grill basket for shrimp Darden Restaurants' CEO Discusses Q3 2011 Results - Earnings Call Transcript

2011 Revenue call for the third quarter of March 25, 2011: 8: 30 AM etexecuesc.Richmond -Clarence Otis, chief financial officer, chief accounting officer and senior vice president-Chief executive, chief executive and chairman of the Executive CommitteeAndrew Madsen -Eugene Lee, president, chief operating officer and directorBrad rudington, president of specialty restaurant group-Capanke capital market CO., Ltd.Jeffrey om henderoWells Fargo Securities, LLCJohn Glass-Morgan Stanley MatthewOppenheimer companyInc.Jason West -AGDavid Tino, Deutsche Bank-Robert W.Baird & Co.Intecatedalvin Pursey-CitigroupBuckingham Research Group LimitedJohn Ivankoe -JPMorgan Chase and Bernstein-Barkley-Barclays CapitalBank of America Merrill Lynch-PennyDavid Palmer, Prudential Equity GroupUBS Investment Bank welcomes everyone to participate in the third quarter earnings conference.[Operator note] I would like to transfer the call to our host now, sirMatthew Stroud.Please continue.Thank you, Matthew Stroud.Good Morning, everyone.Clarence Otis, Chairman and CEO of Darden, is with me today;Drew Madsen, president and chief operating officer of Denton;Brad Richmond, chief financial officer, Darden;Gene Lee, president of Darton specialty restaurant group.We welcome you to join us by phone or internet.During this conference call, officials and staff at the Darton restaurant may forward-A statement about the company's expectations, goals, or goals.Forward-A statement under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.Any forward-Outlook statements speak only on the date on which such statements are made, and we have no obligation to update such statements to reflect events or circumstances that occurred after such dates.We would like to remind investors not to rely too much on any such forward transactions.Look at the report.According to their nature, forwardForward-looking statements involve risks and uncertainties that may result in significant differences between actual results and the results expected in the statement.Table 10 of Darton describes the most important of these uncertainties --K, Form 10-Q and Form 8-K reports, including all amendments to these reports.These risks and uncertainties include food safety and food safety.Burden of disease;litigation;Unfavorable publicity;Federal, state and local regulation of our business, including health care reform, labor and insurance costs;Technical failure;Health problems, including virus outbreaks;Features of fierce competition in catering industry;Factors that affect our ability to drive sales growth;The impact of our liabilities in rare acquisitions;We plan to expand new brands such as Bahamas breeze and Four Seasons 52;Lack of proper new restaurant location;higher-than-The expected cost of opening, closing or renovating a restaurant;Increased advertising and marketing costs;Failure to train and recruit effective leaders;Price and availability of key food and utilities;Shortage or interruption of supply of food and other products;Volatility of derivatives market value;General macroeconomic factors, including unemployment and interest rates;Bad weather conditions;Disruption of financial markets;The possible impairment of the book value of our goodwill or other intangible assets;Our internal control over financial reporting failed;As well as other factors and uncertainties discussed from time to time in Darton's report to the Securities and Exchange Commission.A copy of our press release announcing our revenue, form 8-K is used to provide the Securities and Exchange Commission with press releases regarding the duration of the conference call and any other financial and statistical information, including any information required by Regulation G, provided under the Investor Relations heading on our website.com.We plan to release fiscal 2011 in the fourth quarter.On Thursday, April, May 2011 and June 30, 2011, the restaurant was sold after the market was closed.Yesterday afternoon we announced the third quarter earnings.These results are provided by PR Newswire and other wired services.We recognize that most of you have reviewed our third quarter results, so we will not review them in detail again in order to provide more time for your questions.Instead, Brad will provide some additional line project details about the financial results for the quarter.Drew will review the third quarter of operations of our big brands.Gene will tell about the recent performance of the specialty restaurant group, and Clarence will make some concluding remarks.After that, Clarence, Drew, Brad and gene will answer your questions.Brad?C.Thank you, Matthew. good morning.Total sales for Darden's ongoing operations increased by 5.The third quarter was $ 5% to $1,980,000,000.This strong top line performance compared to the estimated 0.By Knapp, total sales in the industry increased by 9%Growth in market share.In a mix of the same-On the basis of restaurant sales, Darton's sales in the third quarter increased by 0 year on year.9%, which is consistent with our estimates by January 31release.Same industry background-Restaurant sales by KnappTrack and does not include Darton, an estimated increase of 0.This quarter was 1%.Olive Grove third quarter United StatesS.same-Restaurant sales were flat at 1.5 percentage points lower than our previous estimate.Red Lobster in the third quarterS.same-Restaurant sales increased by 0.1%, a percentage point better than our previous estimate.The third quarter of the United StatesS.same-Sales of restaurants increased by 6.1%, which is 1.5 percentage points better than our previous estimate.We saw the same acceleration.The restaurant growth of our specialty restaurant group.The third quarter of the capital grid-Restaurant sales growth 8.Bahamas breeze quarter 4%-Restaurant sales increased by 3.4%, same as season 52Restaurant sales growth 4.2%.Now let's take a look at the profit analysis in the third quarter.Food and beverage costs increased by 12 basis points over last yearof-Sales base, resulting in increased food costs due to planned negative portfolio changes related to our promotional products.As we mentioned on the most recent analyst day, we have locked in many food costs this fiscal year and we do not expect to be higher ---Excuse me, we expect food and beverage expenses in the fourth quarter to be higher as a percentage of sales, some of which are due to the Red Lobster Festival promotion time.Now, since our investor and analyst meetings, we continue to have the opportunity to expand the reach of some key commodities next year, so, we continue to be satisfied with the food cost inflation outlook we shared with you at the time for the next year.Look at the labor cost of the restaurant in the third quarter.128 basis points lower than last year.of-Sales base due to increased productivity and continued low employee benefits-Turnover.We expect this trend of productivity gains and declining turnover to continue in the fourth quarter.Restaurant fees for the quarter fell 37 basis points from last year.of-The sales base is mainly due to the reduction of the worker's