Red Lobster 2012 Annual Report Download - page 23

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Darden
Darden Restaurants, Inc. 2012 Annual Report 19
In June 2012, we announced a quarterly dividend of $0.50 per share,
payable on August 1, 2012. Previously, our quarterly dividend was $0.43 per share,
or $1.72 per share on an annual basis. Based on the $0.50 quarterly dividend
declaration, our expected annual dividend is $2.00 per share, a 16.3 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.
To support future growth, we are striving to change in two important ways:
we are modifying our organizational structure so we can better leverage our existing
experience and expertise, and we are adding new expertise in additional areas that
are critical to future success. In the past two years we have created enterprise-
level marketing and restaurant operations units and established forward-looking
strategy units in our finance and information technology functions. We have
initiatives focusing on our Specialty Restaurant Group, enterprise-level sales
building, digital guest and employee engagement, health and wellness, and
centers of excellence. We plan to grow by leveraging our expertise and new
capabilities to increase same-restaurant sales, increase the number of restaurants
in each of our existing brands, and develop or acquire additional brands that can
be expanded profitably. We also continue to pursue other avenues of new business
development, including franchising our restaurants outside of the U.S. and Canada,
testing “synergy restaurants” and other formats to expand our brands, and selling
consumer packaged goods such as Olive Garden salad dressing.
The total sales growth we envision should increase the cost-effectiveness
of our support platform. However, we also plan to supplement our conventional
incremental year-to-year cost management efforts with an ongoing focus on
identifying and pursuing transformational multi-year cost reduction opportunities.
In fiscal 2013, we plan to continue to implement the four transformational
฀initiatives฀that฀were฀our฀focus฀last฀year฀–฀further฀automating฀our฀supply฀chain,฀
significantly reducing the use of energy, water and cleaning supplies in our
restaurants, centralizing management of our restaurant facilities and optimizing
labor costs within our restaurants.
There are significant risks and challenges that could impact our operations
and ability to increase sales and earnings. The full-service restaurant industry
is intensely competitive and sensitive to economic cycles and other business
factors, including changes in consumer tastes and dietary habits. Other risks
and uncertainties are discussed and referenced in the subsection below entitled
“Forward-Looking Statements.”
RESULTS OF OPERATIONS FOR FISCAL 2012, 2011
AND 2010
The following table sets forth selected operating data as a percent of sales from
continuing operations for the fiscal years ended May 27, 2012, May 29, 2011 and
May 30, 2010. This information is derived from the consolidated statements of
earnings found elsewhere in this report.
Fiscal Years
2012 2011 2010
Sales 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales:
Food and beverage 30.8 29.0 28.8
Restaurant labor 31.3 32.0 33.1
Restaurant expenses 15.0 15.1 15.2
Total cost of sales, excluding restaurant
depreciation and amortization of
4.1%, 3.9% and 4.0%, respectively 77.1% 76.1% 77.1%
Selling, general and administrative 9.2 9.9 9.7
Depreciation and amortization 4.4 4.2 4.3
Interest, net 1.3 1.2 1.3
Total costs and expenses 92.0% 91.4% 92.4%
Earnings before income taxes 8.0 8.6 7.6
Income taxes (2.0) (2.2) (1.9)
Earnings from continuing operations 6.0 6.4 5.7
Losses from discontinued operations,
net of taxes (0.1) — —
Net earnings 5.9% 6.4% 5.7%
SALES
Sales from continuing operations were $8.00 billion in fiscal 2012, $7.50 billion
in fiscal 2011 and $7.11 billion in fiscal 2010. The 6.6 percent increase in sales
from continuing operations for fiscal 2012 was driven by the addition of 89 net
new company-owned restaurants plus the addition of 11 Eddie V’s purchased
restaurants, and the 1.8 percent blended same-restaurant sales increase for
Olive Garden, Red Lobster and LongHorn Steakhouse.
Olive Garden’s sales of $3.58 billion in fiscal 2012 were 2.5 percent above
last fiscal year, driven primarily by revenue from 38 net new restaurants partially
offset by a U.S. same-restaurant sales decrease of 1.2 percent. The decrease
in U.S. same-restaurant sales resulted from a 1.3 percent decrease in same-
restaurant guest counts partially offset by a 0.1 percent increase in average
check. Average annual sales per restaurant for Olive Garden were $4.7 million
in fiscal 2012 compared to $4.8 million in fiscal 2011.
Red Lobster’s sales of $2.67 billion in fiscal 2012 were 5.9 percent above
last fiscal year, driven primarily by a U.S. same-restaurant sales increase of
4.6 percent combined with revenue from six net new restaurants. The increase
in U.S. same-restaurant sales resulted from a 2.2 percent increase in same-
restaurant guest counts combined with a 2.4 percent increase in average guest
check. Average annual sales per restaurant for Red Lobster were $3.8 million
in fiscal 2012 compared to $3.6 million in fiscal 2011.