Welcome to the Darden Fiscal Year 2024 Fourth Quarter Earnings Call. Your lines have been placed on listen-only mode until the question-and-answer session. This conference is being recorded. If you have any objections, please disconnect at this time. I'll now turn the call over to Mr. Courtney Aquilla. Thank you. You may begin.

Thank you, Darrell. Good morning, everyone, and thank you for participating in today's call. Joining me today are Rick Cardenas, Darden’s President and CEO; 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 in the investor relations section of our website at darden.com. Today's discussion and presentation include non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2025 first quarter earnings on Thursday, September 19th, before the market opens, followed by a conference call. During today's call, any reference to pre-COVID when discussing fourth quarter performance is a comparison to the fourth quarter of fiscal 2019 and any reference to annual pre-COVID performance is the trailing 12-months ending February of fiscal year 2020. Additionally, all references to industry results during today's call refer to Black Box Intelligence's casual dining benchmark, excluding Darden's casual dining brands. During our fiscal fourth quarter, industry same restaurant sales decreased 0.8% and industry same restaurant guest counts decreased 3.5%. And during our full fiscal year 2024, industry same restaurant sales decreased 1.4% and industry same restaurant guest counts decreased 4.7%. This morning Rick will share some brief remarks recapping the fiscal year. Raj will provide details on the fourth quarter and full-year financial results and share our fiscal 2025 financial outlook. And then Rick will close with some final comments. Now I will turn it over to Rick.

Thank you, Courtney. Before I begin, I would like to thank Kevin Kalicak for his leadership of Investor Relations for close to 10 years. As many of you know, Kevin has moved to Lead Finance for Olive Garden. We are excited for his new opportunity and equally excited to have Courtney transition into leading investor relations. I'm confident you will find Courtney a worthy successor. Thank you, Kevin, and good morning, everyone. I'm proud of our ability to stay disciplined and control what we can control. This continued focus enabled us to have a strong year in what became an increasingly weaker consumer environment, especially for consumers below the median household income. For the full-year, we grew total sales by 8.6% to $11.4 billion, delivered adjusted diluted net earnings per share of $8.88, an increase of 11%, exceeding the high-end of the EPS range we provided at the beginning of the fiscal year, despite the challenging sales environment that emerged in the back half of the year. We opened 53 new restaurants in 24 states, eight of which were reopenings, and acquired and completed the integration of Ruth's Chris Steak House. Throughout the year, we strengthened and defended our four competitive advantages, and our restaurants remained focused on being brilliant with the basics. This has enabled us to successfully navigate whatever comes our way, including the increased discounting and marketing pressure we've seen recently. And when evaluating our performance within the context of our long-term framework of 10% to 15% total shareholder return as measured by EPS growth plus dividend yield, we delivered a TSR of 14.2% for fiscal 2024, which is near the high-end of our target. And as I said, our teams are focused on controlling what they can control. One of the ways we do that is by having well-trained, tenured team members. Our manager and team member retention is at or above pre-COVID levels, and our teams are benefiting from this staffing consistency, which helps create great guest experiences. We also provide our teams with training programs that not only enhance their skill sets, but build on the unique culture of our brands, further strengthening engagement. For example, LongHorn recently completed their seventh steak master series. Over the course of two months, thousands of culinary team members competed in this highly engaging grilling competition and training program for the Right to be Crown Champion and received the $15,000 grand prize. Congratulations to this year's champion, Jacob Montgomery from the LongHorn Steak House in Cape Coral, Florida. Beyond providing strong labor and cost management, our operators are ensuring their teams remain focused on being brilliant with the basics, which is driving record guest satisfaction. Several of our brands reached all-new time highs for overall guest satisfaction for the full fiscal year, including Olive Garden, Cheddar's Scratch Kitchen, Yard House, Season’s 52, and Bahama Breeze. Additionally, within the casual dining segment of Technomic's industry tracking tool, LongHorn ended the fiscal year ranked number one for food, service, atmosphere, and overall perceptions, as well as brand fit and loyalty. Now let me provide a final update on the integration of Ruth's Chris Steak House. During the quarter, we completed the transition of all company-owned restaurants onto both our proprietary point of sale and labor management systems, which were the final major changes for the restaurants. We also acquired a single franchise location in Destin, Florida during the quarter. Thanks to the hard work and collaboration between the Ruth's Chris team and our integration team, we closed on the acquisition and completed the integration during the same fiscal year. This included onboarding 5,000 new team members with no turnover among our nine directors of operations. We also achieved the expected synergies, resulting in EPS accretion of $0.10. Integration is not easy, and I'm particularly proud of the focus the restaurant teams maintained on the guest and team member experience throughout the process. Overall, I'm pleased with our performance for the fiscal year. We successfully navigated a challenging environment, and our proven strategy combined with the strength of our business ensures we are well positioned regardless of the operating environment. As we begin fiscal 2025, we remain focused on managing our business for the long-term by executing our strategy that drives growth and long-term shareholder value. We have also taken steps to further position Darden and our brands for future growth and success through several leadership changes. We are fortunate to have a deep bench of talent and these changes are designed to allow two of our most seasoned presidents to devote more time to developing our newest brand presidents. After nine years of leading LongHorn Steak House to record performance, Todd Burrowes has transitioned to a new role as President of Business Development. Todd now has responsibility for our new restaurant development and facilities team, our international and franchising business, and Ruth's Chris, our newest brand. Reporting to Todd are Mark Braun, Senior Vice President of Development; Brad Smith, President of International and Franchising; and Rick Jenkins, President of Ruth's Chris, who previously led operations for the brand. Todd is well-suited to lead this work. He brings an operator's perspective to new restaurant development and our growing franchise business. Further, Todd was with LongHorn when we acquired Ruth's Hospitality 17 years ago, and he will be a valuable leader and resource for Rick as the Ruth’s Chris team continues to acclimate to Darden. Todd's replacement at LongHorn is Laura Williamson. Laura is well-respected across LongHorn, having served as their finance leader for nine years. She will report to me. We also named three new brand Presidents within our specialty restaurant group, who will report directly to John Martin, who continues to serve as President of the Specialty Restaurant Group. Bryan Clements, the Former Head of Operations at Olive Garden, is now President of Yard House. Falon Farrell, who led operations for Eddie V’s, has been named President of the Capital Grill in Eddie V's. And Mark Cooper, who led finance for the Specialty Restaurant Group, is now President of Seasons 52 and Bahama Breeze. I'm excited about these changes and confident we have the right leaders in place to drive future growth. I'm also proud that three of our seven brand presidents began their careers as hourly team members at our restaurants, and the average tenure of all of our brand presidents is 27 years. Now I'll turn it over to Raj.

