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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 27, 2022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
1-13666
Commission File Number
DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Florida | | 59-3305930 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1000 Darden Center Drive | | |
Orlando, | Florida | | 32837 |
(Address of principal executive offices) | | (Zip Code) |
407-245-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, without par value | DRI | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Number of shares of common stock outstanding as of December 15, 2022: 121,705,296.
TABLE OF CONTENTS
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Part I - | Financial Information | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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Part II - | Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
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| Item 6. | | |
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Cautionary Statement Regarding Forward-Looking Statements
Statements set forth in or incorporated into this report that are not historical facts, including without limitation statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Darden Restaurants, Inc. and its subsidiaries that are preceded by, followed by or that include words such as “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan”, “outlook” or similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This statement is included for purposes of complying with the safe harbor provisions of that Act. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements for any reason to reflect events or circumstances arising after such date. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. The most significant of these uncertainties are described in Darden’s Form 10-K, Form 10-Q (including this report) and Form 8-K reports.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| November 27, 2022 | | November 28, 2021 | | November 27, 2022 | | November 28, 2021 |
Sales | $ | 2,486.5 | | | $ | 2,272.2 | | | $ | 4,932.6 | | | $ | 4,578.2 | |
Costs and expenses: | | | | | | | |
Food and beverage | 818.3 | | | 694.1 | | | 1,613.6 | | | 1,379.5 | |
Restaurant labor | 808.5 | | | 744.8 | | | 1,602.3 | | | 1,480.8 | |
Restaurant expenses | 417.0 | | | 385.0 | | | 820.5 | | | 763.1 | |
Marketing expenses | 31.1 | | | 21.9 | | | 61.4 | | | 45.8 | |
General and administrative expenses | 90.4 | | | 91.7 | | | 178.7 | | | 204.7 | |
Depreciation and amortization | 96.8 | | | 92.1 | | | 192.4 | | | 181.1 | |
Impairments and disposal of assets, net | (8.8) | | | — | | | (13.7) | | | — | |
Total operating costs and expenses | $ | 2,253.3 | | | $ | 2,029.6 | | | $ | 4,455.2 | | | $ | 4,055.0 | |
Operating income | 233.2 | | | 242.6 | | | 477.4 | | | 523.2 | |
Interest, net | 19.8 | | | 16.7 | | | 39.6 | | | 32.3 | |
| | | | | | | |
Earnings before income taxes | 213.4 | | | 225.9 | | | 437.8 | | | 490.9 | |
Income tax expense | 25.9 | | | 32.5 | | | 56.7 | | | 65.8 | |
Earnings from continuing operations | $ | 187.5 | | | $ | 193.4 | | | $ | 381.1 | | | $ | 425.1 | |
Losses from discontinued operations, net of tax benefit of $0.3, $0.0, $0.3 and $0.5, respectively | (0.3) | | | (0.2) | | | (0.9) | | | (1.0) | |
Net earnings | $ | 187.2 | | | $ | 193.2 | | | $ | 380.2 | | | $ | 424.1 | |
Basic net earnings per share: | | | | | | | |
Earnings from continuing operations | $ | 1.54 | | | $ | 1.50 | | | $ | 3.11 | | | $ | 3.28 | |
Losses from discontinued operations | (0.01) | | | — | | | (0.01) | | | (0.01) | |
Net earnings | $ | 1.53 | | | $ | 1.50 | | | $ | 3.10 | | | $ | 3.27 | |
Diluted net earnings per share: | | | | | | | |
Earnings from continuing operations | $ | 1.52 | | | $ | 1.48 | | | $ | 3.09 | | | $ | 3.24 | |
Losses from discontinued operations | — | | | — | | | (0.01) | | | (0.01) | |
Net earnings | $ | 1.52 | | | $ | 1.48 | | | $ | 3.08 | | | $ | 3.23 | |
Average number of common shares outstanding: | | | | | | | |
Basic | 122.1 | | | 129.2 | | | 122.5 | | | 129.8 | |
Diluted | 123.1 | | | 130.5 | | | 123.5 | | | 131.1 | |
See accompanying notes to our unaudited consolidated financial statements.
