達登餐飲 (DRI) 2018 Q1 法說會逐字稿

Welcome to the Darden Fiscal Year 2018 Quarter 1 Earnings Call.

(Operator Instructions) This conference is being recorded.

If you have any objections, please disconnect at this time.

I will now turn the call over to Mr. Kevin Kalicak.

Thank you.

You may begin.

Thank you, Sean.

Good morning, everyone, and thank you for participating on today's call.

Joining me today are Gene Lee, Darden's CEO; and Rick Cardenas, CFO.

As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission.

We are simultaneously broadcasting a presentation during this call, which is posted on the Investor Relations section of our website at www.darden.com.

Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation.

We plan to release fiscal 2018 second quarter earnings on December 19 before the market opens, followed by a conference call.

This morning, Gene will share some brief remarks about our quarterly performance and business insights.

Rick will provide more detail on our financial results from the first quarter, and then Gene will have some closing remarks before we open the call for your questions.

During today's call and for the remainder of this fiscal year, all references to Darden's same-restaurant sales only include Darden's legacy brands since Cheddar's Scratch Kitchen restaurants are new to Darden.

Now I'll turn the call over to Gene.

Thanks, Kevin, and good morning, everyone.

As you've seen from our press release, we're off to a solid start to our fiscal 2018.

Total sales from continuing operations were $1.9 billion, an increase of 12.9%.

Same-restaurant sales grew 1.7%, and adjusted diluted net earnings per share were $0.99, an increase of 12.5% from last year's diluted net earnings per share.

I'm pleased with our same-restaurant sales growth of 1.7% considering the overall industry performance, along with the impact of Hurricane Harvey, which Rick will quantify during his remarks.

Olive Garden's business remains strong.

Same-restaurant sales grew 1.9%, and we're pleased with these results particularly given the change in the marketing calendar, which resulted in one less promotion in the quarter.

These results outperformed the industry benchmarks, excluding Darden by 490 basis points.

This was Olive Garden's 12th consecutive quarter of same-restaurant sales growth.

Olive Garden continues to maintain a significant gap to the industry as we drive frequency among our most loyal guests.

Our core menu and promotional strategy are successfully working together to create value, and our restaurant operators' focus on flawless execution of the basics continues to drive all-time high guest satisfaction scores.

Convenience remains a focus area.

We're making meaningful progress, improving our To Go processes to handle increased volume, enhancing IT support and redesigning our To Go stations to improve the guest experience.

Overall, To Go sales increased 12% in the quarter.

In addition, we ran our Buy One Take One promotion during the quarter, which guests view as the ultimate convenience.

LongHorn Steakhouse had a solid quarter.

Same-restaurant sales grew 2.6%, outperforming the industry benchmarks excluding Darden by 560 points.

This was LongHorn's 18th consecutive quarter of same-restaurant sales growth.

The investments we have been making in our food and service over the last 2 years are contributing to industry-leading guest satisfaction scores, which is driving our outperformance.

Additionally, we are seeing strong same-restaurant sales growth in our newer markets as guests discover LongHorn's value proposition.

This upward sales trend in newer markets is consistent with past performance of the brand.

The LongHorn team is relentlessly focused on enhancing the guest experience.

We will continue to invest in food quality, look for additional ways to simplify operations and leverage LongHorn's unique culture to enable strong sales growth.

Turning to Cheddar's.

We continue to make good progress on the integration.

The planning process is behind us, and we are now focused on execution.

We are making significant non-guest-facing changes over the next year, which we know will have an impact on the restaurant teams.

It will take time for the restaurant managers and team members to familiarize themselves with our systems and processes.

I'm confident they will master these new tools, which will help improve performance over time.

Same-restaurant sales for the quarter outperformed the industry benchmarks, excluding Darden, but declined 1.4%.

Cheddar's is heavily penetrated in Texas, and they were impacted more by the -- by Hurricane Harvey than Darden overall.

Also during the quarter, we exercised our right of first refusal to acquire the 11 restaurants owned by the Cheddar's franchisee in Georgia as well as the development rights they held for Cheddar's in Georgia and Alabama.

This transaction, which closed on August 28, gives us the opportunity to enhance our presence in 2 states that we believe will have strong growth opportunities for the Cheddar's brand.

