Greetings, and welcome to the Darden Restaurants, Inc. Q2 Fiscal Year 2025 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Instructions will follow regarding the question-and-answer session after the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Phil McClain, Vice President of Finance and Investor Relations. Please go ahead, Phil.

Thank you, Kevin. Good morning, everyone, and thank you for participating in today's call. Joining me 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 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 discussions and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2025 Q3 earnings on Thursday, March 20, before the market opens, followed by a conference call. During today's call, all references to industry results refer to the Black Box Intelligence casual dining benchmark, excluding Darden. During our fiscal second quarter, industry same restaurant sales grew by 1% and industry same restaurant guest counts decreased by 1.8%. This morning, Rick will share some brief remarks on the quarter and Raj will provide details on our financial results and an update to our fiscal 2025 financial outlook. Now I will turn the call over to Rick.

Thank you, Phil. And good morning, everyone. We had a strong quarter that met our expectations. Same restaurant sales at three of our four segments were positive and all of our brands remained intensely focused on our back-to-basics operating philosophy anchored in food, service, and atmosphere. I was pleased that our four largest brands, Olive Garden, LongHorn Steakhouse, Yard House, and Cheddar’s Scratch Kitchen, all generated positive same restaurant sales for the quarter. During the quarter, the Olive Garden team's ongoing focus on returning to basics, combined with great execution of an extended never-ending pasta bowl, drove a positive sales gap to the industry. The never-ending pasta bowl featured a starting price point of $13.99, marking the third consecutive year at that price point and making it an even more compelling value for our guests. The pasta bowl was well received, as evidenced by the highest refill rate ever and higher protein add-ons compared to last year. In October, Olive Garden launched its Uber Direct pilot in approximately 100 restaurants. They are not promoting it yet to focus on the technology integration and operational execution. The pilot has gone very well thanks to the operators in the pilot restaurants, the Olive Garden Operations Excellence Team, and the Darden IT Team. Olive Garden is on track to begin rolling it out to the rest of the system after the holidays, with potential completion by the end of the third quarter. Olive Garden is a brand that is well positioned to leverage news to drive traffic, and the team has been working on several initiatives to continue appealing to core guests, as well as value seekers. One of these initiatives is an updated menu that launched two weeks ago featuring the return of two fan favorites, Steak Gorgonzola and Stuffed Chicken Marsala. These dishes were the most requested entrees that fans asked Olive Garden to bring back, and the initial response from guests is encouraging. Starting in January, Olive Garden's advertising will feature the return of these fan favorites and an additional guest-driving news at a compelling price point. LongHorn continues to exceed expectations, driven by great guest value and strong operational execution. The LongHorn team is extremely passionate about serving the highest quality steaks in casual dining, which not only requires grilling each steak perfectly but also having the highest quality product. During the quarter, LongHorn hosted their first steak cutter summit with their suppliers from across the country to review their custom specifications and immerse their partners in the LongHorn business and culture. The summit ended with one supplier receiving the Golden Steak Award for best adherence to LongHorn standards. All of the partners left the event more aligned and better positioned to meet the brand's expectations consistently. After receiving steaks that meet stringent quality specifications, it's up to LongHorn team members to grill them to perfection. That's why the LongHorn team validates their grill master's expertise each year, regularly retrains on how to correctly season their steaks, and ensures their managers verify that each steak is grilled to the right temperature. This focus continues to pay off and resulted in an all-time high steaks correctly scored during the quarter. The performance of Yard House and Cheddar’s drove positive comparable sales within our other segments. Yard House has built a competitive advantage with distinctive culinary offerings that have broad appeal through a range of approachable and trend-forward items. One example of how they bring this to life is the Bratwurst sliders that were featured during Oktoberfest, which helped drive further sales momentum for the brand during the quarter. The Yard House team is well positioned to build on their momentum with new food news during the third quarter. The Cheddar's team leverages efficiency and Darden's purchasing power to provide great food served with speed at a wow price. One way they achieve this is by capitalizing on lower-cost opportunity buys to create limited-time offers. During the quarter, two limited-time offers returned to their menu. Their Texas T-bone for $21.49 was followed by their Bone-in Ribeye for $22.49. Each of these entrees also includes honey butter croissants and two sides for that price. I'm proud of the momentum the Cheddar's team is building. During the quarter, they achieved their best