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| November 27, 2022 | | November 28, 2021 | | November 27, 2022 | | November 28, 2021 |
Net earnings | $ | 187.2 | | | $ | 193.2 | | | $ | 380.2 | | | $ | 424.1 | |
| | | | | | | |
Foreign currency adjustment | (0.2) | | | (0.1) | | | (0.2) | | | (0.5) | |
Change in fair value of derivatives and amortization of unrecognized gains and losses on derivatives, net of taxes of $(0.5), $0.0, $0.1 and $0.0, respectively | 5.6 | | | (5.3) | | | 7.8 | | | (3.5) | |
Net unamortized gain (loss) arising during the period, including amortization of unrecognized net actuarial gain (loss), net of taxes of $0.0, $0.1, $0.1 and $0.2, respectively, related to pension and other post-employment benefits | 0.2 | | | 0.2 | | | 0.3 | | | 0.4 | |
Other comprehensive income (loss) | $ | 5.6 | | | $ | (5.2) | | | $ | 7.9 | | | $ | (3.6) | |
Total comprehensive income | $ | 192.8 | | | $ | 188.0 | | | $ | 388.1 | | | $ | 420.5 | |
See accompanying notes to our unaudited consolidated financial statements.
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions) | | | | | | | | | | | |
| November 27, 2022 | | May 29, 2022 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 240.7 | | | $ | 420.6 | |
Receivables, net | 71.6 | | | 72.0 | |
Inventories | 296.1 | | | 270.6 | |
Prepaid income taxes | 115.6 | | | 274.8 | |
Prepaid expenses and other current assets | 168.1 | | | 141.4 | |
| | | |
Total current assets | $ | 892.1 | | | $ | 1,179.4 | |
Land, buildings and equipment, net of accumulated depreciation and amortization of $3,289.9 and $3,140.9, respectively | 3,558.7 | | | 3,356.0 | |
Operating lease right-of-use assets | 3,434.8 | | | 3,465.1 | |
Goodwill | 1,037.4 | | | 1,037.4 | |
Trademarks | 806.3 | | | 806.3 | |
Other assets | 296.0 | | | 291.6 | |
Total assets | $ | 10,025.3 | | | $ | 10,135.8 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 435.3 | | | $ | 366.9 | |
Short-term debt | 58.0 | | | — | |
Accrued payroll | 137.1 | | | 181.5 | |
Accrued income taxes | 18.9 | | | 32.1 | |
Other accrued taxes | 68.3 | | | 64.5 | |
Unearned revenues | 463.8 | | | 498.0 | |
| | | |
Other current liabilities | 725.0 | | | 704.5 | |
Total current liabilities | $ | 1,906.4 | | | $ | 1,847.5 | |
Long-term debt | 885.8 | | | 901.0 | |
Deferred income taxes | 177.5 | | | 201.1 | |
Operating lease liabilities - non-current | 3,730.5 | | | 3,755.8 | |
Other liabilities | 1,304.2 | | | 1,232.2 | |
Total liabilities | $ | 8,004.4 | | | $ | 7,937.6 | |
Stockholders’ equity: | | | |
Common stock and surplus | $ | 2,214.6 | | | $ | 2,226.0 | |
Retained earnings (deficit) | (199.7) | | | (25.9) | |
Accumulated other comprehensive income (loss) | 6.0 | | | (1.9) | |
| | | |
Total stockholders’ equity | $ | 2,020.9 | | | $ | 2,198.2 | |
Total liabilities and stockholders’ equity | $ | 10,025.3 | | | $ | 10,135.8 | |
See accompanying notes to our unaudited consolidated financial statements.
