Red Lobster 2005 Annual Report Download - page 10

Bill Darden, our Company’s namesake, and a team that included
Joe Lee, our Chairman, who was a manager at the first Red Lobster
restaurant that opened in Lakeland, Florida, in 1968.
Today, casual dining is a significant industry with $63 billion in
sales and over 124,000 restaurants. It is also an industry that is
expected to continue experiencing meaningful annualized sales
growth of between 5 percent and 7 percent over the next five to 10
years, which is consistent with the industry’s compound annual
sales growth over the past decade. Multi-unit, or chain operators,
which now account for over 50 percent of industry sales, have been
growing at a faster rate than the industry overall. Chains are expected
to continue to increase their market share going forward, with
annualized sales growth of between 7 percent and 9 percent.
These casual dining sales growth projections are supported by the
same economic and social dynamics that have driven growth over the
past 10 years. These dynamics include expectations for solid growth
in real disposable income, payroll employment, the number of peo-
ple in the age groups (the 50s and 60s) that use casual dining restau-
rants with the greatest frequency and the percentage of women in the
workforce. Casual dining has also benefited from lifestyle changes
that, regardless of income level, age or family structure, put a pre-
mium on the time savings and social reconnection that come with
dining out. We believe that should remain the case going forward.
Darden’s Strategic Direction
Long-Term Financial Targets. Darden is a proven multi-unit operator
with two established brands in Red Lobster and Olive Garden that
are trusted and broadly appealing, two exciting emerging brands in
Smokey Bones and Bahama Breeze and a track record of success-
fully addressing the challenges that arise in our dynamic industry.
With our expertise and financial resources, our goal is to deliver the
7 percent to 9 percent long-term annualized sales growth projected
for casual dining chains. We believe we can convert this level of
sales growth into long-term diluted net earnings per share growth
of between 10 percent and 15 percent.
A Multi-Brand Future. With established brands that already have
meaningful national penetration, we believe Darden and similarly
situated casual dining leaders will need additional brands to fully
capture the chain growth opportunity ahead. We are convinced that
for us the competitive frontier will involve mastering the complexity
of developing and managing an even greater number of brands as
part of our enterprise. With this view of the future, our strategy is to
enhance and more consistently use our extensive restaurant sup-
port expertise so that we can fully realize the same-restaurant and
new-restaurant potential of our existing brands while also developing
or acquiring compelling new casual dining brands.
Success Pillars. Our success over time has come from combining
strengths in five areas, and we believe this will continue to be the
case. These five “success pillars” include:
• A strong culture that inspires and engages people in the orga-
nization and has at its core:
- Firmly held values that guide our actions at the Company: integ-
rity and fairness; respect and caring; diversity; always learning,
always teaching; being of service; teamwork; and excellence.
- A core purpose that focuses on making a meaningful difference
in the lives of the people we touch: to nourish and delight
everyone we serve.
- A clear mission centered on lasting excellence: to be the best
in casual dining now and for generations.
• Competitively superior leadership grounded in a commitment
to professional development and a balanced emphasis on
performance excellence (getting results) and positive leader-
ship behaviors (getting results the right way).
• Brand management excellence that enables us to create and
evolve brands that offer consumers well-defined, highly com-
pelling and competitively differentiated guest experiences.
• Restaurant operating excellence that ensures we deliver on
our brand promises with competitively superior guest experi-
ences, while also delivering a strong bottom line.
• Restaurant support excellence in critical areas – such as Supply
Chain, Human Resources and Information Technology – that
facilitates achieving brand management and restaurant oper-
ating excellence.
The legacy we inherit, which includes pioneering casual dining and
achieving sustained industry leadership over nearly 40 years, is a
testament to the power of combining these strengths. We believe we
cannot have lasting success if any one of them is not where it needs
to be. As we work to pioneer the next frontier in casual dining, a multi-
brand frontier, we remain committed to this winning combination.
We are proud of our fiscal 2005 results. We are also proud of
our record of success since becoming a public company in 1995 –
a record that includes sales growth of $2.1 billion, a 67 percent
increase, and an annualized total shareholder return of over 16 per-
cent. Still, the 7 percent to 9 percent long-term sales growth range we
seek represents an acceleration from what we have delivered over
the past several years. And, we believe successfully accelerating
top-line growth requires significant work in each of our pillar areas. In
some cases, we must strengthen long-standing capabilities, while in
others we have to add new capabilities to respond to new dynamics.
Fiscal 2006 Priorities
Our fiscal 2006 priorities center on establishing a strong platform
for accelerated profitable sales growth, and include the following.
