Red Lobster 2010 Annual Report Download - page 24

22 DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT
Notes to Consolidated Financial Statements
Darden Restaurants
22 DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Darden
This discussion and analysis below for Darden Restaurants, Inc. (Darden, the
Company, we, us or our) should be read in conjunction with our consolidated
financial statements and related financial statement notes found elsewhere in
this report.
We operate on a 52/53 week fiscal year, which ends on the last Sunday
in May. Fiscal 2010 and 2008 consisted of 52 weeks of operation, while fiscal
2009 consisted of 53 weeks of operation. We have included in this discussion
certain financial information for fiscal 2009 on a 52-week basis to assist users in
making comparisons to our other fiscal years. For fiscal 2009, results presented
on a 52-week basis exclude the last week of the fiscal year
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant
industry, primarily in the United States. At May 30, 2010, we operated
1,824 Red Lobster®, Olive Garden®, LongHorn Steakhouse®, The Capital
Grille®, Bahama Breeze® and Seasons 52® restaurants in the United
States and Canada. Through subsidiaries, we own and operate all of our
restaurants in the United States and Canada, except for three restaurants
located in Central Florida that are owned by joint ventures and managed by
us. The joint ventures pay management fees to us, and we control the joint
ventures’ use of our service marks. None of our restaurants in the United
States or Canada are franchised. As of May 30, 2010, we franchised 5
LongHorn Steakhouse restaurants in Puerto Rico to an unaffiliated franchisee,
and 25 Red Lobster restaurants in Japan to an unaffiliated Japanese
corporation, under area development and franchise agreements.
Our sales from continuing operations were $7.11 billion in fiscal 2010
compared to $7.22 billion in fiscal 2009. The 1.4 percent decrease was
primarily driven by the impact of the 53rd week in fiscal 2009 and the
combined same-restaurant sales decrease for Olive Garden, Red Lobster
and LongHorn Steakhouse, partially offset by the addition of 32 net new
Olive Gardens, 10 net new LongHorn Steakhouses, 4 net new Red Lobsters,
3 new The Capital Grilles, 3 new Seasons 52s and 1 new Bahama Breeze.
Although our combined same-restaurant sales for Olive Garden, Red Lobster
and LongHorn Steakhouse declined 2.6 percent, this compares to a decline
of 4.9 percent for the Knapp-TrackTM benchmark of U.S. same-restaurant
sales excluding Darden. During fiscal 2010, as a result of a significantly
higher trend in gift card redemptions, we changed our estimate of gift card
breakage and adjusted unearned revenue with a corresponding reduction
in gift card breakage income of $20.4 million, which is included in sales.
Net earnings from continuing operations for fiscal 2010 were $407.0 mil-
lion ($2.86 per diluted share) compared with net earnings from continuing
operations for fiscal 2009 of $371.8 million ($2.65 per diluted share). Net
earnings from continuing operations for fiscal 2010 increased 9.5 percent
and diluted net earnings per share from continuing operations increased
7.9 percent compared with fiscal 2009. Diluted net earnings per share
growth for fiscal 2010 was reduced by approximately nine cents as a result
of adjustments to our gift card redemption rate, referred to above.
Our net losses from discontinued operations were $2.5 million ($0.02 per
diluted share) for fiscal 2010, compared with earnings from discontinued
operations of $0.4 million ($0.00 per diluted share) for fiscal 2009. When
combined with results from continuing operations, our diluted net earnings
per share were $2.84 and $2.65 for fiscal 2010 and 2009, respectively.
During the second quarter of fiscal 2008, we completed the acquisition
of RARE Hospitality International, Inc. (RARE) for $1.27 billion in total
purchase price. RARE owned two principal restaurant brands, LongHorn
Steakhouse and The Capital Grille, of which 288 and 29 locations, respec-
tively, were in operation as of the date of acquisition. The acquisition was
completed on October 1, 2007 and the acquired operations are included in
our consolidated financial statements from the date of acquisition.
During fiscal 2007 and 2008 we closed or sold all Smokey Bones and
Rocky River Grillhouse restaurants and we closed nine Bahama Breeze
restaurants. These restaurants and their related activities have been
classified as discontinued operations. Therefore, for the fiscal 2010, 2009
and 2008 years, all impairment losses and disposal costs, gains and
losses on disposition, along with the sales, costs and expenses and income
taxes attributable to these restaurants have been aggregated in a single
caption entitled “(Losses) earnings from discontinued operations, net of
tax (benefit) expense” on the consolidated statements of earnings found
elsewhere in this report.
In fiscal 2011, we expect a net increase of approximately 70 to 75
restaurants. We expect combined U.S. same-restaurant sales in fiscal 2011
to increase 2 percent to 3 percent for Red Lobster, Olive Garden and LongHorn
Steakhouse. We expect fiscal 2011 sales to increase between 5.5 percent
and 6.5 percent and diluted net earnings per share growth from continuing
operations for fiscal 2011 to range from 14 percent to 17 percent.
In June 2010, we announced a quarterly dividend of 32 cents per
share, payable on August 2, 2010. Previously, our quarterly dividend was
25 cents per share, or $1.00 per share on an annual basis. Based on the
32 cent quarterly dividend declaration, our expected annual dividend is
$1.28 per share, a 28 percent increase. Dividends are subject to the
approval of the Company’s Board of Directors and, accordingly, the timing
and amount of our dividends are subject to change.
Our mission is to be the best in full-service dining, now and for
generations. We believe we can achieve this goal by continuing to build
on our strategy to be a multi-brand restaurant growth company, which is
grounded in:
฀ •฀฀฀฀Competitively฀superior฀leadership;
฀ •฀฀฀฀Strong฀brand฀building฀that฀reflects฀brand฀management฀and฀
restaurant฀operating฀excellence;฀and
฀ •฀฀฀฀Brand฀support฀excellence.