Fiscal 2009 Mid-Year Shareholder Report

TO OUR  Shareholders

We welcome the opportunity to update you on the first half of fiscal 2009. It was a period during which we were able to deliver competitively superior sales and earnings results despite a particularly challenging consumer environment and broader economic and financial conditions that were in many ways unprecedented. Olive Garden achieved profitable new unit growth, while sustaining same-restaurant sales growth that was well-above the Knapp-Track industry benchmark; Red Lobster made progress enhancing the brand, while also achieving stronger than industry benchmark same-restaurant sales results; we saw significant sales growth because of the addition of LongHorn Steakhouse and The Capital Grille;  Bahama Breeze enjoyed additional margin improvement; and we continued to see strong consumer acceptance and relatively solid operating results at Seasons 52.

As we look to the remainder of fiscal year 2009, we expect the macro-economic environment to remain difficult and consumer sentiment and spending to remain at depressed levels. In such an environment, we will remain focused on the things we can control, which are delivering excellent guest experiences and making meaningful progress on the enterprise and brand level strategic priorities that are driving our current competitive success and position us for competitively superior long-term financial performance. We’re convinced that success on these facets of our business will ultimately be recognized in superior share price performance.

Ultimately, our competitively strong financial results and the strategic progress we made in the first half of fiscal 2009 reflect the strength of our people and our proven approach to the business, and that will remain the case for the balance of this year and beyond. We have talented people throughout the organization who share strong core values and a motivating core purpose, which is to nourish and delight everyone we serve. United behind our strong culture, we work to combine brand management and restaurant operating excellence, while grounding both in outstanding restaurant support.

For the first half of fiscal 2009, sales from continuing operations of $3.4 billion were 15.2% above last year and net earnings from continuing operations were $140.9 million. This was $9.8 million lower than the prior year, a 6.5% decrease, due primarily to a decrease in blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and year-over-year increases in commodity costs, wage rates, utility costs and interest costs. Net earnings per diluted share from continuing operations were $1.00, down from $1.03 per diluted share the first half of last year, a 2.9% decrease.   

For the first half of fiscal 2009, sales from continuing operations of $3.4 billion were 15.2% above last year and net earnings from continuing operations were $140.9 million. This was $9.8 million lower than the prior year, a 6.5% decrease, due primarily to a decrease in blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and year-over-year increases in commodity costs, wage rates, utility costs and interest costs. Net earnings per diluted share from continuing operations were $1.00, down from $1.03 per diluted share the first half of last year, a 2.9% decrease.   

Olive Garden’s first half sales were $1.57 billion which is 7.2% above the prior year. On a same-restaurant basis, sales increased 1.7%, compared to an increase of 4.0% in the first half of last year. Olive Garden’s performance compares to an approximate 4.5% decrease in same-restaurant sales in the first half of fiscal 2009 for the Knapp-Track industry benchmark.  Olive Garden’s performance also reflects a 2.4% same-restaurant sales increase in the first quarter and a 0.8% increase in the second quarter, which was the 56th and 57th consecutive quarters of same-restaurant sales growth. By the end of the first half of fiscal 2009, Olive Garden operated 670 restaurants, compared to 628 restaurants at the same point last year. Olive Garden remains focused on maintaining new restaurant growth and same-restaurant excellence. Olive Garden plans to open approximately 35 new restaurants in fiscal 2009.

Red Lobster’s first half sales were $1.25 billion which is 1.8% lower than last year. On a same-restaurant basis, sales decreased 1.8%, compared to a 3.6% increase in the first half of last year. Red Lobster reported a same-restaurant sales decrease of 3.7% in the first quarter and a 0.3% increase in the second quarter. By the end of the first half, Red Lobster operated 684 restaurants, compared to 680 restaurants at the same point last year.

Looking ahead, Red Lobster has the opportunity for further growth in guest counts. As they increase guest counts, their profit growth opportunity is also significant given the efficiency of their operations. To sustain profitable guest count growth, Red Lobster plans to further strengthen the appeal of the brand by excelling at what consumers want most from a seafood restaurant: fresh, delicious seafood; friendly, welcoming service; and an exceptionally clean restaurant. Red Lobster has begun Phase 3 of its plan to achieve sustainable growth, which is building a pipeline of new Bar Harbor style restaurants and beginning the remodel of existing locations.