Thank you, Rick. And good morning, everyone. Fiscal 2024 was another strong year for Darden, and I am proud of the results our teams achieved. Despite sales results that were weaker than we anticipated, earnings exceeded our initial expectations for the year. Strong cost management by our teams and easing commodities and labor inflation drove this earnings outperformance. Now looking at the fourth quarter, we generated $3 billion of total sales, 6.8% higher than last year, driven by the addition of 80 company-owned Ruth's Chris Steak House restaurants and 37 net new restaurants from our legacy brands. Our same restaurant sales were flat for the quarter, outpacing the industry by 80 basis points, and same restaurant guest counts exceeded the industry by 130 basis points. Throughout the quarter, our casual dining brands maintained their relative share of guest visits. Olive Garden guest count growth was near the top quartile of the industry, and LongHorn Steak House was at the top decile of the industry. This is impressive when you consider the increased levels of discounting and promotional activity by some competitors within casual dining. Our same restaurant guest count performance to the industry exceeded our same restaurant sales outperformance due to our lower levels of pricing relative to the industry this quarter. Adjusted diluted net earnings per share from continuing operations increased 2.7% to $2.65. We generated $523 million in adjusted EBITDA and returned $254 million to shareholders through $156 million in dividends and $97 million of share repurchases. Turning to the fourth quarter P&L, compared to last year, food and beverage expenses were 20 basis points better as commodities inflation was better-than-expected at approximately 2%. Seafood deflation this quarter helped partially offset mid-single-digit beef and produce inflation. Restaurant labor was 10 basis points better, driven by productivity improvements and favorable other benefits, which more than offset the impact of pricing below labor inflation, which was approximately 4%. Restaurant expenses were 10 basis points better than last year driven by strong cost management and lower pre-opening expenses. Marketing expense was 1.3% of sales, consistent with our expectations and 20 basis points higher than last year. This all resulted in restaurant-level EBITDA improving 20 basis points to 20.9%. Adjusted G&A expenses were 40 basis points lower and total expenses were slightly favorable to our previous guidance. This was driven by ongoing synergies from the integration of Ruth's Chris and favorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this favorability is largely offset on the tax line. Interest expense increased 40 basis points due to the financing expenses related to the Ruth’s Chris acquisition. Our adjusted effective tax rate for the quarter was 13.4%, 40 basis points higher, driven by the mark-to-market hedge impact I referenced earlier. And we generated $318 million in adjusted earnings from continuing operations, which was 10.8% of sales. Looking at our segments for the quarter, Olive Garden increased total sales 0.7%, driven by new restaurant growth, partially offset by negative same restaurant sales of 1.5%. While Olive Garden same restaurant sales were below the industry, same restaurant guest counts outperformed the industry benchmark by 60 basis points. This dynamic was due to our decision to minimize pricing. For the quarter, Olive Garden pricing was approximately 1%. Olive Garden's segment profit margin of 22.8% continues to be industry-leading. At LongHorn, total sales increased 7.2%, driven by same restaurant sales growth of 4% and new restaurant growth. LongHorn same restaurant sales outperformed the industry by 480 basis points. The segment profit margin of 19.1% was 50 basis points above last year. Strong cost management, including improved labor productivity, drove LongHorn's margin growth this quarter as pricing was below inflation. Total sales at the fine dining segment increased with the addition of Ruth’s Chris company-owned restaurants. And despite negative same restaurant sales at Capital Grille and Eddie V's, the fine dining segment's profit margin expanded in the fourth quarter, driven by improvement in our cost base. The other business segment sales increased with the addition of Ruth’s Chris franchise and managed location revenue. This was partially offset by combined negative same restaurant sales of 1.1% for the brands in the other segment. The segment profit margin of 17.4% was 160 basis points better than last year, driven by the sales leverage from the additional royalty revenue. As we look at our annual results for fiscal 2024, we had same restaurant sales growth of 1.6%, outperforming the industry in same restaurant sales and traffic by about 300 basis points. And this is on top of 500 basis points of outperformance in traffic last year. We delivered $1.8 billion in adjusted EBITDA from continuing operations. This is an increase of over 50%, compared to five years ago. Additionally, we returned $1.1 billion to shareholders with $628 million in dividends and $454 million in share repurchases. Looking at our fiscal 2024 full-year P&L, we had restaurant-level EBITDA growth of 120 basis points driven by strong cost management by our teams and pricing leverage. This favorability was partially offset by increased depreciation and amortization expense and the impairment expense related to eight permanent closures that occurred during the year. This resulted in operating income margin that was 50 basis points higher than last year. Additional financing expenses primarily related to the Ruth’s Chris acquisition drove adjusted interest expense 40 basis points higher than last year. This all resulted in adjusted earnings from continuing operations of 9.4%, flat to last year. Looking at our performance since 2019 relative to our long-term framework, we generated annualized EPS growth of 8% and cash returns of 3.7%, culminating in total shareholder returns of 11.7% as measured by EPS growth plus dividend yield. This is well within our targeted range despite the issuance of 9 million shares of common stock in fiscal 2020 and other business disruptions from COVID. A strong operating model generates significant and durable cash flows. Since 2019, we have delivered 9% annualized adjusted EBITDA growth. Our balance sheet at the end of fiscal 2024 is well positioned with adjusted debt to EBITDAR at 1.9 times. This is below our targeted range of 2 times to 2.5 times, even with the additional debt related to the Ruth's Chris acquisition. Now turning to our financial outlook for fiscal 2025, we expect total sales of $11.8 billion to $11.9 billion, driven by same restaurant sales growth of 1% to 2% and 45 to 50 gross new restaurants. Capital spending of $550 million to $600 million, total inflation of approximately 3%, which includes commodities inflation of approximately 2% and labor inflation of approximately 4%. An annual effective tax rate of approximately 13% and approximately 119 million diluted average shares outstanding for the year. All of this results in diluted net earnings per share between $9.40 and $9.60. Finally, our board approved a 7% increase to our regular quarterly dividend to $1.40 per share, implying an annual dividend of $5.60. And with that, I'll turn it back to Rick.