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended November 27, 2022 and November 28, 2021
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock And Surplus | | | | | | | | | | |
| Shares | | Amount | | Retained Earnings (Deficit) | | | | Accumulated Other Comprehensive Income (Loss) | | | | Total Stockholders’ Equity |
Balance at August 28, 2022 | 122.5 | | | $ | 2,215.4 | | | $ | (151.7) | | | | | $ | 0.4 | | | | | $ | 2,064.1 | |
Net earnings | — | | | — | | | 187.2 | | | | | | | | | 187.2 | |
Other comprehensive income (loss) | — | | | — | | | — | | | | | 5.6 | | | | | 5.6 | |
Dividends declared ($1.21 per share) | — | | | — | | | (148.9) | | | | | — | | | | | (148.9) | |
Stock option exercises | — | | | 2.6 | | | — | | | | | — | | | | | 2.6 | |
Stock-based compensation | — | | | 7.8 | | | — | | | | | — | | | | | 7.8 | |
Repurchases of common stock | (0.7) | | | (13.9) | | | (86.3) | | | | | — | | | | | (100.2) | |
Issuance of stock under Employee Stock Purchase Plan and other plans | 0.1 | | | 2.7 | | | — | | | | | — | | | | | 2.7 | |
Other | — | | | — | | | — | | | | | — | | | | | — | |
Balance at November 27, 2022 | 121.9 | | $ | 2,214.6 | | | $ | (199.7) | | | | | $ | 6.0 | | | | | $ | 2,020.9 | |
| | | | | | | | | | | | | |
Balance at May 29, 2022 | 123.9 | | $ | 2,226.0 | | | $ | (25.9) | | | | | $ | (1.9) | | | | | $ | 2,198.2 | |
Net earnings | — | | — | | | 380.2 | | | | | — | | | | | 380.2 | |
Other comprehensive income (loss) | — | | — | | | — | | | | | 7.9 | | | | | 7.9 | |
Dividends declared ($2.42 per share) | — | | — | | | (298.9) | | | | | — | | | | | (298.9) | |
Stock option exercises | 0.1 | | | 6.2 | | | — | | | | | — | | | | | 6.2 | |
Stock-based compensation | — | | 19.9 | | | — | | | | | — | | | | | 19.9 | |
Repurchases of common stock | (2.4) | | (44.1) | | | (255.1) | | | | | — | | | | | (299.2) | |
Issuance of stock under Employee Stock Purchase Plan and other plans | 0.3 | | | 5.5 | | | — | | | | | — | | | | | 5.5 | |
Other | — | | 1.1 | | | — | | | | | — | | | | | 1.1 | |
Balance at November 27, 2022 | 121.9 | | $ | 2,214.6 | | | $ | (199.7) | | | | | $ | 6.0 | | | | | $ | 2,020.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 29, 2021 | 130.0 | | $ | 2,300.7 | | | $ | 445.9 | | | | | $ | 5.8 | | | | | $ | 2,752.4 | |
Net earnings | — | | — | | | 193.2 | | | | | — | | | | | 193.2 | |
Other comprehensive income (loss) | — | | — | | | — | | | | | (5.2) | | | | | (5.2) | |
Dividends declared ($1.10 per share) | — | | — | | | (143.1) | | | | | — | | | | | (143.1) | |
Stock option exercises | 0.1 | | 3.6 | | | — | | | | | — | | | | | 3.6 | |
Stock-based compensation | — | | 5.6 | | | — | | | | | — | | | | | 5.6 | |
Repurchases of common stock | (1.8) | | (31.8) | | | (234.2) | | | | | — | | | | | (266.0) | |
Issuance of stock under Employee Stock Purchase Plan and other plans | — | | 2.5 | | | — | | | | | — | | | | | 2.5 | |
Other | — | | — | | | — | | | | | — | | | | | — | |
Balance at November 28, 2021 | 128.3 | | $ | 2,280.6 | | | $ | 261.8 | | | | | $ | 0.6 | | | | | $ | 2,543.0 | |
| | | | | | | | | | | | | |
Balance at May 30, 2021 | 130.8 | | $ | 2,286.6 | | | $ | 522.3 | | | | | $ | 4.2 | | | | | $ | 2,813.1 | |
Net earnings | — | | — | | | 424.1 | | | | | — | | | | | 424.1 | |
Other comprehensive income (loss) | — | | — | | | — | | | | | (3.6) | | | | | (3.6) | |
Dividends declared ($2.20 per share) | — | | — | | | (287.2) | | | | | — | | | | | (287.2) | |
Stock option exercises | 0.4 | | 20.6 | | | — | | | | | — | | | | | 20.6 | |
Stock-based compensation | — | | 21.9 | | | — | | | | | — | | | | | 21.9 | |
Repurchases of common stock | (3.1) | | (54.9) | | | (397.4) | | | | | — | | | | | (452.3) | |
Issuance of stock under Employee Stock Purchase Plan and other plans | 0.2 | | 5.1 | | | — | | | | | — | | | | | 5.1 | |
Other | — | | 1.3 | | | — | | | | | — | | | | | 1.3 | |
Balance at November 28, 2021 | 128.3 | | $ | 2,280.6 | | | $ | 261.8 | | | | | $ | 0.6 | | | | | $ | 2,543.0 | |
See accompanying notes to our unaudited consolidated financial statements.