ever retention level, already exceeding their annual goal. Also, in Tecnomics' most recent survey, their value score once again outperformed the casual dining category, and Cheddar's ranked first among casual dining brands for affordability. Now let me provide a brief update on Chuy's. We successfully closed the transaction during the quarter, and the leadership team, including Chuy's President, Steve Hislop, and their operations leader, John Corman, is in place. The integration process has just begun and is being led by the same team that successfully directed the Ruth's Chris integration. They are focused on three key objectives: preserving the employee experience and Chuy's unique culture; maintaining the guest experience; and successfully migrating Chuy's onto the Darden platform with as few disruptions as possible. The timeline for this integration will likely be a little longer than the one for Ruth's Chris because we are about to begin rolling out the next generation of our point of sale system. This system currently supports nine different brands and is the nerve center for our competitive advantage of extensive data and insights. This is not an off-the-shelf product. Rather, it's a proprietary system that we first built more than 20 years ago and continued to maintain and enhance ourselves. It's integrated with all of our key restaurant applications and also has a number of great features designed to make our managers' jobs easier, deliver key data to help enhance operations, and ensure labor compliance. Our IT team has been working for some time to completely rewrite and modernize the application to provide an improved and more modern user interface, implement updated technology architecture, offer the ability to operate on different types of hardware, and deliver near real-time analytics. All of this will reduce training time for our new team members, drive speed by reducing the number of clicks required to enter orders and other tasks, enable our IT team to respond faster to requests for system enhancements, and further strengthen our competitive advantages of significant scale and extensive data and insights. The learning we capture from rolling it out will help minimize disruptions when we bring it online at Chuy's. During the second quarter, we also experienced meaningful impacts from Hurricanes Helene and Milton. Our operations teams and our Severe Weather Task Force did an outstanding job ensuring our restaurants were prepared for the storms and able to reopen quickly. Only one restaurant, the Chatters in Asheville, North Carolina, has been unable to reopen due to the damage it sustained. We expect to reopen this restaurant next fiscal year. Hurricane Helene's impact was felt across multiple states, while Hurricane Milton left a path of destruction across Florida, each affecting our team members and guests. As a company that cares, one of the ways we nourish and delight everyone we serve is by responding to help others in times of need. That's why Darden is a proud partner of the American Red Cross. Each year, the Darden Foundation provides a $500,000 grant to their annual Disaster Giving Program. The program enables the Red Cross to prepare communities for disasters like Helene and Milton and respond to help families during recovery. Our team members can count on us as well. Nothing represents the strength of our culture quite like Darden Dimes—our signature employee giving program that enables team members across our family of restaurants and at the Restaurant Support Center to support their fellow coworkers when the unexpected happens. We are grateful that all our team members in affected areas are safe, and we move quickly to help those who were hardest hit. Darden Dimes provided grants totaling $1.1 million to more than 5,600 impacted team members. As I reflect on the quarter, I continue to believe in the power of our strategy and our brand's ability to compete effectively, regardless of the environment. Each one of our brand leadership teams is focused on the long term and staying committed to our back-to-basics operating philosophy. I am proud of the way our teams performed throughout the second quarter, and now we are in the midst of the busiest time of the year for our restaurants as they nourish and delight our guests and create lasting holiday memories. On behalf of our leadership team and the Board of Directors, I want to thank our 195,000 team members. I wish you and your families a happy holiday season and hope to see you in our restaurants. Now I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. Second quarter earnings results were in line with our expectations, with positive same restaurant sales at our four largest brands. The Thanksgiving shift to the third quarter this year caused a sales benefit for the casual dining brands and a headwind for our fine dining brands in the second quarter. However, even when adjusting for the benefit of the Thanksgiving holiday shift at our four largest brands, same restaurant sales were still positive. In the second quarter, we generated $2.9 billion of total sales, which is 6% higher than last year, driven by same restaurant sales of 2.4%, the acquisition of 103 Chuy's restaurants on October 11, and the addition of 39 net new restaurants. The Thanksgiving holiday shift contributed approximately 90 basis points to the same restaurant sales for the quarter, but was partially offset by a negative 30 basis points impact from Hurricanes Helene and Milton. We outperformed the industry benchmarks again this quarter. Same restaurant sales were 140 basis points better than the industry, and same restaurant guest counts also