Welcome to the Darden Fiscal Year 2021 Fourth Quarter Earnings Call. Your lines have been placed on listen-only until the question-and-answer session. This conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Mr. Kevin Kalicak. Thank you. You may begin.

Thank you, Regina. Good morning, everyone, and thank you for participating in today's call. Joining me on the call today are Gene Lee, Darden's Chairman and CEO; Rick Cardenas, President and COO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the Company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted on the Investor Relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of those measurements are included in the presentation. Any reference to pre-COVID when discussing fourth quarter performance as a comparison to our fourth quarter of fiscal '19 and the annual reference to pre-COVID is the trailing 12 months, ending February of fiscal '20. This is because last year's results are not meaningful due to the pandemic's impact on the business as dining rooms closed and we pivoted to a to-go-only model during the fourth quarter of fiscal '20. We plan to release fiscal '22 first quarter earnings on September 23 before the market opens, followed by a conference call. This morning, Gene will share some brief remarks, Rick will give an update on our operating performance, and Raj will provide more detail on our financial results and share our outlook for fiscal '22. Now I'll turn the call over to Gene.

Thank you, Kevin. Good morning, everyone. As you saw from our release this morning, we had a very strong quarter that exceeded our expectations as sales quickly accelerated from the third quarter. During our call a year ago, I talked about the resiliency of the full-service dining segment and the confidence we had in the industry's ability to bounce back from the impacts of the pandemic, and we've begun to see demand come back at strong levels. As we think about the industry, our consumer insights team has done a lot of good work to better understand the size of the full-service dining segment. There are multiple sources of data that offer sales estimates for the restaurant industry, and the size of the industry and the full-service industry, specifically, varies considerably across these sources. This year, we are adopting Technomic as our data source, which we believe better reflects the sales contribution from independent operators, provides a broader view of the restaurant industry, and aligns more closely with the census data. Going forward, we will be referencing industry data provided by Technomic, which sizes the casual dining and fine dining categories for fiscal 2020 at $189 billion and for fiscal 2019 at $222 billion. Given the strong demand we're seeing in the financial health of the consumer, we believe the categories will return to that size or greater despite having approximately 10% fewer units than before the onset of the pandemic. Over the last 15 months, we have made numerous strategic investments. At the restaurant level, we've invested in food quality and portion size that will help strengthen long-term value perceptions for each brand. We also made considerable investments in our team members to ensure our employment proposition remains a competitive advantage. And we invested in technology, particularly within our to-go capabilities, to meet our guests' growing need for convenience and desire for the off-premise experience. Our business model has evolved and is much stronger today. As we begin our new fiscal year, we will remain disciplined in our approach to growing sales; more specifically, our focus is on driving profitable sales growth. Given the business transformation work we have done and the demand we are seeing from the consumer, we are well positioned to thrive in this operating environment. Before I turn it over to Rick, I want to say thank you to our team members in our restaurants and our support center. This was, without a doubt, the most challenging year in our company's history, but thanks to your dedication and perseverance, we have emerged stronger. On behalf of the Board of Directors and the senior leadership team, thank you for all you do to take care of our guests and each other. Rick?