compensation fee based on our experience there, which exceeds the increase in credit card fees.In the fourth quarter, we expect sales leverage and additional cost savings to result in an annualover-Annual restaurant fee by percentageof-sales basis.Due to increased media costs, increased impairment costs and incentives for cancellation of restaurant leases, sales, general and administrative expenses as a percentage of sales in the third quarter increased by 82 basis pointsCompensation costs related to our stronger performance.We expect these fees to be more consistent in percentage with the previous yearof-Sales base for the fourth quarter.The quarterly depreciation cost is 10 basis points lower than last year.of-sales basis.Operating profit as a percentage of sales for the quarter was 11.3%.This is 81 basis points better than last year, from our powerful new-Year-on-year growth in unit salesSales growth in restaurants.We are still on track to achieve a return on operating profit for sales this fiscal year, which will bring our profit margin close to a record high.We expect to establish a new benchmark for profit margins as a result of the progress we have made in strengthening our operating platforms and business models.These levels of profit margins will also prove our profitability as improved economic support returns to profitabilityRestaurant sales growth, restaurant continued to grow.We also saw the results of a wide range of cost plans we shared with you at the investor meeting, some of which are faster, so as we look forward to the new fiscal year, this should also support continued profit margins.Consistent with the guidance we provided at our investor and analyst meetings, this is the effective tax rate for the 23rd quarter.8% reflects the cumulative benefits of changes in our annual estimates.We have achieved higher goals as well.than-Due to our unit growth, the tax credits associated with the federal incentives for new employees are expected.So we now expect the effective tax rates for the fourth quarter and the year to be in the medium term26% range.We bought back 2 in the third quarter.The price of 3 million shares of our common stock is about $0.105 billion.As our cash flow continues to grow, we have raised our stock buyback estimates for this fiscal year to about $0.375 billion.So, when you add it up, it's a really good quarter, with sales up more than 5% and earnings per share up 14%.Yesterday, we announced that we now expect the reported net profit per share growth to grow from about 19% of ongoing operations to 17% in fiscal 18%, a 2011 increase from our previous expectations.In contrast, continued operating diluted net profit per share was $2.Fiscal 2010.Our revenue forecast for the fiscal year is based on a mix of U.S.same-In fiscal 2011, the restaurant sales of Red Lobster, Olive Garden and long horn Steakhouse were about £ 1.5% to plus 2%;About 70 to 75 new restaurants were opened in fiscal 2011;Total sales for the current fiscal year increased by about 5.5%.Now, considering the trajectory of our brand at the beginning of the fourth quarter, we are happy with 1.We offer the same range from 5% to 2%-Restaurant sales growth this fiscal year;However, we are still in the early stages of this quarter and, as we noted in our press release, the environment, while improved, is still more fragile than normal, which is largelyTherefore, we have set up a financial estimate for this year at the low end of 1/2 to 2% --Restaurant sales range.Now, I turn it over for Drew's opinion.Thank you, Brad.First, I will share some ideas about the industry and then briefly comment on the strategy and performance of our three leisure brandsdining brands.As Brad has saiddining same-Restaurant sales measured by Knapp, excluding DartonThe track went up 0.Third quarter 1%.Now, we cannot quantify the impact of weather on sales results in the industry;However, we note that,Restaurant sales declined in December and January, and bad weather had a significant negative impact on our three large brands compared to the previous year, followed by a solid industry --The weather improved in February and restaurant sales increased.With the progress of our fiscal year,The previous industry has become stronger and stronger.So our point is,The catering industry continues to improve.As Gene will discuss in a few minutes, the premium restaurant industry also continues to show strong growth, as the recovery in business travel and luxury consumption strengthens, this is definitely important for our specialty restaurant group.Broader economic fundamentals, especially the continued improvement in employment, will lead to a sustained recovery and a slight acceleration in sales growth.Future restaurant service.Now let's review the performance of our three large casual outfits --dining brands.Olive Garden, Red Lobster, and long horn provide the same food together --Restaurant sales increased by 0.Compared to the previous year, 9% is in line with the outlook we provided at our recent analyst meeting.Compared with last year, operating profit and operating profit margins of the three brands have increased.Red Lobster.Restaurant sales increased by 0.Third quarter 1% although 120 basis points were associated with Lent's time and their iconic Lobsterfest promotion compared to the previous year, and another 50 basis points were associated with worse winter weather, but there are still adverse effects.Given these adverse factors, we believe red lobster performed strongly in the third quarter.You may remember the preliminary report we released in the third quarter, and we expect Red Lobster to report the same situation --In the third quarter, restaurant sales fell by about 1%, so we were very satisfied with their sales momentum and improved operating profit performance.Our promotion strategy at Red Lobster is to provide specific price points in our dish advertisements that are designed to meet the guest's demand for the price and at the same time to generate substantial profits.We started our new season of surfing and lawn promotion ads in December.There are three new dishes in this promotion:$14 hot roasted pepper beef loin steak with any kind of shrimp.99, $17 crab legs.