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) | | | | | | | | | | | |
| Six Months Ended |
| November 27, 2022 | | November 28, 2021 |
Cash flows—operating activities | | | |
Net earnings | $ | 380.2 | | | $ | 424.1 | |
Losses from discontinued operations, net of tax | 0.9 | | | 1.0 | |
Adjustments to reconcile net earnings from continuing operations to cash flows: | | | |
Depreciation and amortization | 192.4 | | | 181.1 | |
Impairments and disposal of assets, net | (13.7) | | | — | |
Stock-based compensation expense | 38.4 | | | 38.1 | |
Change in current assets and liabilities | 59.6 | | | (156.2) | |
Contributions to pension and postretirement plans | (1.1) | | | (1.1) | |
Deferred income taxes | (24.5) | | | 7.5 | |
Change in other assets and liabilities | (0.8) | | | (9.4) | |
| | | |
Other, net | 4.2 | | | (3.6) | |
Net cash provided by operating activities of continuing operations | $ | 635.6 | | | $ | 481.5 | |
Cash flows—investing activities | | | |
Purchases of land, buildings and equipment | (280.3) | | | (173.3) | |
Proceeds from disposal of land, buildings and equipment | 21.1 | | | 6.0 | |
| | | |
Purchases of capitalized software and other assets | (14.4) | | | (11.8) | |
Other, net | 0.2 | | | 1.3 | |
Net cash used in investing activities of continuing operations | $ | (273.4) | | | $ | (177.8) | |
Cash flows—financing activities | | | |
Proceeds from issuance of common stock | 11.7 | | | 25.7 | |
Dividends paid | (296.5) | | | (286.1) | |
Repurchases of common stock | (299.2) | | | (452.3) | |
Proceeds from issuance of short-term debt | 253.5 | | | — | |
Repayments of short-term debt | (195.5) | | | — | |
| | | |
| | | |
Principal payments on finance leases | (8.8) | | | (5.6) | |
Payments of debt issuance costs | (0.1) | | | (2.7) | |
Net cash used in financing activities of continuing operations | $ | (534.9) | | | $ | (721.0) | |
Cash flows—discontinued operations | | | |
Net cash provided by operating activities of discontinued operations | 0.9 | | | 0.4 | |
| | | |
Net cash provided by discontinued operations | $ | 0.9 | | | $ | 0.4 | |
| | | |
Decrease in cash, cash equivalents, and restricted cash | (171.8) | | | (416.9) | |
Cash, cash equivalents, and restricted cash - beginning of period | 472.1 | | | 1,214.7 | |
Cash, cash equivalents, and restricted cash - end of period | $ | 300.3 | | | $ | 797.8 | |
| | | |
| | | | | | | | | | | | | | |
Reconciliation of cash, cash equivalents, and restricted cash: | | November 27, 2022 | | November 28, 2021 |
Cash and cash equivalents | | $ | 240.7 | | | $ | 746.3 | |
Restricted cash included in prepaid expenses and other current assets | | 59.6 | | | 51.5 | |
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | | $ | 300.3 | | | $ | 797.8 | |
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| November 27, 2022 | | November 28, 2021 |
Cash flows from changes in current assets and liabilities | | | |
Receivables, net | 0.5 | | | (0.9) | |
Inventories | (25.4) | | | (39.4) | |
Prepaid expenses and other current assets | (25.9) | | | (16.8) | |
Accounts payable | 37.5 | | | 36.8 | |
Accrued payroll | (44.4) | | | (16.7) | |
Prepaid/accrued income taxes | 146.0 | | | (2.3) | |
Other accrued taxes | 3.8 | | | 3.4 | |
Unearned revenues | (34.2) | | | (16.7) | |
Other current liabilities | 1.7 | | | (103.6) | |
Change in current assets and liabilities | $ | 59.6 | | | $ | (156.2) | |
See accompanying notes to our unaudited consolidated financial statements.