LongHorn Steakhouse’s first half sales were $421.9 million, which is 3.3% higher than the same period the previous year on a comparable basis. On a same-restaurant basis, sales decreased 5.3% compared to a decrease of 0.6% in the same period last year. By the end of the first half of fiscal 2009, LongHorn Steakhouse operated 314 restaurants, compared to 295 restaurants last year and is on track to open at least 15 restaurants this fiscal year.

The Capital Grille’s same-restaurant sales decreased 8.6% during the first quarter and decreased 8.7% in the second quarter, reflecting what was an especially challenging consumer environment.  By the end of the first half, The Capital Grille operated 34 restaurants, compared to 30 restaurants at the same point last year.

Bahama Breeze’s same-restaurant sales decreased 3.7% during the first quarter and decreased 8.0% in the second quarter. Bahama Breeze has made tremendous progress over the last three years improving its guest experience, increasing restaurant-level returns and broadening the appeal of the brand. Given this performance, the strategic focus for Bahama Breeze is to prepare the business for disciplined new restaurant growth, which will begin with one new restaurant in fiscal 2009. 

Seasons 52, Darden’s newest internally developed restaurant concept, continues to perform well, and currently operates seven restaurants.  Seasons 52 is focused on building a solid foundation for expansion, including a strong new restaurant site pipeline.  Seasons 52 will open one restaurant, located in Cherry Hill, NJ, this fiscal year.

We continued the buyback of our common stock in the open market during the first half of the fiscal year, purchasing 4.4 million shares. Cumulatively, since initial authorization of our repurchase program in December 1995, we have repurchased 151.4 million of our shares, a testament to our strong cash flows. We still have approximately 11.0 million shares remaining for repurchase under current authorizations.

As we move into the second half of fiscal 2009, we believe we are well positioned to deliver competitively superior results in a challenging operating environment. At its core, our approach is about having a terrific team working on the things it takes to succeed in our dynamic industry – brand management and restaurant operations excellence, as well as disciplined and thoughtful cost management and restaurant support excellence.

We thank you for being a valued owner of Darden Restaurants. We encourage you to bring the attached complimentary gift certificate into any of our restaurants and let us show you the exciting things we are doing to earn the distinction of being the best in our business – now and for generations.

Clarence Otis, Jr.
Chairman and Chief Executive Officer

January 14, 2009

Consolidated Statements of Earnings
(Amounts in millions, except per share data - unaudited) 

Condensed Consolidated Balance Sheets
(AMOUNT in MILLIONS - unaudited)

Results of 2008 Annual Meeting of Shareholders On September 12, 2008, Chairman and Chief Executive Officer Clarence Otis, Jr. welcomed shareholders to Darden’s annual meeting in Orlando. Shareholders were asked to elect eleven directors, approve the amended Darden Restaurants Inc. 2002 Stock Incentive Plan and to ratify the Board’s appointment of KPMG LLP to audit our consolidated financial statements for fiscal 2009. Over 85% of our outstanding shares were represented at the meeting. All of our director nominees were elected, the amended Darden Restaurants Inc. 2002 Stock Incentive Plan was approved and the appointment of KPMG was ratified. Detailed voting results appear in Darden’s Form 10-Q for the quarter ended November 23, 2008.  Subsequent to the Annual Meeting, and as reported in a Form 8-K filed on November 3, 2008, the Board of Directors increased the number of directors of the Company from 11 to 12, and elected Christopher J. (CJ) Fraleigh to serve as a director, all effective November 3, 2008.

Darden Restaurants, Inc. is traded on the New York Stock Exchange under the stock symbol DRI. The Company’s transfer agent is Wells Fargo Shareowner Services, 161 N. Concord Exchange, South St. Paul, MN 55075-1139, (877) 602-7596. Shareholders seeking information about Darden Restaurants may contact our Investor Relations Department at (800) 832-7336 or visit our website address at www.darden.com. Shareholders may request copies of press releases, the annual report on Form 10-K or quarterly reports on Form 10-Q free of charge.

©1998-2008 Darden Concepts, Inc. All Rights Reserved.

Legal Notices   Privacy Policy