Thanks, Raj. All of us at Darden continue to work together in pursuit of our higher purpose to nourish and delight everyone we serve, our guests, team members, and communities. During the year, we had the privilege of serving 420 million guests, more than 1 million per day, providing great food and drinks with attentive service in an engaging atmosphere. We also promoted 1,100 hourly team members into our manager and training program and promoted nearly 300 managers to general manager or managing partner positions. And we continue to invest in our team members with programs like Fast Fluency, which provides the opportunity to learn English for free, and our next course scholarship program that, through the Darden Foundation, has awarded 200 scholarships worth $3,000 each over the past two years to children of our team members. We also remain committed to nourishing and delighting the communities we serve through our ongoing efforts to fight hunger. As part of our Harvest Food Donation Program, our restaurants donated 4.5 million meals to local food banks in fiscal 2024. We also continued our successful partnership with Feeding America with another $2 million donation from the Darden Foundation that helped provide mobile food trucks to 10 more Feeding America food banks, bringing the total to 45 trucks provided over the last four years. To wrap up, I want to thank our team members in our restaurants and our support center for their outstanding efforts throughout the year. Their disciplined approach in executing our strategy is what enables us to succeed, regardless of the operating environment. Now I will take your questions.

Thank you. We will now be conducting a question-and-answer session. Our first questions come from the line of Brian Harbour with Morgan Stanley. Please proceed with your questions.

Yes, thank you. Good morning, guys. Maybe first just on your sales outlook for the year. Could you comment on how you see kind of the different brands feeding into that? And you obviously have very different kind of comparisons as we think about the start of the year versus the end of the year. Presumably there's kind of some pickup in Olive Garden. How do you think about the drivers of that?

Hey, Brian, this is Raj. Good morning. So let's just start with the guidance at a high level from a sales outlook, right? Before we get into the brand level. So when we take a look at the upcoming year, we look at the information that's out there and where the macro is expected to be. And as you all know, most economists are expecting weakening GDP growth. So that's taken into consideration. Then we're also taking into consideration what we're cycling through, right? We started to see a little bit more weakness in the back half of this fiscal year, so we're taking that into consideration as we look at next year. So when we look at how we built this estimate and guidance, we expect underlying traffic trends to gradually improve throughout the year. And so that's really how we built it. I don't want to get into the exact details on the brands, but at a blended level, we're thinking 1% to 2% same restaurant sales growth for the full-year. And as I said, gradual improvement through the year on the underlying trends. And then there's just one callout; Thanksgiving shifts out of Q2 into Q3. So Q2 print might look better than the underlying trends, and Q3 will be the opposite. So that's typically about somewhere around 80 to 100 basis points impact on sales in the quarter. Positive for Q2, negative for Q3. And so all that said, in this current environment, there's more variability around our sales guide, but we have higher levels of confidence in our earnings outlook. And so, that's kind of where we are.