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.Basis of Presentation
Darden Restaurants, Inc. (we, our, Darden or the Company) owns and operates full-service dining restaurants in the United States and Canada under the trade names Olive Garden®, LongHorn Steakhouse®, Cheddar’s Scratch Kitchen®, Yard House®, The Capital Grille®, Seasons 52®, Bahama Breeze®, Eddie V’s Prime Seafood® and The Capital Burger®. As of November 27, 2022, through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 31 franchised restaurants in operation located in Latin America, the Caribbean, and Asia.
We have prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. We operate on a 52/53-week fiscal year which ends on the last Sunday in May. Our fiscal year ending May 28, 2023 will contain 52 weeks of operation. Operating results for interim periods presented are not necessarily indicative of results that may be expected for the full fiscal year.
These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2022. We prepare our consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and costs and expenses during the reporting period. Actual results could differ from those estimates.
We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.
COVID-19 Pandemic and Other Impacts to our Operating Environment
During fiscal 2022, increasing numbers of COVID-19 cases throughout the United States including the Omicron variant which significantly impacted our restaurants in the third quarter, mostly in January 2022, subjected some of our restaurants to COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both. Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management. During fiscal 2022, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold. These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain. During fiscal 2023, these events have continued to impact our operating results as wage and cost inflation continue to exceed recent norms.
The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further capacity restrictions, mask and vaccination mandates, wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operations.
Recently Adopted Accounting Standards
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures that increase the transparency of transactions involving government grants, including (i) information about the nature of the transactions and related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2023, but the adoption did not have a material impact on our financial statements.
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2.Revenue Recognition
Deferred revenue liabilities from contracts with customers included on our accompanying consolidated balance sheets is comprised of the following:
| | | | | | | | | | | | | | |
(in millions) | | November 27, 2022 | | May 29, 2022 |
Unearned revenues | | | | |
Deferred gift card revenue | | $ | 484.9 | | | $ | 521.1 | |
Deferred gift card discounts | | (21.5) | | | (23.5) | |
Other | | 0.4 | | | 0.4 | |
Total | | $ | 463.8 | | | $ | 498.0 | |
| | | | |
Other liabilities | | | | |
Deferred franchise fees - non-current | | $ | 2.6 | | | $ | 2.8 | |
The following table presents a rollforward of deferred gift card revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(in millions) | | November 27, 2022 | | November 28, 2021 | | November 27, 2022 | | November 28, 2021 |
Beginning balance | | $ | 488.5 | | | $ | 465.0 | | | $ | 521.1 | | | $ | 494.3 | |
Activations | | 119.9 | | | 127.7 | | | 234.3 | | | 234.3 | |
Redemptions and breakage | | (123.5) | | | (115.8) | | | (270.5) | | | (251.7) | |
Ending balance | | $ | 484.9 | | | $ | 476.9 | | | $ | 484.9 | | | $ | 476.9 | |
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3.Additional Financial Information
Supplemental Balance Sheet Information
The components of lease assets and liabilities on the consolidated balance sheet are as follows:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Balance Sheet Classification | | November 27, 2022 | | May 29, 2022 |
Operating lease right-of-use assets | | Operating lease right-of-use assets | | $ | 3,434.8 | | | $ | 3,465.1 | |
Finance lease right-of-use assets | | Land, buildings and equipment, net | | 893.3 | | | 838.1 | |
Total lease assets, net | | | | $ | 4,328.1 | | | $ | 4,303.2 | |
| | | | | | |
Operating lease liabilities - current | | Other current liabilities | | $ | 182.5 | | | $ | 185.8 | |
Finance lease liabilities - current | | Other current liabilities | | 17.6 | | | 16.6 | |
Operating lease liabilities - non-current | | Operating lease liabilities - non-current | | 3,730.5 | | | 3,755.8 | |
Finance lease liabilities - non-current | | Other liabilities | | 1,087.0 | | | 1,018.6 | |
Total lease liabilities | | | | $ | 5,017.6 | | | $ | 4,976.8 | |
Supplemental Cash Flow Information | | | | | | | | | | | | | | |
Cash paid for interest and income taxes are as follows: | | Six Months Ended |
(in millions) | | November 27, 2022 | | November 28, 2021 |
Interest, net of amounts capitalized | | $ | 38.1 | | | $ | 30.3 | |
Income taxes, net of refunds | | (68.2) | | | 58.0 | |
| | | | | | | | | | | | | | |
Non-cash investing and financing activities are as follows: | | Six Months Ended |
(in millions) | | November 27, 2022 | | November 28, 2021 |
Increase in land, buildings and equipment through accrued purchases | | $ | 79.2 | | | $ | 43.2 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | 69.1 | | | 3.6 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | 41.5 | | | 92.9 | |
Net change in right-of-use assets mainly due to lease modifications resulting in reclassification of leases from operating to finance | | 37.4 | | | 108.3 | |
We have restricted cash of $59.6 million and $51.5 million as of November 27, 2022 and May 29, 2022, respectively, which represents cash held as security for a standby letter of credit and cash held in escrow related to the sale of properties. Restricted cash is included in Prepaid Expenses and Other Current Assets on the balance sheet. See Note 12, Commitments and Contingencies, for further details around standby letters of credit.