exceeded the industry by 140 basis points. Adjusted diluted net earnings per share from continuing operations of $2.03 were 10% higher than last year. We generated $445 million of adjusted EBITDA and returned $308 million to our shareholders, paying $166 million in dividends and $142 million in share repurchases. Now looking at our adjusted margin analysis, compared to last year, food and beverage expenses were 80 basis points lower driven by the pricing leverage as commodities were slightly deflationary and were better than our expectations. Restaurant labor was 20 basis points lower with productivity improvements and sales leverage from the Thanksgiving shift more than offsetting the total labor inflation of 3.7%, which was well above our pricing. Restaurant expenses were flat. Marketing expenses were 30 basis points higher, driven by increased media spending due to more weeks of the never-ending pasta bowl, while we remain disciplined in how we spend our marketing dollars. Our restaurant-level EBITDA of 19.5% for the quarter was 70 basis points higher than last year. Adjusted G&A expenses were 10 basis points higher than last year as unfavorable mark-to-market expense on our deferred compensation caused a 20 basis points increase for the quarter. Due to the way we hedge mark-to-market expenses, this unfavorability is largely offset in the tax line. Interest expense increased by 20 basis points driven by the financing expenses related to the Chuy's acquisition and other cash needs. Our adjusted effective tax rate was 12.3%, which includes the favorable impact from the market-to-market hedge I referenced earlier. Our effective tax rate would have been approximately 14% without the impact of market-to-market. In total, our adjusted earnings from continuing operations were $240 million, which was 8.3% of sales and 20 basis points better than last year. Looking at our segments for the quarter, total sales for Olive Garden increased by 3.3% driven by same restaurant sales of 2%, outperforming the industry benchmark by 100 basis points. Last year, Olive Garden's same restaurant sales were 4.1% in the second quarter. On a two-year basis, Olive Garden has grown same restaurant sales by over 6%, exceeding the industry benchmark by 640 basis points over that period. Olive Garden continues to have a strong segment profit margin, delivering 21.4% for the quarter, which is 40 basis points higher than last year. At LongHorn, total sales increased by 10.4% driven mostly by same restaurant sales growth of 7.5%, outperforming the industry benchmark by 650 basis points. These results build on strong results from Q2 last year, where they had same restaurant sales of 4.9%. Leverage from this strong sales growth resulted in a segment profit margin of 18.9%, 150 basis points above last year. Total sales at the fine dining segment decreased by 3.8% as same restaurant sales were negative at all of our fine dining brands for the quarter. Thanksgiving is a busy day for our fine dining brands and the shift of this holiday from the second quarter last year into the third quarter this year combined with the hurricanes resulted in an approximately 200 basis points negative impact to same restaurant sales. Adjusted for these impacts, fine dining same restaurant sales decreased approximately 3.8%, which was a sequential improvement from the first quarter. The negative sales growth resulted in lower segment profit margin than last year. The other business segment's sales increased by 12.9% driven by the acquisition of Chuy’s and positive same restaurant sales of 0.7%. Segment profit margin of 13.6% was 70 basis points better than last year. Turning to our financial outlook for fiscal 2025, we updated our guidance to reflect the acquisition of Chuy’s, our year-to-date results, and expectations for the back half of the year. As a reminder, same restaurant sales for the year do not include Ruth's Chris Steakhouse or Chuy’s because they were not owned and operated by Darden for a 16-month period at the beginning of the fiscal year. So we now expect total sales of approximately $12.1 billion, including approximately $300 million from Chuy’s, same restaurant sales growth of approximately 1.5%, 50 to 55 new restaurants, capital spending of approximately $650 million, total inflation of approximately 2.5%, including commodities inflation of approximately 1%, an annual effective tax rate of approximately 12.5%, and approximately 118 million diluted average shares outstanding for the year. This results in no change to our adjusted diluted net earnings per share outlook of $9.40 to $9.60, which excludes approximately $47 million of pre-tax transaction and integration-related costs. Looking at the back half of the fiscal year, we expect sales and EPS growth rates to be lower in Q3 than in Q4 given the impact of the Thanksgiving holiday shift into the third quarter. Finally, as we expected, we closed on the Chuy’s deal in October, acquiring 103 Chuy’s restaurants. We're in the early stages, but the integration is going well, and we now expect to realize run-rate synergies of approximately $17 million, with approximately $2 million realized in fiscal 2025 and the balance in fiscal 2026. As we mentioned previously, we anticipate the transaction will be neutral to our adjusted earnings per share for the fiscal year, not including transaction and integration-related expenses. We're very pleased with the actions our brand teams are taking to address their guests' needs and deliver strong results. We'll continue to adhere to our strategy and have confidence in the strength of our business model. Now we'll open it up for questions.