$99 or $19 tails.99.It is important that this is the first time that Red Lobster has successfully promoted steak, when competitors were promoting similar surfing and lawn products at a lower price, strengthening our belief, red Lobster does not have to be discounted to increase brand or experience quality --Restaurant sales.We had two seafood dinners for $29.In January and February, this was a very successful promotion last year.This year, we have added three new centers, and this promotion has been very successful again.Red Lobster continues to remodel the restaurant and is expected to complete nearly 1/3 of the system by the end of this fiscal year.The result was strong, the converted restaurant maintained sales growth of 4% to 5%, exceeding the requirement to achieve our returnon-Barriers to investment.So, all in all, starting in the second quarter, the new approach of Red Lobster to address core guests' demand for higher price and price certainty has brought better resultsthan-Expected sales results.This improvement, coupled with strong controllable cost management, achieved strong operating profit growth in the third quarter.They have made additional progress on strategic priorities, which will enable the long-termLong-term growth in sales and operating profit.Olive Garden-In the third quarter, restaurant sales were flat compared to last year, but below the outlook we announced before the analyst meeting.I am of course pleased that Olive Garden continues to achieve profitable market share growth, with total sales growing by more than 4% due to the impact of 33 clean new restaurants compared to last year;However, we are disappointed with their sameRestaurant sales, especially during February.Fundamentally, we believe that the dishes presented in the two promotions this quarter have done a bit too much in building the brand's culinary certificate and culinary uniqueness, and that the brand's culinary qualifications and culinary uniqueness are longer --term business-As a result, there is no broad appeal and value emphasis required in the current environment.The Olive Garden started the festival with their best harvest promotion, which included two new main courses, limoncello scalscaloppini and vino bianco pork scaloppini,Santorini.Next up is their "keep you warm" promotion, which includes two new handmade raviolitentres, pears and Gorgonzola ravioli with shrimp, and $1095.Now, while these new items are different and very happy with the guests who order them, they don't have the broad appeal we usually experience during the promotion, this is especially true for pear and shrimp dumplings advertised in February.In the future, the Olive Garden will ensure that all the promotion centers are eye-catching and have a strong appeal.In addition, the Olive Garden will further enhance the loyalty of guests through service.An evolutionary program focused on increasing server attention and how popular it is-The Program of Excellence helps to increase the throughput of guests.We believe that the Olive Garden has made the necessary changes for its return.-Consistent implementation-Restaurant sales growth in the future.Steak House at long horn-Restaurant sales growth 6.The third quarter was 1%, up from the same period last year-The previous quarter grew by nearly 2%, surpassing the industry by about 600 basis points.This is their fifth straight quarter.Restaurant sales grew, surpassing the outlook we announced before the analyst meeting.LongHorn also continued to achieve profitable market share growth in the third quarter, with total sales up nearly 13%, including the impact of 21 clean new restaurants compared to the previous year.On a two-LongHorn's total sales have increased by more than 17% this year, while the industry benchmark has fallen by about 2%.They started with the last three weeks of stuffed filet steak promotion, the new three-Filet steak with cheese and crab.Followed closely by their value in the grill promotion, which launched a new tenderloin for $11.$99, grilled chicken and stuffed mushrooms for $9.99.National Cable TV advertising has also supported this promotion, the second time this fiscal year to receive national cable advertising support.A continuously strengthening restaurant operations Foundation has leveraged improved promotions and increased media support.In particular, LongHorn's restaurant team has moved from implementation to mastery of the new operating system they have implemented over the past two years, which helps to further enhance the guest experience and reduce controllable costs.This year, 75 restaurants have been renovatedto-Date and will complete 37 re-modelling in the fourth quarter.Consumer research has shown that re-modelling helps significantly increase awareness of the brand and continues to deliver a continuous sales boost of 3% to 4%, consistent with their investment barriers.The remaining 27 restaurants will be renovated in the first half of fiscal 2012.We are certainly pleased with the performance of the Longhorn and expect the sales momentum to continue in the next quarter.I know many of you are concerned that the rise in commodity and energy costs will have an impact on our industry.As we detailed at our recent analyst meeting in Orlando, we expect inflation pressures in these areas to be even greater next year;However, given the size of Darton, our supply chain expertise and our focus on several transformation costs --The opportunity to save, we are still confident that the price of 2% to 3% next year will cover the net inflation we have experienced after active cost management efforts, thus protecting our operating profit and guest value.In short, we are confident in the development of the industry, believe in our brand and our growing costsAn effective operating platform will enable us to achieve continuous profitable sales growth in the future.Now Gene will comment on the specialty restaurant group.Drew, Eugene Lee.In the third quarter, the development momentum of the specialty catering group was strong and continued to maintain a good momentum.We achieved sales growth of 25%, accounting for 27% of total sales growth in Dayton.This growth is the result of our excellent performance at 11 new restaurants and mixed restaurants --Restaurant sales growth 6.5%, which is driven by strong comparable sales for each of our brands, leading 8.Capital Grille 4%, 4.2% in season 52 and 3.The Bahamas breeze hotel is 4% kilometers away.We intend to continue building on this momentum and expect sales of specialty catering group to exceed $2011 in fiscal 0.5 billion.Our powerful fellowThe increase in restaurant sales led to a sharp increase in profit in the quarter, and the three brands of restaurants have improved significantly --level margins.The specialty catering group team continues to focus on continuously improving brand delivery and operational execution to stay the same --Sales growth in restaurants.We will also continue to build new restaurant channels to drive the expansion of our brand and achieve the new restaurant growth target of 14% to 16%, at the same time, we will improve our organizational capacity and our ability to support this accelerated growth.In addition, we are implementing the cost of Darton EnterpriseReduce the plan and strive to determine the cost of a unique specialty restaurant groupSavings measures to reduce inflationary pressures and further improve restaurantsWhile continuing to enhance our support platform, we will improve the efficiency, efficiency and scalability of the platform.Now I give it to Clarence.Jean, Clarence Otis. thank you.Now let me say that we are very pleased with the earnings per share and sales growth for this quarter.We are also pleased that earnings per share rose nearly 20% throughout the year.When we think about two years ago, even a year ago, the economy is much better.Our industry is in a better place, and so is our company.We believe that the evidence that the economic situation is gradually improving is continuing, which indicates more comprehensive visits.Service catering is a good sign for us.Of course, there are some headwinds, but they look pale compared to what we have faced