Okay. Thank you. And maybe could you just comment on your pricing thoughts at this point within that? Is there anything we should keep in mind with respect to timing? Is there perhaps some that you would delay in an effort to keep it more modest at the start of the year?

Yes, Brian, the good news on pricing is we've actually kept pricing very modest over the last five years, right? So we do expect pricing for this year to be more in line with inflation, so in that 2.5% to 3% range probably. But as we think about how that's going to be spread, we expect it to be more consistent quarter-to-quarter. Now, there may be a 10, 20 basis points movement between quarters. But if you look at over the last five years, we've only priced a lot and that gives us some flexibility. We've talked about that before. So we've underpriced about 20% over the last five years, compared to where the overall CPI is, which I think was close to 23% on the same five-year basis and then full services at 28%. And underpriced grocery as well. So we feel like we've done a lot of work on keeping prices low, and we're going to continue to do that. And as you saw that in the fourth quarter too. We talked about Olive Garden closer to 1% pricing in the fourth quarter.

Sounds good. Thank you.

Thank you. Our next questions come from the line of Lauren Silberman with Deutsche Bank. Please proceed with your questions.

Great. Thank you. Just first on your approach to marketing. So Olive Garden comps have been weak over the past couple of quarters. Some share losses quarter understand on a traffic basis. You outperformed. But as you think about your approach to marketing and promos, how does that influence your decision to increase marketing and what are you expecting for fiscal ‘25?

Yes, Lauren. In regards to marketing, we've said in the past that we'd probably tick it up a couple of tenths a year and that's probably what we'll do in fiscal ‘25. But we're going to continue to focus in our marketing efforts on our filters, which we've talked about many times. And we're not going to do things to buy sales, even with the increasing discounting our competitors are doing. You know, our best way to drive sales is our focus on a back to basics operating philosophy, and our guests telling others what a great value they have when they come to our restaurants. And just remember, we do have levers to pull. We do have more marketing to pull if we want to, but our focus is on profitable sales growth.

Great. Thank you for that. And just a follow-up on the consumer environment. Is this mostly related to the low-income consumer? Just what are you seeing across the middle income, high income, across the breadth of your brands? Thanks so much.

Yes, Lauren. It is mostly at the consumer below the median household income, which is about $75,000. Consumers are generally concerned about inflation, and they're becoming more concerned about the job market. And what we're seeing are some behavior shifts that we had already started to see. So for Q4, transactions from households with incomes below the median were lower than last year. And these impacts were even greater in our fine dining brands. So that's why you saw fine dining had a little bit more negative comp than others. But at the same time, our guests aren't managing their check like we've seen in prior quarters. And so, you know, we continue to tell you what this means for our brands. Operators that deliver their brand promise and value will continue to appeal to consumers despite economic challenges, and that's what we're focused on doing. We're focusing on giving the consumers that are coming to our restaurants and spending their hard-earned money a great value and a great experience and having them tell others to come back.

Thank you very much.

Thank you. Our next questions come from the line of Eric Gonzalez with KeyBanc Capital Markets. Please proceed with your questions.

Hi. Thanks for the question. I think I just heard you say that your guests aren't managing the check the way you've seen in prior quarters. Can you make a comment on why you think that's the case?

Hey, Eric. So yes, we did. So if you think back to what we said earlier in the fiscal year, we were seeing a big negative mix on the check, and we talked about that, especially both at casual brands and fine dining. And last quarter we said we started to see some moderation. And as we look at this year, this quarter, if we look at Olive Garden and LongHorn, basically the mix was flat. So basically, there was no negative mix at all, which is a significant improvement. And then when you look at fine dining, you know, we saw some moderation in Q3, and that continues to moderate into Q4. I think we're now down into the 80, 90 basis points range in the negative mix versus the 200 or so that we were seeing a couple of quarters ago. So we're just starting to see the ones that come to us are not managing the check as much as they used to.

Okay. And then just maybe on the guidance, you know, there was a fairly wide gap in comp performance between Olive Garden and LongHorn this quarter. If you're not willing to break it out by brand in terms of guidance, but maybe you can comment on whether you'd expect that performance gap to widen or stay as wide as it is, or do you think it's going to converge in FY ‘25?

Most brands are expected to fall within the 1% to 2% range we provided. While I won't specifically discuss the performance differences between Olive Garden and LongHorn, we anticipate that most brands will align with this range. Since Olive Garden represents over 50% of our portfolio, its performance will significantly influence Darden's average. Last year, we reported a 1.6% increase in same restaurant sales for Darden, with Olive Garden also at 1.6%. We will observe how things develop, but I can't provide specific insights on Olive Garden in relation to LongHorn.