Thank you. We'll now be conducting a question-and-answer session. Instructions will follow regarding the questions. Our first question today is coming from David Palmer from Evercore ISI. Your line is now live.

Thanks, good morning. I wanted to ask about Olive Garden. I know you have a strong consumer insights team there. With customer satisfaction levels so high, comparable to the leaders in any segment, it appears Olive Garden matches that excellence in the Italian segment. I'm curious why the sales gap to the industry isn't better and how that relates to advertising. Many are wondering about the current gap in your advertising spend compared to pre-COVID levels, which is down about half. Any insights on this would be appreciated.

Hey, David, it's Rick. A couple of things about Olive Garden. One, you know, the gap to the industry, while it's a little narrower than it has been in the past, if you think about how much we've gapped over the last five years, it's been an exceptional gap. If you go back a year ago on this call, we said we don't expect to keep the gap as high as it is now, and that happened. We've also not pursued significant discounting promotions like others have brought back. We have kept our strategy to drive profitable same restaurant guest count growth and profitable sales growth. This quarter, we showed the power of doing some things. We added a few weeks to our Never Ending Pasta Bowl promotion, and those weeks that we were running that promotion against nothing were great weeks for us. Others who have started running promotions against nothing have been doing it a little longer. So while our gap is smaller, we still feel confident we're doing the right things long-term. Regarding marketing, you know, the amounts you mentioned, I don't think are accurate. I'll let Raj comment on that part.

Yes, David, on the marketing spend, it's really driven by LongHorn spending very little, right? So LongHorn used to spend close to 3%. I think today they're spending probably maybe 0.3%, 0.4% of sales at best. So that's the biggest driver of the marketing decrease. Olive Garden is spending less, but it's not half; it's more in the range of 25% to 30% less than what it used to spend.

So you don't believe that the scale of advertising is a problem. You're comfortable at these levels of advertising spending going forward?

Yes, David, I wouldn't say whether we're comfortable or not. I would say we can continue to look at ways to advertise Olive Garden. And there are a few things. As we think about our strategies, we increased advertising this quarter, and we might continue to do that. So it depends on what we're running and what kind of promotions we have, but we feel really good about what we have in the second half of the year. So there potentially could be a pickup in marketing in the second half, but we don't want to comment on that for competitive reasons.

Thank you very much.

Thank you. Next question is coming in from Eric Gonzalez from KeyBanc Capital Markets. Your line is now live.

Good morning. Thanks for the question. Just on that last point about marketing, I think you mentioned in January you're going to bring back two of the fan favorites on the menu and then your messaging will also include a compelling price point? So just putting the pieces together, does it sound like the next quarter might have a little bit of an uptick in advertising?

Well, if you think about the third quarter, it's usually one of our strongest quarters. Without commenting on how much marketing will increase or not, I would say our advertising will look different. We have, as I said, exciting news with our two returning fan favorites and another guest favorite coming with a compelling price point for a limited time. So our advertising will look different in the third quarter. I won't comment on whether it will be higher or lower.

Okay, and then just also on the Never Ending Pasta Bowl, I think you talked about the strong performance, particularly those weeks that didn't compare against the prior year. I'm curious how the promotion played out during the quarter. How did it do once it ran into those more difficult last weeks?

Yes, I'm still proud of the work that Dan and the team at Olive Garden have done to improve the guest experience by reacting to what's going on in the marketplace. One of those actions was to add more weeks to the Never Ending Pasta Bowl promotion. So we knew we would have a trend change by adding those weeks, but we knew in the last eight weeks, we'd be wrapping against stronger media weight than the launch weights. Overall, it was a good promotion for us. We kept our preference on the Never Ending Pasta Bowl throughout the entire event, with no wear out on the demand for the items. We had record preference for refills and record preference for the add-ons. So while we expected it to be below prior year in the second part of the promotion, especially as we were wrapping on launch weights, we feel good about our performance with the Never Ending Pasta Bowl this quarter.

That's very helpful. Thank you.

Thank you. Next question today is coming from Jim Salera from Stephens. Your line is now live.

