2013 Annual Report - Investor Relations - Darden Restaurants

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2013 Financial Highlights:Fiscal Year Ended(In Millions, Except Per Share Amounts) May 26, 2013 May 27, 2012 May 29, 2011Sales $ 8,551.9 $ 7,998.7 $ 7,500.2Earnings from Continuing Operations $ 412.6 $ 476.5 $ 478.7Losses from Discontinued Operations, net of tax $ (0.7) $ (1.0) $ (2.4)Net Earnings $ 411.9 $ 475.5 $ 476.3Earnings per Share from Continuing Operations:Basic $ 3.20 $ 3.66 $ 3.50Diluted $ 3.14 $ 3.58 $ 3.41Net Earnings per Share:Basic $ 3.19 $ 3.65 $ 3.48Diluted $ 3.13 $ 3.57 $ 3.39Dividends Paid per Share $ 2.00 $ 1.72 $ 1.28Average Shares Outstanding:Basic 129.0 130.1 136.8Diluted 131.6 133.2 140.3the acquisition added $258 million insales in fiscal 2013.• We continued to buy back Dardencommon stock, spending $52 millionin fiscal 2013 to repurchase 1 millionshares, before postponing share repurchasein August 2012 because of theacquisition of Yard House. Since ourshare repurchase program began in1995, we have repurchased nearly172 million shares of our commonstock for $3.82 billion.A Strong FoundationAs we look forward, we approach thechallenges ahead with a very strongfoundation. The most important foundationalstrength is our brands, starting withthe three largest. Each has enduring andbroad consumer appeal, which shows intheir number of restaurants, average annualsales per restaurant and restaurant-levelreturns. With respect to average sales perrestaurant, Olive Garden and Red Lobsterhave long been leaders on this importantmeasure, compared to other nationallyadvertised casual dining chains. Thatcontinues to be true, despite a difficultfiscal 2013. At LongHorn Steakhouse,average sales per restaurant are solid aswell, especially considering that theamount the brand spends on televisionadvertising is a fraction of the amount spentby most nationally advertised chains,including Olive Garden and Red Lobster.In addition, within our Specialty RestaurantGroup, each brand’s average salesper restaurant is among the highest in therestaurant industry, regardless of industrysegment. Importantly, all our brands are ableto translate competitively strong averagesales per restaurant into competitivelysuperior restaurant-level returns.In addition to strong brands, we have acost-effective operating support platform.It is the product of considerable collectiveexpertise and experience in areas that arecritical to success in our business, includingbrand management, restaurant operations,supply chain, talent management andinformation technology. With appealingbrands that have strong restaurant-level6.9%increase in total salesin fiscal 2013returns and are supported by a costeffectiveoperating platform, we have acompetitively superior operating profitmargin compared to other major chainrestaurant operators with comparable,primarily company-owned businessmodels. The net result is that we havesubstantial and durable operating cashflow. Our operating cash flow has nearlydoubled over the past 10 years, growingto $950 million in fiscal 2013 – or $515,000in pre-tax cash per restaurant – despiteour setbacks during the year. Together,these strengths provide us with a strongfoundation as we respond to the importantconsumer and competitive reali ties that,we believe, amount to a New Era.Operating in a New EraKey Consumer And Competitive DynamicsThe consumer and competitive dynamicsdriving the need for change have been areality for several years. One importantdynamic is that many guests are financiallyconstrained. For some, this is amatter of life stage. These are guestswho are more budget conscious becausethey are young and just entering theworkplace or, at the other end of thespectrum, because they have recentlyretired and are beginning to live on fixedincomes. For other guests, financialconstraint is due to macroeconomic6 Darden Restaurants, Inc. 2013 Annual Report
factors having nothing to do with lifestage that are weighing on employmentand income growth. Whatever the reason,the result is a significant number of guestswho increasingly base their restaurantchoices on affordability.At the same time, many other guests arefar from financially constrained. They havechanging tastes and preferences thatreflect rising household incomes and areincreasingly interested in higher-quality,on-trend menu offerings and flexibleexperiences that fit their schedules. Inaddition, both sets of guests – thefinancially constrained and the financiallycomfortable – are increasingly multiculturaland multigenerational, developments thatare also driving meaningful changes intastes and preferences.Given these dynamics, as we enteredfiscal 2013 there had been an approximate2 percent a year decline in totalcasual dining