Thank you, Gene, and good morning, everyone. Our results this quarter are a combination of the business model transformation work that Gene referenced as well as the simplification efforts we implemented throughout the year. Significant process and menu simplification at each brand has enabled us to drive high levels of execution and strengthen margins, further positioning our brands for long-term success. As we began the quarter, our restaurant teams remained disciplined while continuing to operate in a difficult and unpredictable environment. As restrictions continue to ease and dine-in traffic increased, our teams successfully managed through it, thanks to their focus on being brilliant with the basics, ensuring we provided great food with outstanding service in an enjoyable atmosphere for all of our guests. This enabled us to deliver record-setting results. For example, Olive Garden broke its all-time, single-day sales record on Mother's Day. Additionally, both Olive Garden and LongHorn Steakhouse achieved the highest quarterly segment profit in their history. Even as capacity restrictions eased and we were able to utilize more of our dining rooms, off-premise sales remained strong during the quarter. Off-premise sales accounted for 33% of total sales at Olive Garden, 19% at LongHorn, and 16% at Cheddar's Scratch Kitchen. Guest demand for off-premise has been stickier than we originally thought, and this is driven by the focus of our restaurant teams and the investments we made to improve our digital platform throughout the year. Technology enhancements to online ordering and the introduction of new capabilities such as to-go capacity management and curbside notifications improve the experience for our guests while making it easier for our operators to execute. As a result, during the quarter, 64% of Olive Garden's to-go orders were placed online and 14% of Darden's total sales were digital transactions. Thanks to additional technology enhancements, we continue to see guests utilize our digital tools even when they were dining in our restaurants. Nearly half of all guest checks were assigned digitally either online on our tabletop tablets or via mobile pay. The business model improvements we have made also reinforced our ability to open value-creating new restaurants across all of our brands. During the quarter, we opened 14 new restaurants, and these restaurants are outperforming our expectations. While Raj will discuss specific new restaurant targets for fiscal '22, we are working to develop a pipeline of restaurants and future leaders that would put us at the higher end of our long-term framework of 2% to 3% sales growth from new units as we enter fiscal 2023. Finally, the strength of the Darden platform has helped our brands navigate near-term external challenges. The employment environment has been an issue for the industry. However, the power of our employment proposition, strengthened by the investments we have in our people, continues to pay off as we retain our best talent and recruit new team members to more fully staff our restaurants. So while there are staffing challenges in some areas, we are not experiencing systematic issues. Additionally, the strength of our platform has helped us avoid significant supply chain interruptions. Our supply chain team continues to leverage our scale to ensure our restaurant teams have the key products they need to serve our guests. Notably, the few spot outages we have experienced are related to warehouse staffing and driver shortages, not product availability. To wrap up, I also want to recognize our outstanding team members. During my restaurant visits, I'm inspired by the positive attitude and flexibility you demonstrate every day. Thank you for all you have done and continue to do to deliver great experiences for our guests. Now, I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. Total sales for the fourth quarter were $2.3 billion, 79.5% higher than last year, driven by 90.4% same-restaurant sales growth and the addition of 30 net new restaurants, partially offset by one less week of operations this year. The improvements we made to our business model, combined with fourth quarter sales accelerating faster than costs, drove strong profitability, resulting in adjusted diluted net earnings per share from continuing operations of $2.03. Our reported earnings were $0.76 higher due to a nonrecurring tax benefit of $99.7 million. This benefit primarily relates to our estimated federal net operating loss for fiscal year 2021, which will carry back to the preceding five years. Looking at our performance throughout the quarter, we saw same-restaurant sales versus pre-COVID improving from negative 4.1% in March to positive 2.4% in May. And same-restaurant sales for the first three weeks of June were 2.5% compared to two years ago. To-go sales for Olive Garden and LongHorn continue to be significantly higher than pre-COVID levels. We have seen a gradual decline in weekly to-go sales. However, that decline is being more than offset by an increase in dine-in sales. Turning to the fourth quarter P&L. Compared to pre-COVID results, food and beverage expenses were 90 basis points higher, driven by investments in both food quality and pricing below inflation. For reference, food inflation in Q4 was 4.3% versus last year. Restaurant labor was 190 basis points lower, driven by hourly labor improvement of 320 basis points due to efficiencies gained from the operational simplification and was partially offset by continued wage pressures. Marketing spend was $44 million lower, resulting in 200 basis points of favorability. G&A expense was 30 basis points lower, driven primarily by savings from the corporate restructuring earlier in the year. As a result, we achieved a record restaurant-level EBITDA margin for Darden of 22.6%, 310 basis points above pre-COVID levels and record quarterly EBITDA of $412 million. We had $5 million in impairments due to the write-off of multiple restaurant-related assets. And our effective tax rate for the quarter was 12%, excluding the impact of the non-recurring tax benefit I previously mentioned. Looking at our segments, we achieved record segment profit dollars and margins at Olive Garden, LongHorn, and the other business segment this quarter. Fine Dining improved segment profit margins versus pre-COVID despite sales decline. These results were driven by reduced labor and marketing expenses as we continue to focus on simplified operations while also continuing to invest in food quality and pricing below inflation. 2021 was a year like no other. And despite the challenges of constantly shifting capacity restrictions and uncertain guest demand, we delivered $7.2 billion in total sales. The actions we took in response to COVID-19 to solidify our cash position and transform our business model helped build a solid foundation for recovery and resulted in over $1 billion in adjusted EBITDA and over $920 million of free cash flow results. As a result, we repaid our term loan, reinstated our pre-COVID dividend, and quickly built up our cash position. Our disciplined approach to simplifying operations and driving profitable sales growth positions us well for the future. As a result of our strong performance, cash position, and the fiscal 2022 outlook, this morning we also announced our Board approved a 25% increase to our regular quarterly dividend to $1.10 per share, implying an annual dividend of $4.40. This results in a yield of 3.2% based on yesterday's closing share price. Finally, turning to our financial outlook for fiscal 2022, we assume full operating capacity for essentially all restaurants, and we do not anticipate any significant business interruptions related to COVID-19. Based on these assumptions, we expect total sales of $9.2 billion to $9.5 billion, representing growth of 5% to 8% from pre-COVID levels, same-restaurant sales growth of 25% to 29%, and 35 to 40 new restaurants. Capital spending of $375 million to $425 million; total inflation of approximately 3%, with commodities inflation of approximately 2.5% and hourly labor inflation of approximately 6%; EBITDA of $1.5 billion to $1.59 billion; an annual effective tax rate of 13% to 14% and approximately $131 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $7 and $7.50. And with that, we'll open it up for questions.