in the past few years.Also during the economic downturn, we took action in Darton to strengthen our brand and improve the effectiveness and efficiency of our support platform ---We believe that we are fully prepared to cope with today's headwinds.When we consider what we have experienced, it is a gentle headwind.We believe that as conditions continue to improve, Darton is fully capable of expanding market share and delivering competitive superior revenue growth, as we did before and during the recession.We have a good brand and we have a brand that is more and more effective.We have very good people who work well together.These advantages are the reason why we are able to achieve this in the quarter, and the reason why we believe that as the economy continues to recover, Darton has not yet reached its best.With these, we will answer your questions.Thank you.Question-and-Our first question came from David Palmer [UBS investment bank].David Palmer -UBS Investment Bank-The store sales guide you have in place ---Forgive me if you mentioned these issues in the prepared speech, but I think that means something like 2.6% is the low end of guidance, what that means for the fourth quarter of the fiscal year.You can correct me if I am wrong.Obviously, this is different from the speed of operation in February, or even the speed of operation in February.So the big question is why.-As you said, are you comfortable with this estimate?The small question behind this big question is: Is Dutton watching a very good parade so far?Is it particularly good?A tested promotion that gives you confidence?Maybe you're reflecting on a promotional slip, or you're going to do something different for a quarter a year ago?Clarence Otis asked me to say, I think, I mean, Brad talked about that, and he talked about ---At the beginning of the quarter, our brand's trajectory at the beginning of the quarter gave us confidence in our prospects.I think he mentioned it too, though, because we are at the beginning of the quarter, so we don't want to go beyond ourselves.I mean, we still have an abnormal environment.It is still more vulnerable than normal.It is still very, very dependent on promotional effects.I will say that we are very happy with everything that is coming.In terms of the promotion of Red Lobster, we also benefit from the calendar change of Red Lobster, which of course helps in the fourth quarter, just as it hurts the third quarter.David Palmer -UBS Investment Bank, so it sounds like you're at least doing what you think you're going to do in the third quarter, and you don't want to go beyond yourself.This is a fair summary.Our next question comes from Joe Buckley [Bank of America Merrill Lynch.Joseph BarkleyThe first question about the Olive Garden.Do you think the Olive Garden is increasingly dependent on the effectiveness of the promotion rather than more execution-driven?In Olive Garden, February is relatively soft with more for lunch or dinner ---Considering some pretty competitive activities at lunch in February, I'm asking this question.On February, Andrew Madson's dinner was more gentle than lunch.Joe, I think I will pretend.-Joe, I think I'll start with a broader exposition of your issue, and we still believe that Olive Garden is a very strong brand, a very strong business model.Our environment is still very sensitive to value and driven by promotions.Our promotion in February was not as effective as we expected.In February, we are very confident that our promotion strategy is appropriate and our execution strategy is strong.Back to what I said a minute ago, the promotion strategy for February was the same as in the last few years.There are three things that we really focus on: eye-catching new dishes that have a wide range of appeal and help push special dishes --visit interest;Regularly launch an attractive price point to enhance the already strong value proposition of the Olive Garden in a very valuable waySensitive environment;Then the third one, except shortWe want to build brands over the long term with all investments in media and culinary development.We are really looking at two things: value, which is the core difference between Olive Gardens;The uniqueness of cooking is a way that we can make a strong brand stronger.The promotion we have set up for February is contrary to this and we think it is strong.Two new ravioli dishes.Dumplings are very attractive.One chicken and one shrimp.This is a very effective way for us in the past.In the third quarter of last year, it worked well for us.This dish is quite traditional and very attractive for $10.95 price point.For shrimp dishes, pears and Gorgonzola ravioli, this is a more unique cooking striker.Our testing of all of this gives us the confidence that we have the ability to achieve the sales guidance we give.The conceptual appeal of the dishes, the customer satisfaction of the restaurant dishes, the clarity and persuasiveness of the advertisements ---All of this has been well tested within the specifications of our past successful promotions.But we did not get the results we expected.The preference for shrimp ravioli dishes is lower than we expected and you can see it in the negative menu mix we reported for February.Our judgment is that the shrimp dishes are a little too delicious.It does not drive incremental guests at the same level as ravioli promotions for $10.Prices reached 95 in the third quarter last year.So this actually boils down to no more promotion dependency, just a continuous and effective promotion.This is not as effective as we think.But I also want to say that it is important to remember that all other brandsCompared with major competitors, we are constantly strengthening and improving from customer satisfaction to brand awareness.I also noticed that some people were writing about the Olive Garden and asked some questions --Sales of two restaurantsyear basis.When we see this, when you adjust the weather and holiday shifts in two daysBy year, when you calculate the sales on a monthly basis, you will see the December of the Olive GardenOn the basis of the year, it is added 4.9%.January is a reduction of 20 basis points, minus 0.2%.February is actually a plus 1.9% on a two-This quarter is based on two years.Annual adjustment base plus 2.3%.So there's no fundamental change in Olive Garden.-The health of our strategy and business.In the current environment, all you need is a continuous and effective promotion.Joseph BarkleyBank of America Merrill Lynch has only one follow-up-Eat Red Lobster.How will you reconcile the higher expected seafood cost you shared with us at the analyst meeting with the new value or affordability information of Red Lobster?There are two things about Andrew MadsenWell.First, understand the price of seafood what the environment will look like.We took this into account in the dishes designed for future promotions.We will consider this in the promotional menu on the table and in the impact preferences.We also have a broad understanding of the entire brand.Support platform and brand portfolio we have, cost-The opportunities we have to cut and how we choose to invest in these costs.Savings opportunities.C.Joe Richmond, this is Brad.In addition to that, I would add that we do not want to be overly affected by any particular line of items in the P & L.Let's take a look at the business there.Red Lobster, as we share, continues to generate absolute revenue and expand profit margins even if they are doing promotions now.So when you see the whole business and their ability to take advantage of it --Restaurant sales growth is still a very valuable-Create propositions for us.I 'd like to add Clarence Otis.