Darden Restaurants, Inc. (NYSE:DRI) Q3 2023 Earnings Call Transcript

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And food away from home is one of the most difficult expenses to give up because going out to a restaurant is still an affordable luxury for them. And so, what does that mean for us? For our brands, we believe that operators that can deliver on their brand promise and value will continue to appeal to consumers, despite economic challenges. And that’s what we remain focused on doing, no matter what happens in the industry and whatever happens to the category.

David Tarantino: Makes sense. Thank you.

Operator: Thank you. Our next question comes from Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Great. Thank you very much. Two questions. The first one, just on the implied fourth quarter earnings guidance, looks like that’s growth of maybe 8% to 15%. I know last quarter, you talked about maybe the third quarter and the fourth quarter should be pretty even in terms of growth both quarters. The third quarter grew 21%. So, it just looks like you’re maybe tempering the earnings growth algo for the fourth quarter relative to the third. Just wondering whether you view that as conservatism or perhaps it’s the modest uptick in inflation. Kind of how you think about the sequential trend from an earnings perspective in the fourth relative to the third quarter? And then, I had one follow-up.

Raj Vennam: Hey Jeff. It’s actually what you said. It’s the commodities inflation. We did — as we said last call, we thought Q4 was going to be flat, closer to flat. And then now that we’re saying that’s in the — solidly in the low single digits. So, when you kind of layer that in, that’s where the growth is a little bit less. But outside of — that’s really the primary dynamic that’s different.

Jeffrey Bernstein: Understood. And then just following up on the macro question with interest rates still on the rise. I’m just wondering how does that impact your business or how you manage it, if at all, in terms of new unit growth, which seems to still be stable or how you think about borrowings or whether you think it impacts consumer behavior, maybe any return of cash decisions? Like, how does that come into play, if at all, as you manage the business? Thank you.

Rick Cardenas: Yes. Jeff, this is Rick. The interest rates really aren’t making a huge impact in our business. We actually have a significant balance in cash. So, higher interest rates has actually given us a little bit more interest over time. You think about our new restaurant openings that we have seen inflation, as Raj mentioned. And so, we’re being prudent in looking at some of these deals and saying, you know what, we might wait just a little bit of time to see if we can get a second bid sometimes during this year, we’re only getting one bid for some of these sites. So we want to be prudent. But the interest rates really haven’t done anything for us. And if you think about the consumer, they’re still spending. We’ll see what happens when these credit card balances, which were at record highs in December, come due, but they’re still spending today.

So, so far, nothing in our space. As it pertains to return of cash, we have a very strong dividend as we announced it again today. We feel like that’s one way we return our cash to shareholders. We’ll talk about our capital returns coming up in June. But it hasn’t really changed our outlook and what we think about our long-term framework. So, if you go back to our framework and how we return cash to shareholders, we’ve got targets for our rough dividend as a percent of our earnings and how much we buy back in shares. This year, we’ve bought back somewhere in the $400-and-some-odd million and our share count target that we gave you would imply a little bit more in the fourth quarter. But we’ll talk more about our return on cash and our long-term framework in June.

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