Now I'll turn it over to Rick.

Thank you, Gene, and good morning, everyone.

Total sales grew 12.9% this quarter, driven by 11.2% growth from the addition of 141 Cheddar's and other new restaurants and same-restaurant sales growth of 1.7%.

First quarter adjusted diluted net earnings per share from continuing operations were $0.99, an increase of 12.5% from last year's earnings per share.

We also returned approximately $180 million of capital to our shareholders, with $100 million in share repurchases and approximately $80 million in dividends.

Looking at our results in the first quarter, it's important to note that Hurricane Harvey made landfall on the last weekend of our quarter.

The day before Harvey made landfall in Texas, same-restaurant sales quarter-to-date were running plus 2%, 30 basis points higher than where we ended the quarter.

This sales impact, along with other Harvey-related costs, negatively affected first quarter EPS by approximately $0.015.

Now turning to the P&L.

Let me comment on profit margins before delving deeper into each line item.

Restaurant-level EBITDA margin was equal to last year's results.

Adjusted EBIT margin was 10 basis points lower, driven by asset sale gains last year of $8 million, which we categorized in the impairments of disposal of assets line, and the addition of Cheddar's, which I will refer to as brand mix, impacted EBIT margin unfavorably by approximately 40 basis points in the first quarter versus last year.

Over time, we expect this brand mix impact to be closer to 20 basis points as we move past integration and fully capture synergies.

As a reminder, we expect to have between $22 million and $27 million of run-rate synergies and expect to achieve this run rate by the end of fiscal 2019.

Excluding the headwinds from last year's gain on asset sales and the brand mix impact of Cheddar's, EBIT margins expanded approximately 70 basis points in the quarter.

Now on to the expense detail.

Food and beverage costs were favorable by 10 basis points as pricing of approximately 1.5% and cost savings more than offset commodity cost inflation.

Restaurant labor was unfavorable by 40 basis points compared to last year due to brand mix and wage inflation that was at the high end of our expected range of 3% to 4%.

Restaurant expenses as a percent of sales were equal to last year despite a headwind of 10 basis points in preopening expenses.

Marketing expenses were favorable by 30 basis points due to brand mix and the promotional shift at Olive Garden that Gene mentioned.

Finally, G&A was favorable by 40 basis points due to quarterly timing and sales leverage.

Sales increased in every segment, driven by same-restaurant sales growth at Olive Garden, LongHorn and the Fine Dining segment and by the addition of Cheddar's to the Other Business segment.

This sales growth drove strong segment profit margins, particularly at Olive Garden, where segment profit margin was 20.1%, 70 basis points higher than last year.

However, our Other Business segment profit margin was 200 basis points lower than last year due to 2 things: the addition of Cheddar's to the segment, which altered segment profit margin mix; and moving consumer packaged goods out of the Other segment beginning this fiscal year, which reduced this segment's margin by roughly 100 basis points.

The primary beneficiary of this shift was Olive Garden with a 20 basis point improvement in their margins.

This morning, we also reaffirmed our full year fiscal 2018 outlook.

This outlook includes the expected impact of Hurricane Irma, which was in our second quarter.

We anticipate the impact of Hurricane Irma to be approximately double the first quarter impact of Hurricane Harvey in terms of both same-restaurant sales and profit impacts.

For fiscal 2018, we anticipate adjusted diluted net earnings per share from continuing operations of $4.38 to $4.50, total sales growth of 11.5% to 13%, including sales from all Cheddar's restaurants and same-restaurant sales growth of between 1% and 2% for the full fiscal year.

And now I'll turn it back over to Gene for some closing remarks.

Thanks, Rick.

I want to take a moment to thank the teams in both our restaurants and our Restaurant Support Center that have worked tirelessly over the past month dealing with Hurricane Harvey in Texas and Louisiana and Hurricane Irma in Florida, Georgia and the Carolinas.

Both storms had a devastating impact on numerous communities that are home to our guests, team members and restaurants.

In the field, our restaurant teams did a tremendous job of getting our restaurants that had to close back open again, and our team here at the support center provided outstanding support before, during and after the storm hit.

This ensured we were prepared to deal with the impact operationally while helping our team members in need and the communities we serve.