Very good. Thank you so much.

Thank you. Our next questions come from the line of Andrew Charles with TD Cowan. Please proceed with your questions.

Great, thanks. Rick, the question is on Olive Garden. You called out multiple levers at your disposal to help drive traffic beyond marketing. Can you expand more on those opportunities? Is it menu innovation? Is it the to-go business, the catering business? Just welcome more thoughts on how to sustain the traffic gap versus the industry?

Hey, Andrew. Yes to all. Now, remember, Raj said we did exceed industry benchmarks. Olive Garden has taken much lower pricing than Darden over the year and the industries over the years. And we're really proud of their team. We're going to continue to focus their marketing on their key equity of never-ending, craveable, abundant Italian food, specifically focusing on ensuring every guest is offered a refill with their first course. That's something that's not provided in other competitors. So that refill is a pretty big part of what we do and a big part of their value equation. But we're also going to continue to innovate over in our menu. What you see right now on television if you haven't seen is our Create Your Own pasta at $12.99. You know, consumers in more challenging times are looking for more price certainty, and that is an amazing value to create your own pasta at $12.99 with unlimited first course. And we'll continue to focus our marketing efforts there. And we have digital marketing that we can pull as well. So without getting into all the details, we do have levers to pull, but I want to remind everybody we're focused on profitable sales growth, not just buying sales to show a top line number. And we've been very consistent over the years with that. That profitable sales growth is what matters and Raj talked about our EBITDA growth over the last five years, how strong it was. And so we'll continue to focus there.

Okay, great. And my final question is about the Ruth's acquisition for franchisee. Curious if this leaves you open-minded for more franchise acquisitions in 2025 or if this one was perhaps more one-off?

Yes, let me start by saying the franchisees at Ruth's Chris are really valued partners to us. And our focus was on integrating our company-owned restaurants into Darden. You know, this one restaurant franchise was an opportunistic purchase. So, you know, we're going to continue as is and speak with our franchisees if they want to speak with us, but right now we're going to continue to focus on making sure our team gets acclimated to the systems that we've implemented. And so it's not necessarily a change in strategy. It was an opportunistic purchase for us.

Very good. Thank you.

Thank you. Our next questions come from the line of David Tarantino with Baird. Please proceed with your questions.

Hi, good morning. Raj, I just wanted to come back to the guidance for the year. And I think you mentioned that you have assumed that you expect underlying traffic to improve as the year moves on. So I just wanted to ask if you could elaborate on what factors you think will drive that improvement? Is it mostly just comparisons related or are you thinking there's something inside the business that will improve on a sequential basis as the year moves on?

David, it's primarily driven by the comparables, but the underlying trends have held up pretty well. I mean, even if you look at our fourth quarter that we just came off, month-to-month underlying trends were actually held up pretty steady, and it was an improvement from Q3. And you know, we talked about what we're seeing on the check side, that's also a positive sign. So we think there is, you know, just as we cycle through some of the weakness, that should help us gradually get better through the year.

Got it. And then, Rick, on Olive Garden, I guess a question I would have is on the advertising approach, do you see an opportunity to better highlight the value you're already offering? Not necessarily provide a new discount or something different than what you're adding, but it seems like that brand has a great value proposition. I'm just wondering if you think there's an opportunity to emphasize that a bit more in the advertising?

Yes, David, and that's exactly what we're doing right now. Currently, we have our Create Your Own Pasta promotion at $12.99 advertised on television. We believe that Olive Garden provides excellent everyday value. Therefore, we will focus on highlighting that value instead of resorting to discounts.

Thank you. Our next questions come from the line of Jim Salera with Stephens. Please proceed with your questions.

Hi guys, good morning. Thanks for taking our question. Can you just give us some of the puts and takes on the 3% inflation guide for 2025, particularly what you're thinking around the food basket and labor?

Yes, Jim. So this is Raj. So on the food basket, we're basically assuming commodities to be around 2%. I think the biggest driver within the food basket is beef. We still expect beef to be in the mid-single-digits. And then we actually expect low-single-digit deflation in chicken. And then pretty much all other categories are probably going to be in that low-single-digit inflation. And so that's how we're getting to commodities being around 2%. From a labor perspective, we are actually expecting labor to be more like a 4% overall. So if you think about where we've been and what the hourly wage inflation is expected to be closer to 4% and then total labor to be around 4%. So those are the two big things. And then from all other restaurant expenses are probably going to be more in that 2.5% to 3%. And that's how we're getting to that overall being closer to 3%.

Okay, great. Thanks for the detail on that. And then if I could maybe try to tie that to the consumer. You mentioned earlier one of the concerns or chief concerns for the consumer is just kind of overall inflation. If we see inflation maybe come in at the lower end of your expectations, is it possible that that could also provide better-than-expected lift on the comp side, given that consumers maybe feel a little bit better about how far their dollar goes? Just trying to think of kind of the catalyst path for the consumer into 2025, what might make the results from the consumer be better than what you're anticipating?