-Joe, I'm Clarence and looking forward to the future, we manage the entire portfolio of brands.So we have the ability to really absorb some of the items that might be particularly inflated in one brand by taking action from other brands that don't have the same pressure.This is an important feature of our company.In the past, when we saw that the market basket of the Olive Garden was lifted, we had done so, but not elsewhere.We do this as we continue to eat red lobster and seafood.The next question is from Brad Ludington ).Brad Redington.Capanke capital market CO., Ltd.I want to ask.-On analyst day, I think there is a short comment that you and the board have been talking about raising the dividend payout rate to 40% to 50%.Traditionally, it seems to be more of a range of 30% to 35%.Is this still under discussion?Or is there any progress in that regard?And then, what does that mean?Will this affect stock repurchase?Clarence Otis, I started.I'm Clarence.I would say, yes, we are very pleased with what we were talking about at the analyst meeting.So when we consider returning cash to shareholders, our cash flow continues to grow in a very meaningful way, which basically reflects the basic strength of the entire business.We will talk more about dividends in June, but the outlook we offer is still what we feel.I think we have the ability to do this, given our cash flow, and the stock repurchase will still increase from here.Brad Redington.Capanke capital market CO., Ltd.Then just follow up.up.Are you no longer planning to sell by brand in the specialty restaurant group?Brad, Eugene leveyer, that's right.There's enough data there.I think you can come back to this and it's very close, but at this point we won't reveal the absolute numbers.They are still too small for us.C.RichmondI believes the other factors are as they start to accelerate growth,to-The cycle movement becomes less meaningful because it really depends on the operating week for new restaurants and small brands, and we're not sure if it can deliver a lot of value on a personal basis.So this collective number is more important.We also consider the business as a collection, as a business unit, as a whole.That's the difference it makes for Denton.The next question comes from David Tarantino and Bailey of Robert (sic) [Robert W.Baird].David TarantinoRobert W.Baird & Co.It's just a question, Clarence.I think your comments are still very positive about the outlook for the industry, I just wanted to ask your thoughts on the rise in gasoline prices, and what do you think this may have for the future of the industry here.Perhaps it is to strike a balance between some of the other macroeconomic factors they see.Clarence ortisi would say, I think they're going to act as a deterrent.They will definitely tax consumers and gasoline prices.That said --I mean, I guess, we saw this inhibition in February.As a result, industry performance is stronger than in previous months.We think they will become stronger if gasoline is below $3.So this is a trend of improvement.At these gasoline levels, the rate of improvement will be lower than the level without gasoline, but this is still a trend of improvement.So that's basically what we see.There is no reason why we don't believe it, I think February is a good indicator, and I suspect so will March, because we live in these high levels of circumstances.Our experience, I think, is that consumers adapt and adjust their budgets.David TarantinoRobert W.Baird & Co.This is helpful, maybe a quick follow-upup for Brad.I think, Brad, you mentioned some ideas about expanding profits in fiscal 12, which I think is your comment.Just wondering if this comment applies to businessesRestaurant or restaurant-level margin?C.Business or business-The extensive cost plan we presented at the investor meeting should have a positive impact on the restaurant's profit margin.As I mentioned, these are all very meaningful when we look forward to the future, but we are also a little faster than we originally expected, and today we see that some benefits have been achieved.The next question comes from Mr.Matt Frisco of Oppenheimer (sic) [DiFrisco].Matthew DiFriscoOppenheimer companyInc.I think someone said earlier that the current environment is very sensitive to promotions and promotions.Just curious how you set it up in the industry context.This is an advantage for you, because you do have a lot of advertising voice, especially for your casualdining peers?Or, this is a harbinger of the return of the environment to a more promotional environment, and perhaps the prices and checks we see in the industry may be harder to enter if consumers are looking for promotions or responding to promotions, the next six months?Andrew MadsenI believes that Darden is in advertising, promotion, limited-If this is proven over time, time will help build the brand and drive the business forward in the short term.So I would like to say that this is our competitive advantage.I would also like to say that this is a very valuable thing.Sensitive environment.Judging from the number of promotional priorities we see now, it is not much different from a year ago.It's fairly stable and still important, so we expect it to move forward.Clarence OtisI will also say, Matt, when we say the promotion, it's not just the price.This is about "how eye-catching is the offer?"So it needs to be a convincing offer in many ways.So when you see red lobster in the last quarter, for example, in its surf and lawn promotions, I think the Red Lobster starts at $15 and endsSo this is definitely not a price-friendly promotion.Then another of its promotions is a $29 seafood dinner.99, so $15 per person.Then the month is over, it's the first week of Lobsterfest, but Lobsterfest is a premium promotion.All of this, however, works.So this is because they are convincing, compelling dishes in a compelling creative envelope.This is also part of the equation.Value has to be part of the promo mix when you're considering a year-round promotion, but when we think about how to deal with price points and value boosts, it's not an ongoing siren song.The other thing I want to say is that in order to reiterate what Drew said, we have always felt that the news is important.There are seven promotion windows and six promotion windows.One thing that RARE is very attractive is that they do the same.So this is not a new way for Longhorn.We think the long horn promotion is working better, but that's the way they have historically run their business.Therefore, rhythm is effective for them in operation.The next question comes from Jason West of Deutsche Bank.Jason West -Deutsche Bank AGI just wanted to know if you would update us.You mentioned that you continue to extend your contract with respect to the goods.If you can give us some updates on larger items like seafood, I think about 30% of the items are covered by December, 11.If you also have an update on beef and pasta.C.Jason Richmond, Brad.What I want to say is that, as I said, our reports are more speculative.I can't say that we're particularly after any particular item, but there's a modest opportunity to expand it further as we move into next year.What I want to say is that at this point in the current fiscal year, our tradition is to have more coverage, but we are not at the level we have in history.But with some breakthroughs in these prices, we are expanding further.Clarence ortisi believes that the reason for our contact is what Brad pointed out ---I think we mentioned a little bit at the conference in Orlando.