Our first question comes from the line of Brian Bittner with Oppenheimer. Please go ahead.

Thank you. Good morning. Gene, you stated that Darden is well positioned to thrive in this operating environment, and I think that's just a pretty powerful statement given all the labor challenges and cost issues that we're hearing from all of your peers. What is your reaction to these dynamics and why specifically do you believe Darden is standing out from the crowd as it relates to the near-term impacts from these issues?

Let's begin with the labor situation. We have made significant investments in our workforce, starting with our decision to invest in our employees after the tax reform. We have continued to invest in our people throughout the pandemic, and our top talent has remained with us during this period. We offer an attractive employment opportunity, which helps us draw people to our company. Currently, we believe we are adequately staffed, and as conditions improve, we have every confidence in being the employer of choice in our sector. Although the restaurant industry may keep facing challenges in attracting workers, we believe there are enough skilled hospitality professionals available to fill positions at all Darden restaurants if we present a compelling employment offer. This offer is not just about current jobs but also about future growth potential. We promote around 1,000 team members into management roles each year and provide further opportunities through training and the opening of new locations. Our employees value their experiences here, so we feel optimistic about our employment situation. We will keep investing in our team and effectively manage salary administration to ensure we offer competitive wages. Thanks to our margin structure, we believe we can handle wage inflation, and combined with our pricing strategy, we have room to adjust wages if necessary. Regarding food inflation, our team has performed admirably. We have a sufficient supply of essential items, and leveraging our scale has provided us with a significant advantage. We feel well prepared to handle any inflationary pressures, both in the short and long term.

Thanks Gene. And just a quick follow-up for Raj. We're no longer talking about 90% sales recapture, thankfully. We're on the other side of this. It feels in your guidance for '22 is 5% to 8% above pre-COVID level. So, obviously, over 100% recapture. And I believe the EBITDA margins at the midpoint of that guidance are 16.5%, so 250 basis points above pre-COVID. So what is the philosophy on communicating investments to us now and the philosophy on communicating how you're thinking about EBITDA margins now that this path for sales above pre-COVID levels is so much more clear?

Yes, Brian, as we consider our guidance, let me start by highlighting what we shared this morning for fiscal 2022, which suggests an EBITDA margin growth ranging from 200 to 250 basis points. Our sales have indeed recovered significantly. We are allowing some of the flow-through benefits to improve our bottom line, while continuing to make investments. As Gene noted, we are pricing below inflation. We mentioned earlier that we expect overall inflation to be about 3%, whereas our pricing aligns with our target range of one to two percent. This strategy puts us well beneath the inflation rate, representing our primary investment focus, and gives us some additional flexibility in the event of any further inflation. We believe that the target of $200 million to $250 million is achievable for us at this time, but as we look further ahead, we need to gain a clearer understanding of the economic and competitive landscape to refine our business model. From our current perspective, we anticipate retaining most of the margin improvement projected for fiscal year 2022.

Your next question comes from the line of Eric Gonzalez with KeyBanc Capital Markets.

Thanks for the question. My question is on the inflation outlook. Clearly, there have been some big moves in commodities in recent weeks. Can you talk about some of the key variables included in that 3% inflation? I think you said 2.5% on the food side, and perhaps how that might stage throughout the year? Do you expect inflation to be higher in the beginning of the fiscal year before perhaps leveling out towards the end?