Yes, Jim. The consumer is really focused on what price they're paying everywhere, not just in restaurants. And if you think about the costs that they have on the non-discretionary costs, they've been growing faster than wages for quite a few years, and that eats into discretionary spending. So if inflation in the non-discretionary gets better, that may give them a little bit more discretionary. And if you're considering food at the grocery store or food as non-discretionary, then yes, that should help. But we'd like to see some lower inflation in things like things that people have to buy. Rent, utilities, childcare, all of those things would help on the non-discretionary side, helping discretionary spend.

That's great. Thanks for the color, guys. I'll hop back in the queue.

Thank you. Our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your questions.

Great, thank you. I guess, I wanted one clarification and then a question, please. The clarification is just, you mentioned pricing, like 1% in Olive Garden and pricing below inflation, but your food margins were better than we had expected. So I just wanted to understand like what the dynamic might have been across brands, whether there was any mix. I mean, presumably all of them actually some of the best food margins. So if you could just help me unpack that a little bit. And then I do have a question about the demand environment.

Yes, Sara. Good morning. For the fourth quarter, our pricing across Darden was below inflation. Our pricing was around 2.5, while inflation was about 3, resulting in a difference of nearly 70 basis points. This reflects the strength of our teams and their ability to navigate various cycles and environments. We have previously mentioned that in a slow growth environment, we should expect to see improvements in costs, as well as enhancements in our controllables. Overall, this speaks to our teams' effectiveness in managing the business while focusing on achieving the necessary returns for the company.

Okay, and those controllables sit even in the cog line?

There is some, yes.

Okay, got it. Thank you. And then the question on demand is, to some of the earlier comments you've made, perhaps the demand environment is softer-than-expected in so far as the issue with your comps is you're still taking share, but I'm interpreting it to mean perhaps versus where we expected, given the low-income consumer primarily, I think. I'm trying to, I guess, ask when you think about where that expectation was when you acquired Ruth and kind of doubled down on fine dining, had you anticipated something more robust or there was always an expectation of normalization? And even in that context, the acquisition makes sense.

Hey, Sara. This is Rick. When we acquired Ruth's, we think about an acquisition over a long, long period of time. We're not as worried about the next quarter or the quarter after the acquisition. Now, would we have liked the consumer at the below median income to continue to go to fine dining? Absolutely, but any time we make an acquisition, there could be a chance that it's because we're going into a slowdown and maybe there's a little bit of a better opportunity for price discovery there. So, I would never read into when we make an acquisition into a certain category or not. Remember, we have criteria for our M&A, and Ruth's met every one of that criteria, and we were able to agree on our price. So that's why it happened at the time it happened. And generally, that's when any of our M&A will happen, as long as we find the brands that meet the criteria and we get price discovery and we agree on a price and we'll do that deal, we're not worried about the environment that we're going into or that we're coming out of because these are long, long-term investments for us.

That makes sense. Thank you.

Thank you. Our next questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Great. Thank you. Rick, my first question is just on the weakening conditions you mentioned in the back half, it does seem like within your portfolio, at least, Olive Garden was hit harder, and I guess relative to the industry as well, which I think is contrary to past economic slowdowns when most people look at Olive Garden as the more defensive value brand. So I'm wondering, as you take a step back, what do you think has changed this go-around? How much of it is maybe internally what you're doing versus maybe what the competition is doing and if you can give any sequential color on the trends through the quarter or into June just to kind of get a sense of how we're starting fiscal ‘25, that would be great. And then I had one follow-up.

Sure, I'm not going to discuss the trends going into fiscal 2025. Raj mentioned that in the fourth quarter, we maintained consistent performance month-to-month. Regarding Olive Garden, during previous slowdowns, it performed better than others, particularly in same-restaurant sales while taking more pricing than competitors. We saw positive traffic this quarter and have outperformed the industry in traffic for several years, despite only taking a 1% price increase. If we had matched the pricing increases seen in the industry during the third or fourth quarters, Olive Garden would have shown even better results. This is a long-term strategy for us. We are not resorting to tactics like couponing or deep discounting, unlike some competitors who have increased their discounting efforts. Olive Garden still led in traffic, although it didn't excel in comparable sales due to our minimal price increase. We're proud of that performance and will continue with our approach. We may not have outperformed in sales, but we continued to excel in traffic, which is encouraging. In fiscal Q4, the gap in traffic was 60 basis points, with a two-year gap of 530 basis points. We feel confident about our position.

Absolutely. Raj, as you prepare guidance for fiscal ’25, you mentioned beating your initial EPS guidance in fiscal ‘24, even though you didn't meet the initial comp guidance for that year. As we enter ‘25, there seems to be a risk of a similar situation since your comps in the fourth quarter were below the fiscal ‘25 guidance. What leverage do you have regarding margins and earnings to potentially exceed the comps if they once again fall short in fiscal ‘25? With inflation easing, it appears you might have fewer opportunities compared to the past year. How do you view the outlook for fiscal ‘25 if the comps do not meet expectations? Thank you.