-Is there a big premium to pay out compared to someone closerin market.So it's much shorter in length.So we have to weigh these two things.Jason West -This is very helpful for Deutsche Bank.There's only one on the horn.As we think, in fiscal 12, when you're sitting on national cable, what's the idea from a media perspective?I mean, are you going to take another step in fiscal 12?If this is more of a flat, then would you expect this to cause some moderation in the very strong competition that you see in that brand?Andrew Mason.We will detail our specific media strategy and promotion strategy for all brands in June.But it is clear that with the expansion of Longhorn and the opening of new businesses, as well as the increase in media influence, this is a very positive thing for the business.Clarence Otis and I just want to say that it will continue to rise over the next five to seven years when we think of the Longhorn.I mean, their media weight is just a small part of the Red Lobster and Olive Garden, so we don't want to make that impression, that is, national cable TV means they have leisure advertising with Olive Garden, other four or five countriesdining brands.The money they spent was only a fraction of the money that the competitor spent.I think it's the same as them.Restaurant sales growth is more impressive than the industry average, as it's a major hurdle when you think they're against Knapp --Led by the national advertising brand track.C.The only thing--this is Brad --On top of that, Clarence's point is that you can also see this in our P & L.You see their strengthRestaurant sales and sales growth, but you will also see it in our SG & A series, especially during this quarter.We make a lot of sense there.More than half of them are driven by our investment in the media, especially in LongHorn, but also in other brands.The next question comes from Howard Penney of Hedgeye Risk Management.Howard Penney -Prudential Equity Group hopes to solve the Olive Garden problem in different ways.Do you think you might have sacrificed traffic for the quarter for profit?Then in the context of this question, can you talk about the next fiscal year?Andrew MadsenNo, I don't think we get the traffic we want, but it's not because we're trying to build profits.We have the same $10.Our price was 95 a year ago.I haven't talked about it before, but we have $6 ads for soup, salad and bread sticks.95, same as a year ago.So we didn't sacrifice our profits for traffic.We just lean a little longer.The opportunity for commercial buildings, the uniqueness of cooking, therefore there is a less attractive dish.It didn't get the same discount as last year's ravioli promotion.Not getting the exact same special-visit interest.So it's more effective than profit.We will discuss 2012 in a few months.The problem with OperatorNext Alvin Concepcion is from Citi.Alvin Concepción-Citigroup Inca mentioned that the trajectory you saw gave you the same confidence --Store sales guidance.I know it's too early, but did you also see an improvement in the Olive Garden earlier in the quarter?Or is this trajectory more driven by the continued strong momentum of Red Lobster and LongHorn?Andrew MadsenWell, this is the beginning of the quarter, but we are satisfied with the status quo of these three brands and the three big brands.Alvin Concepción-Citigroup Inca mentioned higher pricing.What do you suspect competitors will react to this?In order to gain market share, do you expect competitors to add similar prices as well, or maybe not very rational?We don't know either.What we expect as an industry is that our price may be lower than that of a supermarket.We think the supermarket will bring more things.Food costs account for a larger share of their sales than ours.Our labor costs are much higher.Therefore, we believe that this is an advantage for the industry.So this is a glimmer of hope.But we just don't know what our restaurant competitors do.The problem with OperatorNext Omohundro Jeff comes from Wells Fargo Securities.Jeffrey om henderoWells Fargo Securities, llc is just a question about the Olive Garden, especially with regard to the latest ideas on transforming some of the old RevItalia.I think you talked through Tuscany before!Especially given the success you have achieved in other remodeling efforts, maybe you can tell us what you think about it at the moment.And then I did.up as well.Andrew MadsenYes, the transformation of the Olive Garden will be important for the approximately 400 RevItalia restaurants we have.Their strategy is clear.They have a Tuscan farmhouse prototype, which is very unique and very suitable for the brand.Their transformation strategy is to draw the most striking elements from the Tuscan farmhouse and build those elements into what we call the restaurant RevItalia to unify the look of their brand, fresh and updated experience the atmosphere of the Olive Garden.About 35 of them have already done.We haven't modified them for a long time, but so far, the same is true for brand perception --Restaurant sales are growing well.They will continue to improve the design to find out the most influential elements into RevItalia restaurants with the most appropriate capital investment.This will be an important part of their work next year.Jeffrey om henderoWells Fargo securities and then as a follow-upUpward, considering the momentum there, is just a quick question about the Long Horn.Just curious, do you see something different on different days?Or is this positive direction consistent?Andrew MadsenIt has done well in both areas.It may be a little stronger for dinner, but both are strong.Clarence Otis got me back to the competition because I didn't want to be too slick.What I'm trying to say is that we think you definitely have pressure on food costs, but at the same time, in an environment where competition is positive, I mean, it takes a lot of pressure off.So we will see-When you talk about the benefits of getting a sales lever, we don't think that competitive pricing must be compelling.C.This is Brad.Regarding your question about the long horn, I want to go back for a while.They see this force on the geographic basis of all their regions.So I think Drew's point is that it illustrates the overall improvement in the same area --The restaurant sales trends we saw there.The next question comes from Jeffrey