traffic between fiscal 2008,when the most recent recession started,and fiscal 2012. Importantly, major casualdining chains had held up better thancasual dining overall, with cumulativetotal traffic growth of 0.6 percent over thisperiod, fueled in part by a sharp increasein price incentives. In addition, duringthis period Darden achieved a significantgain in market share, with our three largebrands experiencing cumulative totaltraffic growth of 10.1 percent.However, below the total traffic growthlevel, a concerning development for majorchains and for us was the steady erosionin same-restaurant traffic over this period.Between fiscal 2008 and fiscal 2012, majorchains had an 18.2 percent decline insame-restaurant traffic on a cumulativebasis. And, while our three large brandsdid better, on a blended basis our samerestauranttraffic declined 7.7 percent ona cumulative basis.…both sets of guests –the financially constrained andthe financially comfortable – areincreasingly multicultural andmultigenerational, developmentsthat are also driving meaningfulchanges in tastes andpreferences.Responding To The DynamicsAs fiscal 2013 began, we had alreadymade a number of changes to address thecon sumer realities behind the samerestauranttraffic erosion the casualdining industry and we were experiencing,and we were planning additional steps.To broaden our guest base, especiallywith more affluent guests and Millenialand Gen X guests, we had been adding toour Specialty Restaurant Group – firstwith the acquisition of Eddie V’s in fiscal2012 and, more significantly, with theacquisition of Yard House, which was inthe due diligence stage early in fiscal 2013and completed at the very beginning ofthe second quarter. In addition, each ofour three large casual dining brands hadaffordability initiatives planned for fiscal2013, with a focus on both our promotionaloffers and core menus.At the Darden level, we had launchedseveral initiatives to address consumerinterests beyond affordability thatcontinued during fiscal 2013. In fiscal2012, for example, we developed amultiyear plan to enhance our technologycapabilities so we will be able to engageas fully as possible with guests as theylead increasingly digital lifestyles, andwe planned to begin implementing thefirst phase in fiscal 2013. We had alsoestablished an enterprise Marketinggroup to focus on developing moreextensive, multiyear initiatives to reshapethe guest experiences we offer, andplanned to begin implementing severalof these in fiscal 2013 as well. We alsorecognized the need to reshape ourMarketing and Operations teams at eachbrand so that we could be brilliant withthe basics today, while also moving fasterto make enduring changes to the guestexperiences we offer in the future. As aresult, coming into fiscal 2013 we wererethinking how we should organizeour large brands’ Marketing andOperations teams.Accelerating Change In Fiscal 2013As fiscal 2013 unfolded, it quicklybecame clear that the degree and paceof change we had planned for the yearwas insufficient. In the fourth quarter offiscal 2012, for the first quarter since thestart of the recent recession in fiscal2008, blended same-restaurant traffic atour three large brands lagged the industry.As we continued to have weaker than theindustry results on this important profitablesales growth driver in the first twoquarters of fiscal 2013, we moved withadded urgency on a number of fronts.We began to match competitive promotionalintensity around affordability,which involved being more aggressivewith the pricing of our offers, placinggreater emphasis on price in our advertisingmessages and being more active in theuse of tactics such as daily and weeklydigital specials to support our offers.We also stepped up the emphasis onaffordability in our core menus, whichincluded launching with heavy mediasupport of a new core menu at Red Lobsterthat has a significant affordabilitycomponent and accelerating theintroduction of new, more affordablypriced core menu offerings at Olive Gardenand LongHorn Steakhouse.Just as importantly, we increased theresources dedicated to reshaping ourguest experiences to respond to whatguests want beyond affordability. Amongother things, this included moving forwardDarden Restaurants, Inc. 2013 Annual Report 7
Page 3 and 4: It ComesWith HighExpectations• Ex
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Page 15 and 16: Red LobsterRed Lobster is focusing
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Board of DirectorsClarence Otis, Jr
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Shareholder InformationCompany Addr
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2013 Annual Report - Investor Relations - Darden Restaurants

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