Additionally, our thoughts go out to the citizens of Puerto Rico and Mexico City as well as our franchise partners in these communities who are still dealing with the impacts of Hurricane Maria and the earthquake that took place last week.

I am very proud of the response from everyone across Darden.

Moments like these, as difficult as they are, highlight the strength of our culture and what makes our people, our restaurants and our brand so special.

And with that, we'll take your questions.

(Operator Instructions) Our first question is coming from Mr. Brett Levy from Deutsche Bank.

Would you be able to share a little bit more detail on what you're seeing across the competitive landscape, whether it be from direct casual diners, QSR, people who are getting more into the delivery world as well as just at-home players?

Do you have any thoughts on why, while Olive Garden put up an astonishingly good number, it's still not quite up to the market share gains you've seen in recent quarters?

Do you think that's the result to promotional cadence?

And just lastly, what are your thoughts on pricing for the rest of the year?

Okay.

Good morning, Brett.

There are 7 questions, I think, in there.

Great way to frame that up as one line -- one question.

Let me start with Olive Garden because I think that's where everybody wants me to start, and then I'll make some comments on the overall environment.

I'm super excited about the quarter we have -- we put up in Olive Garden.

I think the focus ought to be on the improvement in margins.

I thought we had great sales growth.

We ran one less promotion during the quarter, which in our effort to simplify our operations, we thought was a really smart move.

It eliminates one all-team meeting.

It eliminated bringing in extra product.

We're lengthening the time we run our promotions.

We're trying to reenergize them during the middle of the promotion.

I thought it was incredibly effective.

We had a lot less targeted digital incentives in the marketplace.

We made a major change to our strongest traffic driver, which is soup, salad and breadsticks at $5.99, and we moved that to $6.99, which drove less traffic, however was significantly more profitable.

And so I think everybody needs to focus on the 7% growth in operating income in Olive Garden at segment profit level.

Just absolutely impressive when you think about the size of this system and the performance of the overall category.

The other thing I'd add is, on the Olive Garden, is the traffic gap was greater than the sales gap and as we continue to underprice inflation and we think we're underpricing our competitors to improve value.

And lastly, on Olive Garden, I'll just say that the team is doing an incredible job.

We are -- they're just running better restaurants today.

Our throughput is up.

Our satisfaction is up.

Our engagement with our -- our team members is up.

And so when I put this quarter in perspective for Olive Garden, it was a short of a target that the analyst community put out there, but we didn't put that sales target out there.

And if you take the last 3 days out of the quarter, we would have been at 2%.

So I'm thrilled.

As far as the overall environment goes, it was a choppy quarter.

We had a lot of activity around storms.

We had a holiday switch with the Fourth of July.

It just put a lot of noise in the quarter.

I'd say the environment feels fairly good.

The consumer is there with the right offer.

Value has never been more important.

And value, depending on where you play and where your price point is, can be derived at 2 different things.

I think that in LongHorn, we're deriving value with increasing the quality and improving our service.

Olive Garden we're playing a little bit more around with price to get that value across.

So I think people are offering strong value consistently and provide it every day.

I mean, I go back to looking at our Olive Garden menu at lunch.

All the price points are $6.99, $7.99, $8.99, $9.99.

And I believe that we've got great value out there with abundance of -- in portion.

As far as pricing, Rick, think that you can address the pricing point?

Yes.

And let me clarify one other point, Gene mentioned Olive Garden would have been at 2%.

Actually, Olive Garden would have been at 2.2% without the hurricane.

So strong first quarter for Olive Garden.

In terms of pricing, we had 1.5% pricing this quarter.

And as we've said before, we want to continue to maintain our value leadership position and price and using our scale and our advantages just to be able to price below our competitors and price below inflation when appropriate.

This year, we expect to price between 1% and 2%, and we're still -- we're solid in the middle of that right now.

Our next question is coming from Mr. Brian Bittner from Oppenheimer.

One for Gene, one for Rick.

Gene, you've started to talk a lot more about Darden in general as a platform company that has the strength to make more accretive acquisitions to create shareholder value going forward.

And our math suggests by the end of this fiscal year '18, you would easily have the capital ability to acquire something over $1 billion, if you so wanted.