Bernstein of Barclays Capital.Jeffrey BernsteinThe question of Barclays Capital, then a follow-upup.The problem is in terms of cost.I think the SG & A line surprised us, but on the other hand, it seems that the goodwill of the labor force is very important.I know you said you were going to win some early victories in the fourth quarter, and that trend continues.I'm just looking back on the last few quarters.In the past three quarters, it seems that your leverage ratio has averaged 100 basis points.Should we assume--I know you mentioned in fiscal 12 that labor optimization is another $30 million to $35 million.Once we see some labor optimization, is it possible to increase savings in fiscal 12?Or, that might advance a bit ahead of time, so shouldn't we expect more meaningful leverage over the past 12 years than we 've seen in the last few quarters?And then I did.up.C.First of all, I would like to say that the results we have achieved there may be a little faster than we originally expected, but I don't think what we have learned at this point will necessarily change the speed of operation.But I would like to say that we are pleased with the success of these initiatives.On SG & A when I see these-As we mentioned earlier, the biggest part of it is media support and LongHorn.When you add it in, this can have a very meaningful impact on that particular line item.I think it's a good decision but it does affect the project.And some of what drew and Olive Garden are talking about the additions and changes they 've made in the digital advertising space, some of the initiatives in Spanish and there, and the initiatives that we're doing better, the incentive costs have increased --Related compensation.So these are all brought together in the bank's projects and make it look like there's a meaningful growth over last year --of-sales basis.Jeffrey BernsteinAll right, Barclays Capital, then just clarify.I know, Clarence, you're just talking about pricing in a wider industry, and it's obviously hard to predict what your peers will do.But think about yourself and I know you're comfortable in good times and bad times and stick to the range of 2% to 3%.I'm just wondering if you can give a little color as the traffic is still weak and unstable as you mentioned.If you can give some color, the test you did.Maybe you will see the impact on traffic, or if it will have an impact on traffic, but this is far offset by the benefits you see from pricing.Just trying to measure 2% to 3% in this environment.In terms of the price itself, Clarence Otis.Jeffrey BernsteinBarclays Capital has tested pricing and your confidence, which could drive pricing from 2% to 3%.I know some of your peers might say a little less.You are talking about the supermarket. you are talking about more.But maybe what you do and your confidence in transportation is no more stressful than accepting the benefits of the price.Drew is Andrew Madson.Let me begin to answer this question.Over time, our pricing strategy actually seeks to balance two things: one thing, we want to maintain a balance between our relative competitive position in the market and the value relative to the main competitors;Second, keep our unit balanced.Level of business model.Balance these two things over time.In terms of the amount we bear and the impact it has, we test the pricing before we implement it.The biggest thing we look for in the short term is to change menu preferences.So, will people stay away from the rising prices of goods?Will they turn to goods with reduced prices?Overall, we don't usually see a lot of menu changes.In the long run, we are considering whether we should be more proactive in how to build and design the price points in the core menu, especially in the case of Red Lobster, for example, to solve the daily burden capacity.Therefore, we will consciously try to do this in a way that actually leads to an increase in the number of guests, as we increase our affordability.But so far from what we advertise, what we have on the promotion menu, the price we have tested, we have not yet seen significant changes in the items we have priced.Clarence ortisi believes it is important to reiterate what Drew said, that we are talking about 2% to 3%.It's important to remember that this is not a leap-the-board pricing.So we launch new core menus every year, or twice a year.When we do this, there are new projects.We feel that the price of new goods has an impact on it.Given the testing and our confidence in mix and traffic, we have some items in terms of pricing.So, I think, it gives us quite a bit of flexibility, is a way of thinking, not someone who doesn't have the number of products we have when you think about our entire menu.Another thing that Andrew MadsenAnd gives us some flexibility is that we usually don't accept it at a time.So we will bring some at the beginning of this year.We will evaluate the cost.We will evaluate the consumer environment.We will see how our guests react to what we have done in the year.Clarence ortisi believes that the last thing is that there are a lot of items on the menu that are not priced at a fixed price, so this is more flexible, especially when it comes to drinks and alcoholic and non-alcoholic drinks.The next question comes from John Ivankoe of JPMorgan Chase.John Ivankoe -Jp Morgan & CoJust a few things, very short.First of all, in Olive Garden, you don't seem to get the promotion rate in February, at least what I can find online, it looks like a TV commercial, you're advertising something called soffatelliFrankly, this is a word I have never heard of before and I don't think there is much recognition in the USS.No price points.This is a very delicious food.Focus on products.This seems to be more extreme than the previous product you ran in February.So, I mean, is this the right information?Does this message work in the current environment?Or something that hasn't come yet, will bring the Olive Garden back to more Americans --Italian core?And then I have a few.ups.Andrew MadsenI will say that you need to consider the promotion strategy, as well as the content of our advertising at any specific point in time in the context of an ongoing advertising campaign and an ongoing promotion strategy.As I mentioned at the beginning, we are looking to do three basic things in the promotion.Compelling new dishes that drive Special-visit interest.Second, cyclical.Not every promotion, not every month, but regular price points that reinforce the already superior value proposition of the Olive Garden.When a guest needs a status that is of higher value, we tend to do this when the season is appropriate.So, for example,to-Class time in September after the holiday.Then the third thing is to build a long time.Brand uniqueness and brand assets because the largest part of our business, on an ongoing basis, has nothing to do with promotions.Its core message and core brand commitment are differentiated and compelling.This is another thing we want to do.So the Academy of Culinary promotion--The Tuscan culinary academy promotion we are doing now, we tend to be more inclined at this time of year to the culinary uniqueness goals we have, as at this time last year.Prior