Hey, Jeff. So I don't want to get into the exact details, but let me say at a high level and talk about how we think about philosophically, right? If the environment is such that the sales continue to be weaker, that also implies demand is weaker and the inflation should be a little bit better. So let's start with that. And in fact, if you look at last year, that was part of the reason we were able to exceed the earnings guidance even with the sales off. That's not all of it, but that's partial. The other part of it is how we manage through how our teams manage through the cycle. So as I said earlier, our restaurant teams and our teams at the support center work very hard to kind of, you know, have these targets and we work towards them and we're always trying to get better. And there's just even more push on that when things are a little bit softer on the top line. So that's kind of how I talk about it. I don't want to get into the specifics because, you know, this is a big business. It's very complex. There are a lot of nuances. But there's a lot that goes into getting us where we need to get to. And we feel, I think if you just look back, it shows that we have the ability to get there to a different base.

Thank you. Our next questions come from the line of David Palmer with Evercore ISI. Please proceed with your questions.

Thanks. Good morning. Olive Garden's strategy has been to sort of set itself up as a well-positioned everyday value and a strong consumer service. Do you see the consumer recognizing this? Like are the consumer satisfaction scores at Olive Garden doing as well versus the peer group in Italian as say LongHorn or Texas Roadhouse are doing in stake?

Yes, David, I won't comment on how they're performing against their competition, but I can tell you that Olive Garden’s value ratings have increased over the past year, both internally and externally. They are very close to the top in terms of value and overall measures we assess. I also mentioned that they are experiencing high levels of guest satisfaction this fiscal year. Moreover, most of our brands, I believe all of them, are at or above their external value perceptions compared to last year.

Yes. I guess, I'm wondering why you think the traffic share gains are not stronger. Is it just simply the consumer awareness of the value that's at Olive Garden? Or is it perhaps something about the Italian category, such as the ease of trading down to at-home posts a little easier we're seeing very strong growth in, for instance, Rayo’s Sauces lately. So we're seeing scratch cooking really picking up in at-home, we're not seeing a strong stake demand at-home. So I'm wondering if there's sort of an interaction index with at-home trade down that's stronger in the Italian category. Do you have any thoughts on that?

There may be a shift towards at-home dining due to median income consumers, but it's not specifically about Italian cuisine. In full service, Olive Garden ranked in the 75th percentile for traffic. When comparing their performance in full service, it's clear that the trend includes a shift towards at-home dining across the board, not just for Italian food. Competitors have increased their deep discounting, but this hasn't negatively affected Olive Garden or our other brands, as trends have remained consistent. Interestingly, we noticed a slight shift from quick service restaurants to some of those competitors, which could indicate their attempt to capture market share. This trend has contributed to an increase in the industry index for some of these competitors, which play a significant role in that index. It's important to recognize the nuances in how the index operates, especially when market share is being drawn from a different category.

Great. Thank you very much.

Thank you. Our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.

Great. Thanks, guys. Just wondering if you could speak to the development environment a bit more. It seems like consistent expectations as it relates to new builds. But anything you're seeing there sort of on timing, thinking about build cost, et cetera?

Yes, Dennis. Let me begin by stating that our new restaurant projections for next year align with our long-term framework. Although the numbers are lower than our preference, they remain within that framework. It's important to remember that new restaurants also encompass our mergers and acquisitions; for instance, we acquired around 80 restaurants from Ruth's Chris last year. While that won't affect this year, it is considered in our overall strategy. Construction costs are still significantly higher than pre-COVID levels, though they are gradually normalizing, and it's taking us longer to initiate construction. We're exploring ways to streamline our process to accelerate the start of projects. Additionally, we believe there might be opportunities to assist municipalities with permits and related matters. Overall, we are optimistic about our pipeline for next year. We hope to see that number increase in future years, but we will not initiate projects just to meet a target we can't realistically achieve. We are confident in our current position. As Raj pointed out, our new unit growth over the past five years was nearly 3%, at 2.9%, which is at the high end of our framework. We focus on long-term rather than year-to-year performance.

Thanks, Rick. And one more, just curious if you could comment a little more on sort of what your expectation is for the industry promotional environment for the year. Is what we're seeing sustainable? Can it increase? I know there's 1 million factors that go into this. But just given your perspective, would love any thoughts on what over the next three quarters or so, what the industry environment on promo discounting, et cetera, looks like in your opinion? Thank you.

Yes, Dennis, I believe we are more confident in our approach. We don’t consider deep discounting a sustainable strategy for attracting customers. Instead, we believe that maintaining a consistent value focus and emphasizing our core offerings is the better way forward. Others may choose to pursue discounts, but we prefer to take a long-term view. Over time, maintaining deep discounts requires even more effort and investment, which isn’t a path we want to take. We would rather focus on providing excellent food and service, and we believe that our way is the more sustainable approach for our business.

Thank you. Our next questions come from the line of Peter Saleh with BTIG. Please proceed with your question.

Great, thanks. Raj, I wanted to ask on the flat mix, which I think you mentioned was a pretty meaningful improvement from what you've seen in the past couple of quarters. Can you just give us a little bit more detail on what's driving this? Is this alcohol mix improving, entrees, consumers trading up to more expensive entrees, the appetizers? And is there any way to dissect this by income cohort? Are you seeing more improvement from the lower income, higher income, anything you can glean there?