Note 4.Income Taxes
The effective income tax rate for continuing operations for the quarter ended November 27, 2022 was 12.1 percent compared to an effective income tax rate for the quarter ended November 28, 2021 of 14.4 percent. This change was primarily driven by the impact of federal tax credits and hedge mark-to-market impacts. The effective income tax rate for continuing operations for the six months ended November 27, 2022 was 13.0 percent compared to an effective income tax rate for the quarter ended November 28, 2021 of 13.4 percent. This change was primarily driven by the impact of federal tax credits and lower net earnings from continuing operations.
Included in our remaining balance of unrecognized tax benefits is $7.9 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(“CAMT”) on adjusted financial statement income. The CAMT will be effective for us beginning in fiscal 2024. We currently are not expecting the IRA to have a material adverse impact to our financial statements.
Note 5.Net Earnings per Share
Outstanding stock options, restricted stock and equity-settled performance stock units granted by us represent the only dilutive effect reflected in diluted weighted average shares outstanding, none of which impact the numerator of the diluted net earnings per share computation. Stock options, restricted stock and equity-settled performance stock units excluded from the calculation of diluted net earnings per share because the effect would have been anti-dilutive, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(in millions) | | November 27, 2022 | | November 28, 2021 | | November 27, 2022 | | November 28, 2021 |
Anti-dilutive stock-based compensation awards | | 0.3 | | | 0.2 | | | 0.3 | | | 0.1 | |
Note 6. Segment Information
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s and The Capital Burger in North America as operating segments. The brands operate principally in the U.S. within full-service dining. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. We have four reportable segments: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business.
The Olive Garden segment includes the results of our company-owned Olive Garden restaurants in the U.S. and Canada. The LongHorn Steakhouse segment includes the results of our company-owned LongHorn Steakhouse restaurants in the U.S. The Fine Dining segment aggregates our premium brands that operate within the fine-dining sub-segment of full-service dining and includes the results of our company-owned The Capital Grille and Eddie V’s restaurants in the U.S. The Other Business segment aggregates our remaining brands and includes the results of our company-owned Cheddar’s Scratch Kitchen, Yard House, Seasons 52, Bahama Breeze and The Capital Burger restaurants in the U.S and results from our franchise operations.
External sales are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our reportable segments are predominantly in the U.S. There were no material transactions among reportable segments.
Our management uses segment profit as the measure for assessing performance of our segments. Segment profit includes revenues and expenses directly attributable to restaurant-level results of operations (sometimes referred to as restaurant-level earnings). These expenses include food and beverage costs, restaurant labor costs, restaurant expenses and marketing expenses (collectively “restaurant and marketing expenses”). Non-cash lease-related expenses included in restaurant expenses (which is a component of segment profit) and lease-related depreciation and amortization are reported at the corporate level as these are expenses for which our operating segments are not being evaluated. Additionally, our lease-related right-of-use assets are not managed or evaluated at the operating segment level, but rather at the corporate level.
