's, February results); and (4) more severe winter weather in December and January, but less severe winter weather in February compared to last year.  Please see the table below for additional information.

Fiscal 2011 Outlook

Darden anticipates that diluted net earnings per share growth from continuing operations for fiscal 2011 will be approximately +19%, which is slightly higher than the previous outlook of +17% to +18% diluted net earnings per share growth.  This compares to reported diluted net earnings per share from continuing operations of $2.86 in fiscal 2010.  The Company also affirmed that its earnings expectations for the fiscal year are based on (1) blended U.S. same-restaurant sales in fiscal 2011 for Olive Garden, Red Lobster and LongHorn Steakhouse of approximately +1.5% to +2.0%; (2) the opening of approximately 70 to 75 net new restaurants in fiscal 2011; and (3) total sales growth of approximately +5.5% in fiscal 2011.  

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