Hi, Eric. Yes, when it comes to inflation, we mentioned that commodities are around 2.5% for the year. However, for the first half of the year, it's estimated to be between 3.5% and 4%, with a slight decrease in the latter half. As I noted in my earlier comments, Q4 this year was 4.3%, and we anticipate that Q4 next year will be closer to flat. Regarding the main contributors to commodity inflation, chicken and seafood prices are high, and we're also experiencing significant increases in cooking oil and some inflation in dairy. Additionally, packaging costs are affected, particularly due to rising resin prices. Overall, these are the major drivers of inflation in commodities. On the labor front, we expect overall labor costs to be between 4% and 4.5%, while wage rates are anticipated to be around 6%.

Your next question comes from the line of David Tarantino with Baird.

Hi, good morning. I'm wondering related to Olive Garden or perhaps your overall sales, how much do you think capacity constraints are still in play in terms of weighing down the performance? And I guess, relatedly, what do you think the upside is, Gene, as you see the restaurants come back to full capacity now that you're seeing some of these to-go sales stick more than you thought they would?

Yes, David. Good morning. There are very limited capacity restrictions in place. A few states and municipalities still have some restrictions, but we recently reopened California and New York. Overall, there are no major markets currently facing restrictions. From a sales perspective, we believe there's still more potential for growth within our restaurants. We're confident that improvements in our menus and business model will enhance throughput during peak periods, allowing us to serve more customers. Rick mentioned in his prepared remarks the success our teams had on Mother's Day, marking the best celebration we've ever had, which showcases our ability to manage and increase customer flow within a limited timeframe. Although we don't have capacity restrictions, we are experiencing slower sales growth on weekends compared to mid-week due to fewer opportunities in some high-volume locations. I often say we're still searching for equilibrium, and I can't predict when that will happen. We need to understand consumer behavior as we adapt to what in-restaurant and off-premise dining will look like moving forward. Rick noted that we're pleased with the stabilization of off-premise sales, even with a slight decline. I mentioned previously that some off-premise habits have proven to be more enduring than we anticipated, and I believe this is largely due to the frictionless capabilities we developed during the pandemic. We are still in the early stages of figuring out when and where our business will come from, and I believe there is still significant potential for growth ahead.

Thanks for that Gene. And then I guess one other follow-up question on this point is the gap between how LongHorn is performing and how Olive Garden is performing relative to pre-COVID is very significant. I was wondering if you could give your thoughts on why either LongHorn is outperforming by so much or Olive Garden is kind of lagging the performance you're seeing for LongHorn?

Well, first thing I would say is Olive Garden is not lagging. I mean I'm just thrilled with their performance. When you're looking at 25.5 restaurant level margins and getting back to pre-COVID sales levels, that's just amazing. That performance is unbelievable. When you look at what's going on in LongHorn, we've been investing in that business for five years since Todd's come back. He and his team have just done a great job of improving the value perception. When we look at where they are in Technomic and the ratings, they are number one in most categories. They moved from middle of the pack to number one. And so I think LongHorn's performance is just a culmination of a lot of work over a great period of time. And I also want to also recognize that the whole Steakhouse segment is moving. The whole Steakhouse segment has outperformed the other segments, and I believe that's perceptions. So they're definitely getting a segment lift, but they've also done a great job and they're executing at an extremely high level.

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two quick ones, actually. The first one, just on the first quarter as we now seemingly exit, hopefully, the pandemic. I think you said June, your month-to-date comps are up 2.5%. I think that's actually identical to what you said for May. I'm just wondering how does that compare to expectation whether you would have expected further acceleration with additional markets, like you said, having recently reopened? Or any kind of thoughts you can give us having given us full year guidance? Just wondering, I want to make sure with this being the first quarter of lapping full COVID? Any thoughts on those sales or whether there's any parameter around the earnings that you want us to think about? And then one follow-up.

Jeff, this is Raj. When considering the sales cadence from May to June, which shows a three-week period with a 2.5% increase, we feel positive about our performance in same-restaurant sales. In fact, it appears to be slightly better than what we anticipated at the start of the fiscal year. As more markets open and capacity restrictions are eased, particularly in California and similar areas, we're noticing some progress. However, when looking at the overall Darden level, the brands most affected represent a smaller fraction of our total portfolio, meaning it takes significant changes to impact our blended same-restaurant sales. Additionally, we must consider various factors, especially when comparing to fiscal 2019, since we're not engaging in some previous promotional activities that drove demand. We are essentially comparing to a time with more marketing expenditures. Nonetheless, as Gene mentioned, we are pleased with our current team and confident in our business model. We're also happy to invest in both our employees and guests through improvements in food quality, portion sizes, and pricing. Ultimately, we are giving back to our guests while maintaining a solid business model. This is how I would address your question.