Hey Peter. Yes, to start, that was specifically at Olive Garden and LongHorn, and it varies for both brands. For LongHorn, the mix was influenced by an increase in add-ons and a new Lamb Entree that performed very well. The parmesan crusting was particularly popular. These factors positively impacted the mix. Alcohol sales have stabilized, so that's no longer a concern. Similarly, at Olive Garden, we aren't observing significant trade-down in entrees or add-ons. Overall, there's more stabilization, suggesting that today's guests are less focused on managing their spending compared to those earlier in the fiscal year.

Great. Thank you very much.

Thank you. Our next questions come from the line of Jeff Farmer with Gordon Haskett. Please proceed with your questions.

Great, good morning and thank you. Just a couple of quick follow-ups. With the 1% to 2% FY ‘25 same-store sales guidance, you pointed to the 2.5% to 3% menu pricing. But can you give us a little bit of color as it relates to both traffic and mix assumptions for FY ‘25 guidance?

Yes, I think it's fair to assume that our check is probably going to be in that range of 2.5% to 3%. So you can back into the implied traffic. So we do expect the mix to be fairly flat.

Okay. And then I might have missed it, but G&A dollars in FY ‘25, did you provide that guidance?

You did not miss it. We haven't talked about it. The G&A for this year, we should be closer to $450 million for fiscal '21, it should be closer to $450 million. And I think that's going to be spread fairly evenly from second to the fourth quarter, with the first quarter to be $20 million higher than those three quarters. It's just typical that we have a little bit more in the first half.

All right. Appreciate it. Thank you.

Yes.

Thank you. Our next questions come from the line of Jon Tower with Citi. Please proceed with your questions.

Great, thanks. I appreciate you taking. Going to the cost side of the equation, it was pretty impressive even with the comp that you put up in the fourth quarter, how you were able to manage labor and the other op expense line very well. And I'm just curious if you could dig into how you expect those lines to play out in fiscal '24 or better said, do you think a lot of the management that you're able to put in across labor as well as the other OpEx can carry forward into fiscal '25 kind of offsetting some of that inflation that you're seeing.

Hi, John. This year, we've discussed improved productivity, which is partly due to lower turnover. We might see a few more quarters benefiting from that, but looking ahead to next year, we expect the cost of goods sold to improve as commodity inflation is likely to be around 2%, and with a bit of price increase, we should gain some leverage there. We're also planning to keep examining other operating expenses, as non-guest-facing costs are an area where we focus heavily on improving. This is the benefit of our platform, having multiple brands that learn from one another. Additionally, we still have ongoing synergies from the acquisition of Ruth's; we've realized about half this year and anticipate the rest next year. All these factors contribute to our margin growth.

Got it. Thank you. And I know a lot has been talked about today on the marketing side. So I'm just curious, one more, I guess, on the topic. In terms of the way that you're speaking to the consumer, I know you're using traditional television as a primary means to communicate Olive Garden's message. But I'm just curious if you could dig into what you're doing on social and how you might be changing the brand's perception on those platforms or even in traditional media, are you going after different day parts in terms of where you're advertising even platforms where you're advertising through linear media. Maybe just more information there would be great.

Yes, John. For several years, we've been developing our internal digital media capabilities, and Olive Garden is the only brand utilizing television for advertising. The rest have been focusing on digital marketing. We’ve been experimenting with connected television and other methods to boost our traffic. These tests enable us to apply successful strategies across different brands. We engage in a lot of trial and learning, so we don’t anticipate significant year-over-year growth in our media spending since we believe we are becoming more efficient with our testing. As we proceed, we understand the optimal times to deliver messages and which days are most effective. We are not inclined to increase communication for specific times unless the brand determines it's appropriate. Some brands may choose to emphasize certain time slots, but we will rely on our extensive digital insights and our skilled internal team as we continue to prioritize this approach.

Thank you.

Thank you. Our next questions come from the line of Chris O'Cull with Stifel. Please proceed with your questions.

Yes thanks. Rick, you mentioned several sales building opportunities earlier. But I was wondering if you think there are any opportunities to improve throughput during high demand peak periods at Olive Garden? I'm assuming the restaurants are still in a way during traditional peak periods like Friday and Saturday nights.

Yes, Chris, I think not just at Olive Garden, but all our brands can do more to improve throughput in our peak periods. We can get a little bit quicker in what we do to make sure that the guest doesn't feel rushed, but they don't feel like they're waiting for a lot of things. So we do think that there are opportunities and not just at Olive Garden, and if we can do that better, we should get some traffic in that day if people were walking away. But in the long run, getting a little bit quicker is maybe better for us any day, not just on the peak periods.

Yes, Chris. I think it depends on a little bit of the positioning. I agree just based on timing, we probably could get a little faster in our throughput. Yes, I think that we should be able to mitigate that. I think we will do well with both sales and earnings. Thank you.

That concludes our call. I want to remind you that we plan to release first quarter results on Thursday, September 19, before the market opens with the conference call to follow. Thank you for participating in today's call.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.