Progress on each of these priorities will position us for greater
growth in our existing businesses and the successful addition of
new businesses in fiscal 2007 and beyond.
Consistently Improving Business Performance. Our first priority is
to achieve consistently improving business performance, because
without that it is difficult to focus on the other things required to
successfully increase growth. Each of our operating companies
has a detailed performance plan, summarized as follows:
• Olive Garden – Maintain the current level of operating excel-
lence while positioning the company for accelerated new
restaurant growth.
• Red Lobster – Continue to strengthen the company’s opera-
tions foundation while taking the steps necessary to sharpen
its brand promise, align all guest touch points and prepare
for faster growth.
•Smokey Bones – Balance the pace of new restaurant expan-
sion with efforts to further strengthen same-restaurant sales
and returns.
Darden Restaurants
Fiscal Year Ended May 29, 2005 May 30, 2004 May 25, 2003
(In millions, except per share amounts) (52 weeks) (53 weeks) (52 weeks)
Sales $ 5,278.1 $ 5,003.4 $ 4,655.0
Net Earnings $ 290.6 $ 227.2 $ 226.0
Net Earnings per Share:
Basic $ 1.85 $ 1.39 $ 1.33
Diluted $ 1.78 $ 1.34 $ 1.27
Dividends Paid per Share $ 0.080 $ 0.080 $ 0.080
Average Shares Outstanding:
Basic 156.7 163.5 170.3
Diluted 163.4 169.7 177.4
As described in the table below, net earnings and diluted net earnings per share for fiscal 2004,
excluding the asset impairment and restructuring charges associated with the closing of six
Bahama Breeze restaurants and the write-down of the carrying value of four other Bahama Breeze
restaurants, one Olive Garden restaurant, and one Red Lobster restaurant, were $250.2 million, or
$1.47 per diluted share, on 53-week sales of $5.0 billion.
53 Weeks Ended May 30, 2004 Diluted Net
(In thousands, except per share data) Net Earnings Earnings Per Share
As reported $227,173 $1.34
Asset impairment and restructuring charge 23,053 0.13
Adjusted $250,226 $1.47
2005 Financial Highlights
Darden Restaurants 1716 Darden Restaurants
•Bahama Breeze – Accelerate progress in delivering the com-
pany’s brand promise, simplifying operations and improving
same-restaurant results on a path to renewed growth.
Strengthening Our Core. We plan to reinforce and build upon each
of our success pillars, starting with our culture. We are working, for
example, to drive better teamwork across operating companies
and ensure we define excellence at a consistently high level across
the Company.
With the transitions that took place in fiscal 2005, there is also an
opportunity to strengthen leadership in all our core areas through
stronger development of existing leaders and selected acquisition
of talented leaders from outside the Company. And, to further
enhance restaurant operations and restaurant support, we will
continue developing and implementing several significant tech-
nology infrastructure projects. These include a next-generation
point-of-sale system, an automated meal pacing system and an
improved inventory, ordering and order reconciliation system.
Better Leveraging Our Core. To take full advantage of our core
capabilities, whether long-standing or newly added, we intend to
accelerate our transition to the use of common proven processes
and practices among our operating companies, increase the focus
on measured quality and productivity and identify high-impact
restaurant support areas where we can achieve greater effective-
ness or efficiency by adopting a more integrated approach.
The Legacy We Build
Over the past year, we have spent a great deal of time discussing
our legacy – both the legacy we inherit and the one we are seek-
ing to build. When challenged to succinctly describe what has made
Darden the company it is today, we are convinced it is two things.
First, Bill Darden, Joe Lee and the many, many people who helped
build this Company were unwilling to place any limits on what they
could accomplish. Put another way, they were willing to dream big
dreams. Secondly, these leaders were committed to acting, in
everything they did, with a big heart. To us this means with great
values and in pursuit of a compelling core purpose.
Looking forward to all Darden can become and the continued
market leadership and value creation we aspire to, we believe it is
important to hold tightly to these aspects of the legacy we inherit –
even as other elements change. True to our heritage, we are con-
vinced that Darden has everything it takes to be the best in casual
dining now and for generations – starting with the Company’s
150,000 dedicated employees, our vendor and community partners
and engaged shareholders who challenge us to continuously
sharpen our thinking. We thank all of you for your passion and
support. As a team, we can accomplish truly exceptional things.
Joe R. Lee Clarence Otis, Jr. Andrew H. Madsen
Chairman Chief Executive Officer President and
Chief Operating Officer