Great. And then just my follow-up, just wondering as you think about fiscal '22, what do you think is the greatest risk? I mean seemingly, you're feeling quite good about current quarter-to-date trends and thriving in the outlook commentary. But in terms of risks to fiscal '22, would you say it's more on the sales or the cost side? Maybe where you think yourself and/or the industry would be most vulnerable as we come out on the other side? Thank you.

I think the biggest risk continues to be COVID. It seems like we're approaching the end of that situation. However, when I assess our guidance, I believe we can meet it. I perceive the main risk as external rather than internal, and I don’t see any significant risks from sales or costs. We have the flexibility in place to handle almost anything that comes our way, except for another COVID outbreak that could require business restrictions. For me, that's the biggest risk we face.

Your next question will come from the line of Chris Carril with RBC Capital Markets.

Good morning and thanks for the question. So just in looking at the segment margins, holding aside the performance at Olive Garden and LongHorn, the other business segment margin was particularly strong and well above 2019. So curious to hear what some of the key drivers of the performance were in that segment? And maybe how much of a factor that segment's improvement is contributing to your '22 outlook? And I know last quarter you had discussed the improvement at Cheddar's, so any additional color or update there would be great as well?

Yes. As we evaluate the other segment, I would highlight a couple of brands. The transformation of the business model has been significant, particularly with Cheddar's and Bahama Breeze, where we observed notable improvements. This process involved simplification, allowing us to break things down, rebuild them, and effectively change the business model. These two brands are key contributors to the substantial growth in the other segment. Looking ahead to next fiscal year, they will still play a meaningful role, representing about 20% of that segment. While they may not be major contributors overall, given their size, they are expected to exceed in segment margin performance.

Yes, Chris, on Cheddar's, I would just say that we're extremely pleased with this business at this point. As Raj indicated, the biggest improvement in the business model in all of our business came in Cheddar's. We continue to focus on strengthening the restaurant leadership teams to be able to handle the future growth. But overall, we're very pleased with where this business is at today and very excited about the potential.

Your next question comes from the line of James Rutherford with Stephens. Please go ahead.

I wanted to start with a technology question for Rick. Last quarter, you spoke about developing a new three-year technology roadmap. I'm curious about where you anticipate seeing the greatest returns—whether it's in consumer-facing areas like the box or online, in back-of-house support, or elsewhere. What do you see as the biggest opportunities and priorities for the next three years in technology?

Yes, thanks for the question. We have completed our three-year roadmap and are focusing on a few key areas. The main theme is reducing friction. With our technology, we aim to make the guest experience, team member experience, and manager experience smoother. This includes enhancing our off-premise capabilities to simplify the process for guests to reorder and pick up their orders. In the restaurant, we plan to update our outdated point-of-sale system to make it easier for team members to manage guest interactions and off-premise orders. For managers, we are working on making the back-of-house systems more user-friendly, as the current user interface needs improvement despite having strong back-end support. All these efforts are aimed at reducing friction.

Okay. Excellent. And then Raj, just one follow-up. I think last quarter you said you were sitting at 115,000 hourly employees across the Company. Could you update us on where you stand today? And where you view full employment given the demand environment here today?

I can't share the exact number of employees at this moment, but I can say we have made significant progress. I don't recall if we mentioned 115,000, but it might be a bit more than that. Regardless, I prefer not to discuss the exact number of employees right now, other than to say we are satisfied with our staffing levels and do not perceive any gaps.

Your next question comes from the line of Andrew Charles with Cowen.

Great. Thanks. Raj, you guys impressively raised your dividend 25% to $1.10. And if we think about the historical 50% to 60% targeted payout ratio, this would imply EPS of $7.33 to $8.80 versus the formal guidance of $7 to $7.50. Can you help rectify that a little bit? Is it just conservatism reflected in the formal guidance?