Good morning. Thanks for taking our question. To drill down a little bit on LongHorn in particular, given some commentary you had about marketing spend being really low, but engagement is strong. Can you parse out what is driving the continued strengths there relative to some of the trends we have seen in casual dining? How should we think about that progressing through the years, especially as other competitors have prominent marketing focused on dollar price points versus LongHorn's more experiential value?

Well, that's what LongHorn's brand is about. They're not going to combat price point promotions or brands that focus on quality and experience. LongHorn has invested over the years, even before COVID, to improve food quality and the execution of that food. We've trained our grill masters to cook steaks exactly as our guests like them. This year, we set records for correctly grilled steaks. The investments in food have paid off. Guests recognize they are getting high-quality steaks expertly prepared at a great value. Strong operational delivery is why LongHorn can outperform, but I cannot predict if they will continue to outpace competitors indefinitely. We believe they're doing the right things.

Would you mind breaking out the 7.5 traffic mixed price for LongHorn?

Yes, traffic was mid-4. I think it was around 4.3–4.4. The check was about $3, and the price was around $2.8 to $2.9.

Okay, great.

Thank you. Next question is coming from Peter Saleh from BTIG. Your line is now live.

Hey, good morning, and congrats on a great quarter. I wanted to ask about the Uber Eats partnership and how you are accounting for the delivery and service charge in the Olive Garden comp. What, if anything, is reflected in your guidance going forward from customers perhaps switching from self-pickup to delivery through Uber Eats?

Yes, Peter, first of all, it's very small. The delivery fee and service fee are part of sales. However, when you look at the impact, we currently have it at 100 restaurants, and we've had it for less than half the quarter fully at those locations. Overall, it has a minimal impact—single-digit basis points. Looking forward, we expect it to be minimal. It obviously depends on the percentage of off-premise and the sales delivery will be, but we'll share more as we have more data.

Great. And then just on unit growth, it looks like it picked up; your guidance increased by about five units. Any comments on where that's coming from? Is that the inclusion of Chuy’s or something more?

It's really the inclusion of Chuy’s. There are five additional openings related to Chuy’s. We're trying to continue to build a pipeline for the next fiscal year.

Thank you very much.

Thank you. Next question is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Great. Thank you very much. My first question is just on the fiscal ‘25 comp guidance. I believe you tightened it to 1.5%. Why would you tighten it to such a specific price point with two quarters remaining? Does that demonstrate increased confidence in less volatility? What does it assume for Olive Garden and LongHorn?

We expect same restaurant sales to be approximately 1.5%. We’re looking at the underlying trends on a multi-year basis and the actions we're taking in the back half. Yes, this implies we have some increased confidence that sales will be closer to that midpoint or better. We only have two quarters left, and we’re considering our actual results.

Understood. And my follow-up is on the fine dining comps. They could improve sequentially when you back out the Thanksgiving and hurricane shifts. Any brands leading or lagging? Is the GLP-1 impact noticeable?

In our fine dining brands, there's really no leading or lagging. Ruth's Chris is a little below Capital Grill, but that is impacted by last year’s changes to lunch operations and delivery. Regarding GLP-1s, about 6% of the population uses these drugs, and it could impact higher-end brands. We’ll continue to monitor that as well.

Thank you.

Thank you. Next question is coming from Sara Senatore from Bank of America. Your line is now live.

Thank you. I have a question about the broader environment. You mentioned that fine dining was softer versus casual dining brands. Are you seeing any trade? Do you think among your brands from fine dining to casual? I’m curious if you can extrapolate performance, which seems strongest at mid-price points with a desire for some indulgence?

Yes, Sara. A couple of things. First, the consumer is starting to feel a little better. Our external research shows that consumer sentiment is trending positively, and there's some optimism regarding the labor market improving. We're seeing growth in visits from our guests making between $50,000 and $100,000 a year, more in our casual dining brands than in fine dining. Conversely, consumers splurging in fine dining have pulled back a bit, impacting that segment. There may be some trade-down happening, but frequency isn’t necessarily high enough to track that accurately.

That's really helpful. Thank you.

Sure.

Thank you. Next question is coming from Andrew Charles from TD Cowen. Your line is now live.

Great. Thanks. Raj, within the reiterated EPS guidance, can you help level set expectations for line items around G&A, interest expense, and depreciation for the year following the Chuy’s acquisition?