And I know you're really laser-focused on integrating Cheddar's, but how do you think about this strategy going forward?

And potential timing of doing something else?

Brian, I think about it very sequentially.

Right now, you are right, we are laser-focused on integrating Cheddar's.

We think Cheddar's is an incredible opportunity for long-term growth, and so we are not even contemplating or thinking about doing anything else until that brand is fully integrated.

It is firing -- it has a good, a really good growth platform, where it's contributing at a much higher growth rate than Olive Garden and to add to our overall growth rate.

And so that's what the -- that's the focus.

Once we are -- we have visibility that, that has been done successfully, then we'll look at the platform and determine what our next move is.

Okay.

And just for Rick, you have -- following up on that pricing question.

You have said you're going to price closer to the 1% range.

You are at 1.5% this quarter.

Should we expect it to fall down towards the 1% range?

And you held restaurant margins flat this quarter.

Would that make that more challenging?

And just if you have any initial thoughts on Hurricane Irma, that would be helpful as well.

Yes, Brian.

The 1.5%, yes, we did say we'll be at the lower end of the 1% to 2%.

So the 1.5%, it's kind of at the high end of the low end.

We still think somewhere in the 1.5%-ish range is where we'll end up for the year, but between 1% to 2%, all depends on what we see in commodities and other things, but we also took most of our pricing already.

So unless we take other pricing actions, we should be done with our pricing for the year.

In terms of Irma, as I mentioned on the remarks, we expect impact of Hurricane Irma to be double the impact of Hurricane Harvey.

And remember, Hurricane Harvey was about 30 basis point in comps and $0.015 in EPS.

So think 3 to 6 points in comps and $0.03 in EPS.

And I'd like to remind everybody that we kept our earnings guidance right where we said at the beginning of the year, so we're really kind of eating $0.045 in this guidance.

Our next question is coming from Mr. Will Slabaugh from Stephens.

I have a question on the Olive Garden To Go business.

It's been growing at a pretty rapid clip for a while now.

Can you talk about where you are in that growth evolution, if you will?

And if you think these consistent improvements that you're making, I know you mentioned a few, including packaging, et cetera earlier, that you're making can keep that business growing at a double-digit rate in the future?

Yes, we saw a good 12% growth in the quarter.

We're on a 4 years run rate, about -- almost approximately 70%.

We are starting to really think about this as a different -- a separate kind of business.

Dave and the team are making some great changes.

We think technology can continue to help.

We know in our higher-volume restaurants that we need to build more space to handle the volume.

And we've done a few of those remodels with a lot of success.

As long as the consumer demand is there for this product, I think we can grow it, continue to grow it close to double digits.

Now I mean, the percentage is -- it's getting harder to grow at double digits because the numbers -- the denominator is much higher than what it was when we first started.

But I still think this is a growth driver for us.

The consumer satisfaction of our To Go product is extremely high.

And that's one thing that our team is really, really focused on is, "How do we make the experience better for the consumer?" And the repeat business and the loyalty inside the To Go is also very high.

Got it.

And if I could just follow-up to that, can you talk about the learnings that you've gotten from Olive Garden with that To Go business, and realizing that Italian simply just carries better than most other forms of food?

But is there any learnings you can take and translate into other businesses?

And if there's a big growth opportunity you see in To Go and any other concepts that you have?

I think To Go is growing organically in the other businesses because the consumer wants it.

However, the big opportunity for To Go and Olive Garden is the bulk meals and being able to do a tray of Lasagna or a Penne Fettuccine Alfredo.

We just don't have that.

We have a little bit of that in Bahama Breeze.

We've got some products that we do some large party stuff on.

But when you really think about the other mass brand at Olive Garden, it's just really growing with the consumer demand, and it's a nice piece of business, but it will never have the same opportunity as Olive Garden does because of the bulk size and then really the business-to-business piece.

Our next question is coming from Mr. David Tarantino from Baird.

Gene, I wanted to ask you to clarify your comments on the Cheddar's integration.

It sounds like, I think, you mentioned that it's going to take some time for the team to familiarize themselves with your systems and processes.

So I guess, could you maybe give us an update on how you think that's going so far?

And whether that comment was meant to imply that this is maybe proving a little more difficult than you thought originally?