Great question. Let me start by explaining our approach to dividends. Our target payout range is between 50% and 60%. Given our current cash position, we feel confident moving towards the higher end of that range. Specifically, at 60%, we would be aligning closely with our guidance, which places us at approximately a 61% payout. This isn't significantly different from the 50% to 60% target, especially considering we have a cash flow of $1.2 billion and anticipate generating substantial free cash flow. Ultimately, the proposed dividend we announced this morning represents about 50% of our free cash flow, which makes us feel positive about our situation. Additionally, keep in mind that our target is a long-term goal, and we had a period where we fell short of it, so this is also a way to adjust for that.

Your next question comes from the line of Jeff Farmer with Gordon Haskett.

Thank you. On the March earnings call, you reported that hourly labor productivity had improved by, I think, you said over 20% for the system. So I'm just curious, two things. How are you measuring labor productivity? And I think you touched on it a little bit earlier, but how have you driven this level of improvement in productivity?

Jeff, this is Rick. Yes, we did mention that productivity was about 20% better across the system. And we measured on an hour per guest basis. So how many guests can we serve per labor hour? And we're still seeing significant labor productivity improvements. As Raj mentioned, we had a significant improvement in labor per labor margin, even with inflation. And the way we did it was what we've been talking about for the last year is continuing to improve our processes from the food coming into the backdoor to getting to the table, which means significant menu design work, significant prep design work, which took a lot of the steps and procedures out of the kitchen. And what I would say is we are never done with that. We redesigned our processes over the last year. We have to look at them again, and we have to redesign. So we're going to continue to do that to drive efficiencies where redesign. So we're going to drive efficiencies so that we can reinvest those savings in our plate and give a better experience for our guests.

And then just as a quick follow-up, and I might have missed this earlier, I apologize. But of the 25 states or so that have ended the supplemental unemployment benefits early, what has the hiring or staffing dynamic looked like since that's happened in those states?

Yes, Jeff, many of those states announced changes either in late May or early June that took effect sometime in June. I believe the first changes went into effect last week. Anecdotally, we have noticed a slight improvement in applicant flow trends, which we have observed across the country, not only in states that have eliminated the supplemental unemployment benefits but also in those that haven't. This might be due to the fact that the states still providing benefits are beginning to open up, leading to an increase in applicant flow. Overall, we feel very optimistic about the applicant flow into our restaurants. While we are not hiring a large number of people each week, we had a record hiring quarter in the fourth quarter, and we are confident about our current position.

Your next question comes from the line of Brett Levy with MKM Partners.

Thank you for joining the call this morning. I have two questions. First, regarding the significant expansion in EBITDA margins, how should we view the balance between recovering G&A expenses and unit-level profitability? Additionally, has the recent progress affected your views on the long-term potential for restaurant-level margins? My second question pertains to development. We have witnessed numerous reports of delays and labor availability issues. What observations do you have regarding these matters and how confident are you in achieving the projection of 35 to 40, particularly the higher end? Thank you.

Brad, I'll begin and then pass it to Rick for the development topic. Looking at our margins, the margin observed in Q4 primarily came from the restaurant level, with a small contribution from G&A, which is about 30 to 40 basis points, a significant amount. Moving forward, I predict that G&A will likely reflect favorability around 40 basis points, while the majority of improvement will stem from restaurant level margins. I expect enhancements in restaurant labor and marketing, but we will continue to see an increase in food costs due to our planned investments—a choice we intentionally made. In terms of restaurant expenses, I anticipate slight improvements, though not substantial, especially since we are not adjusting our pricing in line with overall inflation, which will affect various items across the P&L.

Yes, Brett, on the development side, this is Rick. On the development side, we have a couple of things. One is we shut down our pipeline at the beginning of COVID, and we restarted the pipeline during this fiscal year as we saw us coming out of that. We feel really good about the 14 restaurants we opened. But I would say, you hear a lot about shortages in construction and about product shortages in construction, we're getting out in front of that. So we're ordering product a lot further in advance than we used to. So to make sure that we've got the stainless steel in the kitchen to do the things that we need to do. The good news is you're seeing some of these input costs come down. So hopefully, by the time we're starting to build our restaurants, those input costs are more back to a more reasonable level. I said, the margin improvements we've made in our restaurants and our restaurant profitability has really helped even if the inflation was where people are hearing about it. In terms of cadence of openings, as I said, we got in front of this and started ordering product earlier for our restaurant. But we typically open mid-teen restaurants in the fourth quarter. And of our 30 to 40 restaurants we're going to open this year, we'll probably have mid-teens in the fourth quarter, and the other ones will be kind of spread throughout this fiscal year.