G&A, we had previously guided approximately $450 million. With Chuy’s, it's going to be closer to $470 million. For interest expense, think about $47 million a quarter in the back half. G&A as a percentage of sales should remain fairly similar and may increase year-over-year by 10 to 20 basis points.

Okay, that's helpful.

Sure.

And just on beef, it's good to see low-single-digit inflation outlook. Can you discuss the conversations with vendors? Would you like to be more covered?

Yes, the supply chain team has done an amazing job at being better than market. The strategy they've deployed in terms of selectively contracting and engaging with the spot market has been beneficial for us. Currently, beef prices are up year-over-year as retailers promote prime cuts. Our team expects opportunities for coverage as we reach early January given the seasonal dips. However, packers have been reluctant to offer extended contracts due to supply concerns, which has impacted prices.

That's helpful. Thank you.

Thank you. Next question is coming from Andrew Strelzick from BMO Capital Markets. Your line is now live.

Hi, I wanted to talk about total inflation for 2025 and perhaps if you could walk us through some of the drivers and how you're thinking about margin progression through the back half of the year.

Total inflation for 2025 is expected to be approximately 2.5%. The first half was just over 2%. Food was neutral overall, but labor was in the high 3s, and all other costs were at around 3%. For the back half, we expect Q4 to be the highest inflation, driven by turning inflationary trends in beef and chicken as well as seafood. So the estimated back half inflation is around 2% for commodities.

Got it. Thank you.

Andrew, as I mentioned, we had record consumers buying that protein add-on; it exceeded our expectations. We even had record refills. The same-store sales impact on the buy-up wasn't tremendous, but we did have a positive mix at Olive Garden. So that could have contributed, but we won't disclose the exact impact on sales.

Thank you very much.

Sure.

Thank you. Next question is coming from Brian Harbour from Morgan Stanley. Your line is now live.

Yes, thanks, good morning. Just on Uber, I know you said you didn't promote it yet, but was it fairly material at some of the stores where you've rolled out? And is the expectation that you would start to promote it more actively in the fourth quarter?

Yes, Brian, the pilot with Uber has gone well, but we aren't promoting it yet. We are averaging about 1.5% of sales across the 100 restaurants without marketing incorporated. So it's a minimal impact to comps. Delivery currently accounts for around 6% of our to-go business, and order volume is improving weekly. The average order size is larger than the average pickup. As part of our partnership with Uber, marketing funds are available, and we’re planning to work on the marketing campaign after the rollout.

Okay. That's helpful. Thank you.

Sure.

You quoted pricing for LongHorn. Could you also disclose what it was for Olive Garden? Is pricing still tracking as you expected for the second half or any changes to your plans there?

Yes, Olive Garden pricing was also just under 3%. I think it was around 2.8% or 2.9%. As for Darden, it was also just under 3%. We expect the back half to remain in the mid-to-high 2% range.

Thank you.

Thank you. Next question is coming from Lauren Silberman from Deutsche Bank. Your line is now live.

Thank you. Congrats on the quarter. strong performance, particularly at Olive Garden and LongHorn. Can you discuss the cadence through the quarter? What are you seeing in December with the Thanksgiving shift?

In the quarter, September was strong, driven by Olive Garden's Never Ending Pasta Bowl. Adjusting for holiday and weather effects—like the storms that impacted some of our sales—the underlying traffic trends improved versus prior quarters. For January, we think the holiday schedule shows better traffic retention than pre-COVID. We feel good about those trends.

Great. Thank you. I wanted to follow up on the LTOs you'll be promoting in January. Clarifying, you'll be promoting these items and will they have a specific price point? What's compelling against promotions in the industry?

For competitive reasons, we're not discussing the price point. I will say we’re sticking with our values; it's not a deep discount but is compelling. Those promotions will start around January 2.

So all three menu items will be promoted at that price point?

No, there will be one at that price point. The other two will remain on the menu at their existing prices.

Got it. Thank you so much.

Sure.

Thank you. Next question is coming from Jon Tower from Citi. Your line is now live.

Thanks for taking the question. Can you give us any updates on the speed of service across the brands, particularly Olive Garden, and perhaps how this relates to the upgrades around the point of sale?

Yes, Jon. The opportunities for speed vary by brand, and we've seen improvements across all brands. This will be a long-term focus, as service speed decreases have occurred over time in full-service dining. It's going to take a while to speed up again. The Cheddar's brand is working particularly hard on this. They've updated their steps to service and are already seeing progress toward faster execution.