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Olive Garden | | LongHorn Steakhouse | | Fine Dining | | Other Business | | Corporate | | Consolidated |
For the three months ended November 27, 2022 | |
Sales | | $ | 1,176.7 | | | $ | 600.5 | | | $ | 202.0 | | | $ | 507.3 | | | $ | — | | | $ | 2,486.5 | |
Restaurant and marketing expenses | | 957.8 | | | 514.9 | | | 163.1 | | | 448.3 | | | (9.2) | | | 2,074.9 | |
Segment profit | | $ | 218.9 | | | $ | 85.6 | | | $ | 38.9 | | | $ | 59.0 | | | $ | 9.2 | | | $ | 411.6 | |
| | | | | | | | | | | | |
Depreciation and amortization | | $ | 36.2 | | | $ | 16.6 | | | $ | 9.0 | | | $ | 24.6 | | | $ | 10.4 | | | $ | 96.8 | |
Impairments and disposal of assets, net | | — | | | — | | | — | | | — | | | (8.8) | | | (8.8) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(in millions) | | Olive Garden | | LongHorn Steakhouse | | Fine Dining | | Other Business | | Corporate | | Consolidated |
For the six months ended November 27, 2022 | |
Sales | | $ | 2,307.4 | | | $ | 1,205.1 | | | $ | 385.4 | | | $ | 1,034.7 | | | $ | — | | | $ | 4,932.6 | |
Restaurant and marketing expenses | | 1,872.4 | | | 1,027.5 | | | 316.5 | | | 903.4 | | | (22.0) | | | 4,097.8 | |
Segment profit | | $ | 435.0 | | | $ | 177.6 | | | $ | 68.9 | | | $ | 131.3 | | | $ | 22.0 | | | $ | 834.8 | |
| | | | | | | | | | | | |
Depreciation and amortization | | $ | 72.1 | | | $ | 33.3 | | | $ | 17.9 | | | $ | 48.9 | | | $ | 20.2 | | | $ | 192.4 | |
Impairments and disposal of assets, net | | — | | | — | | | — | | | — | | | (13.7) | | | (13.7) | |
Purchases of land, buildings and equipment | | 123.5 | | | 56.1 | | | 24.5 | | | 62.3 | | | 13.9 | | | 280.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Olive Garden | | LongHorn Steakhouse | | Fine Dining | | Other Business | | Corporate | | Consolidated |
For the three months ended November 28, 2021 | |
Sales | | $ | 1,077.2 | | | $ | 547.2 | | | $ | 188.7 | | | $ | 459.1 | | | $ | — | | | $ | 2,272.2 | |
Restaurant and marketing expenses | | 842.1 | | | 463.6 | | | 149.0 | | | 396.8 | | | (5.7) | | | 1,845.8 | |
Segment profit | | $ | 235.1 | | | $ | 83.6 | | | $ | 39.7 | | | $ | 62.3 | | | $ | 5.7 | | | $ | 426.4 | |
| | | | | | | | | | | | |
Depreciation and amortization | | $ | 35.9 | | | $ | 16.3 | | | $ | 8.5 | | | $ | 24.5 | | | $ | 6.9 | | | $ | 92.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(in millions) | | Olive Garden | | LongHorn Steakhouse | | Fine Dining | | Other Business | | Corporate | | Consolidated |
For the six months ended November 28, 2021 | |
Sales | | $ | 2,167.6 | | | $ | 1,114.3 | | | $ | 357.5 | | | $ | 938.8 | | | $ | — | | | $ | 4,578.2 | |
Restaurant and marketing expenses | | 1,679.2 | | | 923.2 | | | 284.3 | | | 791.7 | | | (9.2) | | | 3,669.2 | |
Segment profit | | $ | 488.4 | | | $ | 191.1 | | | $ | 73.2 | | | $ | 147.1 | | | $ | 9.2 | | | $ | 909.0 | |
| | | | | | | | | | | | |
Depreciation and amortization | | $ | 71.3 | | | $ | 32.3 | | | $ | 16.7 | | | $ | 48.6 | | | $ | 12.2 | | | $ | 181.1 | |
| | | | | | | | | | | | |
Purchases of land, buildings and equipment | | 70.6 | | | 43.1 | | | 20.7 | | | 38.2 | | | 0.7 | | | 173.3 | |
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A reconciliation of segment profit to earnings from continuing operations before income taxes is below. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(in millions) | | November 27, 2022 | | November 28, 2021 | | November 27, 2022 | | November 28, 2021 |
Segment profit | | $ | 411.6 | | | $ | 426.4 | | | $ | 834.8 | | | $ | 909.0 | |
Less general and administrative expenses | | (90.4) | | | (91.7) | | | (178.7) | | | (204.7) | |
|