Your next question comes from the line of Lauren Silberman with Credit Suisse.

Okay, great. So, on the To Go, you talked about To Go being stickier than perhaps you originally thought. Are you seeing any discernible differences across markets that have recaptured more on-premise sales? And then is there anything that you can share on how consumers are using the To Go occasion? And whether that's a replacement for on-premise versus in that whole meal?

I believe that for off-premise consumption, people are using it as a home meal replacement or perhaps at work during the day, and I don't see any significant change in behavior. Additionally, there hasn't been much variation across the country as more restaurants reopen. The shift has been fairly consistent. We experienced a few hundred basis points decline but were able to recover more in the dining room. As I mentioned earlier, I think the analyst community should be credited for recognizing that this trend is stickier than we initially anticipated. We've engaged some new consumers, and the experience has been extremely positive. While we are unsure about the final outcome, it will likely be much higher than pre-COVID levels. Moving forward, we need to pay closer attention to this aspect of our business.

Great. And just if I could do a follow-up on June running at 2.5%. Are there any seasonality considerations in June relative to May? Or are you largely seeing similar average weekly sales?

I'd say, yes, the similar average weekly sales once you take out the north of the holidays.

Next question will come from the line of Chris O'Cull with Stifel.

Thanks. Good morning, guys. Raj, I believe you stated that demand came back at a faster pace than cost. I was hoping you could elaborate on what those costs were given staffing hasn't been an issue and maybe the impact of that timing dynamic?

I would say part of the issue was staffing. We needed to catch up on staffing throughout the quarter as it accelerated faster than our hiring. However, by the end of the quarter, we were in a good position. In addition to that, when you look at our profit and loss statement, it's clear that marketing did not grow at the same rate as sales. Travel expenses were significantly lower as well. Some of the other costs we are dealing with relate more to growth expenses that we intend to reintroduce, especially since we want to ensure we have the right talent pipeline for new openings. We had been delaying some of these expenses until sales returned to levels where we felt we could achieve adequate returns. Now that sales are above pre-COVID levels, we intend to reintegrate these costs into our profit and loss statement, which is part of the guidance we shared this morning.

Can you quantify the impact to the store level labor from that timing mismatch during the quarter?

I'd say it's in the 10, 20 basis points. It's not huge.

Your next question comes from the line of Jon Tower with Wells Fargo.

Rick, I wanted to follow up on your comment regarding unit growth in fiscal '23, which could be at the higher end of that 2% to 3% range you've usually indicated. I'm interested in your thoughts on how sustainable you believe that growth rate is going forward, especially beyond fiscal '23, considering it might be a recovery year from a more disruptive period. Additionally, could you elaborate on the factors contributing to that growth? Olive Garden has historically contributed significantly to overall growth, but how should we view its role relative to other brands in the portfolio moving forward?

Jon, thanks. First of all, on the sustainability of the growth going forward, the only thing that can slow us down in growth after this kind of ramp-up is having enough people to open our restaurants, right, having enough general managers ready and able to open our restaurants. We believe that we can stay in the higher end of our range for a little while. Now the economic environment could be different in a year or two that might change that. But we feel really confident that we can get closer to the higher end of our range because of the business model improvements we have made, and it gives the ability to open even more Olive Gardens, right? So when we were opening in Olive Garden before, we would impact many Olive Gardens around them. But with the business model enhancements to Olive Garden has made, we feel even more confident being able to open some of those. Raj had already mentioned Cheddar's and how much they've improved their business model. That has given us more confidence in being able to open more Cheddar's. So that gives us the ability to get towards the higher end of that range. But every one of our brands has the ability to grow, and that's the important thing. We've made significant improvements in the business model at Bahama Breeze, while someone asked about the other segment. I want to tell you that Seasons 52 has also made a huge business model improvement, even though their sales growth wasn't as strong as Bahama Breeze because of their clientele. That's all coming back. We've opened some pretty darn good Seasons 52 recently, and we opened a great Bahama Breeze recently. So we feel really good about our open all of our brands and be at the higher end of our range for the foreseeable future, unless the environment changes. I mentioned Cheddar's and how much they've improved their business model. That has given us more confidence in being able to open more Cheddar's.

And now I'll turn the conference back over to consumer behaviors and any final remarks.

Thank you. That concludes our call. I'd like to remind you, we plan to release first quarter results on Thursday, September 23, before the market opens with a conference call to follow. Thanks and have a great day.

Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.