to that, we had a more visible value and price information about the promotions we just ended.John, Clarence Otis and I would also like to say that in terms of creativity, we take the time to tell people exactly what it is.So it can be very simple when you do that.Just like pear and Gorgonzola, when you tell them exactly what this is, that is, what I just told you, it still doesn't have to have a broad appeal.This is also part of it.John Ivankoe -If Jp Morgan & CoAnd succeeds, it is successful.So that doesn't mean-In the absence of a price point, you can still have this direction in your brand.Again, I think it's not right that you just have to think about February, and I don't think that necessarily means that you have to change things in the future, at least like a promotion at the Culinary Academy.Second, there seems to be some hints that some cost savings will be advanced from fiscal 12 to fiscal 11.For example, is this like labor scheduling, which I think is the incremental positive impact of 30 to 35 basis points, at least when we calculate guidance for fiscal 12 and 11?So does this mean that incremental gains for fiscal 12 and fiscal 11 will decrease?Andrew MadsenYes is an artificial optimization.That doesn't mean there must be less revenue, because if you recall, there will be more and more gains even in fiscal 13.So this is a plan for many years.John Ivankoe -JP Morgan and CoOkay, so we should expect the same amount as your guidance in the fiscal year --over-So a year, more or less?Andrew Madson.John Ivankoe -One last thing, I'm sorry if you mentioned this, what is the rental cancellation fee for G &?Are you energetic?Andrew MadsenIt is in the range of millions of dollars, this is a restaurant and we will not continue to rent for millions of dollars.So once we make that decision, we have to take that responsibility for the quarter.The next question comes from John Glass at Morgan Stanley.John Glass -Morgan Stanley, this quarter, you made a promotion mistake at the Olive Garden.I think the Red Lobster we talked about last quarter was the same.So is there any way to change--Usually Darden is driven by testing and data, so these things don't happen very often.Have you changed the way or the speed of testing the product ---Did it create this?Or, I think, you 'd better ask, should you change something so it doesn't happen in the future?Andrew madderwell, for Red Lobster, at the beginning of this year, we know that consumer demand for affordability has increased, compared to the previous fiscal year, they changed their promotion strategy in the first three or four months of this year.At the price point, it works well for the Olive Garden and for the Longhorn.But given the higher check for Red Lobster, the price is also higher --Pricing a single project, a startAt the price point, their core guests did not get enough price certainty to motivate a special visit.So we decided that this approach, while applicable to other brands in our portfolio, did not work for Red Lobster.So in October, in the middle of the endless shrimp, basically, we changed our approach.For endless shrimp, for surfing and lawn promotion after, for seafood dinner promotion for two people after ---This new method has promoted Red Lobster three times in a row.For the Olive Garden, I think this method is still reasonable.We just had a dish, and although it was conceptually tested well, it didn't perform as well as we expected in the market.So there's some art, and there's some science in the way we test.Clarence Otis and I would like to say, John, when we consider promotions, there are always some changes in our estimates, just a little more in an environment where consumers are particularly cautious about consumption.But there will always be some.So one of our strengths is that we have three major brands that do run the business that way, so we can get some compensation, and that's what we got this quarter.So yes, the Olive Garden is a little lighter than we expected.On the positive side, the Longhorn is much heavier than we expected.The Red Lobster side is quite heavy.All of this is merged into a number, which is almost 1% of what we think we will get.The next question will come from Mickey Spitzer of Buckingham Research.Mitchell SpeeseBuckingham Research Group LimitedOn the pricing theme, it looks like the full line pricing is running, called 1/2-ish percent.2% to 3% is your length-The 2% to 3% you mentioned should be enough to offset your future cost pressures.So should we suggest that you will raise the price in the next few months?How do you weigh this in the topic you are talking about, because consumers are a little vulnerable at this point?C.RichmondMitch, I will start to answer the question and give it to Drew.What I'm trying to say is that our price may reflect the problem more than what you see --Restaurant sales and others-Restaurant guests are important because we have some mixed business for a while, part of the mixed business within a day, so it doesn't always reflect our pricing.Therefore, the price is slightly higher than the average price of the net check we have seen recently.It's been a while, so when we develop our estimates and our thinking.We look forward to it...Andrew marseni believes that the network will develop roughly the same in the future as it has been looking back.C.Richmondthe is almost the answer there.Mitchell SpeeseBuckingham Research Group LimitedI'm sorry, so are you.-You did give us specific pricing data in the press release.Are you saying it's actually higher than that at this point?Or...C.RichmondNo.What we're talking about is that the price reflects a partial combination of the day.So the mix change for lunch and dinner will make the price look lower than our actual dinner price.We didn't change the price of our dinner and we didn't expect the mix to make that change as we look back on the past.Mitchell SpeeseBuckingham Research Group LimitedAnd one follow-up.Can you remind us of your interest in the acquisition and the acquisition criteria you outlined on analyst day February?Clarence Otis.I would say that when we think about acquisitions, what we want to be able to maintain consumer appeal is feasible.In terms of unit expansion potential, there are a considerable number of runways ahead;There is a nice restaurant.Business model, because this ultimately illustrates persistence from a financial point of view;This allows us to create value for our shareholders.So this is the most important thing.The list is not long when you look at the restaurant industry.There are more names that are consistent with our specialty restaurant group than inconsistent, which is usually what we see outside.Andrew Madson we would like to thank everyone who called with us this morning.I'm sorry we couldn't reach everyone in the queue.Of course, if you do not receive your question this morning, we will ask more questions in Orlando.We hope everyone has a pleasant weekend and we look forward to talking to you again in June.Thank you very much.Good operator.This concludes today's meeting, ladies and gentlemen.Thank you for your participation and use of the AT&T executive conference call.You can disconnect now.