Red Lobster 2014 Annual Report Download - page 3

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2014 Annual Report 1
To Our Shareholders,
Employees and Guests:
It is an exciting time to be a Darden shareholder, as we have undertaken a number of initiatives to
drive shareholder value in the upcoming year and beyond. This past fiscal year, we took important
actions to improve our operations, reduce costs and focus on opportunities with the highest
potential. We are pleased with the progress we are making to enhance performance and are well
positioned to build on this momentum.
Generating Long-Term Growth and Value Creation
in a Difficult Environment
Darden has long been the market leader in full-service dining
because of the passionate commitment, collective capabilities and
hard work of generations of employees. We benefit from a portfolio
of distinguished brands and a cost-effective operating support
platform, which have supported superior long-term value creation
and financial performance.
• With total sales from both continuing and discontinued operations
of $8.76 billion in fiscal 2014, the Company achieved a compounded
annual growth rate of 4.3 percent over the past five years.
• Darden also has competitive restaurant-level margins of
20.7 percent (excluding rent expense), which compares to
a peer median of 16.7 percent.
• Darden’s consolidated cash flows from operations, including both
continuing and discontinued operations, have totaled $4.3 billion
over the past five years, enabling us to return nearly $1.8 billion to
shareholders through dividends and share repurchases during
that period – a level of capital return that has far outpaced the
industry – even as we continued to invest in key growth initiatives.
Still, Darden’s recent results reflect challenges we are facing. Fiscal
2014 diluted net earnings per share were $2.15 (or $2.47 excluding
certain one-time expenses) compared to $3.13 in the previous
year. And while we achieved same-restaurant sales growth at
LongHorn Steakhouse and at our Specialty Restaurant Group
(SRG) brands (except Seasons 52), same-restaurant sales at
Red Lobster and Olive Garden declined by -6.0 percent and
-3.4 percent, respectively.
Indeed, for the past decade there have been significant changes
within the restaurant industry, changes that include slowing sales
growth as the industry continues to mature, as well as important
shifts in consumer demographics and expectations. And these
changes have intensified during the past two years, resulting in
especially low levels of consumer demand for restaurants generally
and full-service dining in particular, despite some improvement in
the overall economy.
Addressing Changed Industry Dynamics
To respond to long-term industry trends, for the past decade we
have been pursuing a strategy of complementing Olive Garden,
our premier and most broadly appealing brand, with brands that are
strongly positioned within the most attractive consumer segments.
In fiscal 2013, Darden’s Board of Directors undertook an extensive
strategic review.
The review underscored the need to move with even greater
urgency and led to the comprehensive plan we launched in
December 2013. This included:
• Separating Darden’s Red Lobster business through either a sale
or spin-off;
• Reducing unit growth, primarily from suspending new unit growth
at Olive Garden and more limited new unit growth at LongHorn
Steakhouse; lowering capital expenditures; and forgoing acquisi-
tions given the strength of the Company’s brand portfolio excluding
Red Lobster;
• Taking steps to increase operating support cost savings, which –
together with the sale of Red Lobster – means we expect our
selling, general and administrative (SG&A) expense as a percent
of sales in fiscal 2015 to be the lowest since Darden became a
public company;
• Increasing return of capital to shareholders through an expanded
share repurchase program and maintaining Darden’s quarterly
dividend of $0.55 per share; and
• Refining compensation and incentive programs to more directly
emphasize same-restaurant sales growth and free cash flow
to ensure even stronger alignment with the Company’s
strategic direction.