Great. Thank you for that. How does connected TV play into this? I'm curious where it shows up in your marketing? Can you provide a gauge on cost between connected TV and traditional linear TV?

We have tested digital marketing and connected TV across various brands. Connected TV has proved to be more effective, especially in targeting specific demographics. The benefits are that it can be cost-effective as it allows us to reach our target audience better. While traditional TV may incur similar costs, connected TV is more targeted, which can provide better ROI.

Thank you for answering my questions.

Thank you. Next question is coming from Dennis Geiger from UBS. Your line is now live.

Thanks, guys. Regarding Uber Direct, is anything embedded there in your full-year guide? I'm aware you assume no incremental contributions right now.

The rollout has progressed quickly thanks to technology integration and operator engagement. However, we do not have real incremental sales built into our guidance for this fiscal year.

Thank you. Just one final thought on menu innovation going forward. How do you see that playing out particularly for Olive Garden? Will there be more menu innovation than in the last few years?

Yes, Dennis. We've simplified the Olive Garden menu over the years, but there are items we want to innovate further. We're excited about the items we've brought back and are looking at additional opportunities for limited-time offers to provide value for our consumers while maintaining quality across our offerings.

Great. Thank you.

Thank you. Next question is coming from Gregory Francfort from Guggenheim. Your line is now live.

Rick, one last question. Not directly related to restaurants, but have you seen AI’s role in processing customer and operational data? Does this create any competitive moats for Darden?

We've been leveraging data effectively for several years. Our cloud-based analytics capability allows us to gain insights and advance analytics, so we're adapting in the wake of AI developments. We're confident in the strategies we've developed to remain competitive.

Thank you for the insight.

Thank you. Next question is coming from Danilo Gargiulo from Bernstein. Your line is now live.

Thank you. Looking at the labor market for 2025 and beyond, if immigration policies change, how would this affect restaurant labor and possibly drive salaries up? How are you planning to pass on cost increases, if necessary?

I think it’s too early to comment on any new administration's policies impacting labor. We'll continue to focus on improving operational efficiencies, taking inflation into consideration, and leveraging our scale to keep prices competitive.

Great. What item are you most excited about for 2025, and what are you watching most closely?

I’m excited about our team and brands. I'm optimistic about Olive Garden’s marketing efforts, the ongoing investments in LongHorn, and the overall performance across all our brands. I feel better about the consumer than in previous quarters. Regardless of external factors, Darden's long-term strategy is resilient.

Thank you. Next question is coming from David Tarantino from Baird. Your line is now live.

Just a quick question on the CapEx guidance. It increased quite a bit versus the last midpoint of the range. Could you elaborate on why that step-up occurred? Is that a good run rate to anticipate going forward?

Chuy’s is part of the increase, and we also plan to open more restaurants while laying groundwork for future projects. The maintenance CapEx is around $300 million a year, but with more new units, overall spending may increase. We'll discuss this more in March.

Great. Thank you.

Thank you. Next question is coming from Rahul Krotthapalli from JPMorgan. Your line is now live.

Any preliminary thoughts on how potential deregulations would impact the industry, especially the casual dining space regarding M&A or development pipelines?

I won't comment until something is officially announced, but any measure that reduces the time to open restaurants would benefit us.

What are your thoughts on having a fast casual brand within the portfolio? Why not pursue M&A to enter this area, given the demographic shifts?

Darden focuses on full-service restaurants, which is where our scale advantage lies. Fast casual is a different model altogether, and we believe we can excel in full service.

Thank you for the insight.

Thank you. Next question is coming from Jake Bartlett from Truist Securities. Your line is now live.

What are your thoughts on labor efficiencies? Given that labor costs per operating week have been trailing wage inflation, should we expect some significant efficiencies to start lapsing?

Yes, we've found efficiencies, especially driven by improved turnover. We've seen significant retention improvements. The Thanksgiving holiday shift helped us leverage labor as we were open. We're continuously seeking areas for efficiency improvements through streamlined processes without sacrificing the guest experience.

Great. Thank you for that.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Phil for any further or closing comments.

That concludes our call. I want to remind you that we plan to release third-quarter results on Thursday, March 20, before the market opens, with a conference call to follow. Thank you for participating in today's call.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.