No, I would say it's not proving more difficult.

We knew that this had been under-invested in and that the systems were lacking, that there wasn't much to work with.

And so in our past acquisitions, we've had to change systems.

Here, we're implementing systems that never were there, which makes it a little bit different.

But when you think about the magnitude of this, and none of the integrations have really started.

It's starting in the next couple of weeks, for the most part, all new distribution, food, smallwares.

We've got a new HR system, it's going in to the first of the year.

We've got all new POS that's starting to go in.

Every back-office system is going to be new.

These restaurants don't have a KDS.

70% of the restaurants still have a ticket -- this one ticket coming into the kitchen.

It doesn't -- they don't even have remote printers.

I haven't worked in an environment where we haven't had remote printers since the 1980s.

So there is a lot of work to be done here.

And we've got a great management out there.

It's just a lot for them to take in.

And we know through our past history with integrations that these become distractions and lose focus on the basics of the business.

And so I am pleased where we're at.

There's just a lot of work to do.

Got it.

And does your guidance for the year assume that you don't make progress on improving comps from where they are or maybe even take a step backwards?

Or how are you thinking about the business performance as you make this transition?

Yes, our guidance anticipates the performance the way they're performing right now and the synergies we've already talked about.

David, one other thing and so everybody knows on Cheddar's is that we are doing multiple integrations.

As you remember, they purchased their largest franchisee prior to us purchasing them, which is making that part of it more complicated.

We are also in Cheddar's running -- starting to run negative check averages as we standardize the menus across the system.

And we believe -- this was not something in our calculus, but we think this is the right thing to do for the business is to standardize all these menus and processes and procedures.

And our largest franchisee, the largest franchisee that we acquired, what we refer to as the Greer restaurants, are running negative check because of the standardization.

That's helpful.

If I could squeeze one more in, did you quantify the impact of having one less promotion at Olive Garden this quarter on the comps?

No.

No, we actually -- we don't think that, that had a major impact on it.

We do think the lack of [TDIs] may have had an impact on the top line, but it significantly helped the bottom line.

Our next question is coming from Ms. Karen Holthouse from Goldman Sachs.

Another one on Olive Garden.

The dynamic that we did see sort of this quarter with less promotion, less marketing expense, but beneficial to profits, maybe a little bit of a traffic headwind from the change in soup, salad and breadstick pricing.

Is that sort of how to think about things going forward?

Or when do you think you get to a little bit more of a normal run rate or the level of promotion that you want to be at?

I think that's dynamic.

I mean, I think that we look at having a toolkit of levers that we can pull depending on what's happening in the external environment and maybe how good our promotion -- our top line promotional activity is.

And just to remind everybody, we're out there with 3 levels of media.

We've got a promotional media message.

We have a secondary message out there.

And then we have a lunch, our catering business -- the business message out there.

We continue to transition to more online video as that peak -- as we learn more about that, we become more effective.

And so we're all going to continue to play with the media mix to try to optimize traffic and profitability, but it is dependent on what's happening in the marketplace.

That's what we really love about the Olive Garden business is that we have a lot of levers to pull.

And as we think about going forward, everything is factored into our guidance.

And then one just quick one on the commodity outlook.

Beef inflation or beef deflation went from mid-single-digit to low single digit for the year.

As we're thinking about the cadence of that through the year, does that actually imply getting back to inflation by the end of the year?

On the beef front, no, not necessarily.

As we mentioned at the beginning of the year, we still expect commodities inflation of between flat and 1%.

And based on where we are today, we still think that number makes sense.

Next question is coming from Mr. John Glass from Morgan Stanley.

Actually, Chris on for John.

So thanks for the color so far.

But I wanted to ask a little bit more about the full year guide.

So I mean, quantifying the impact from both of the hurricanes, it's about $0.045, but I just wanted to ask if there were any potential offsets or strengthening of the business that you've been seeing recently to help offset that impact to lead you to reaffirm today?

Yes, that's all included in the guidance.

We've taken in what has happened in the last couple of weeks and included that in the guidance going forward.

But just in terms of like your confidence in the guide to help offset that $0.045?

Yes.

As we think about what we guided, we feel really confident in the $4.38 to $4.50 that we mentioned.

As we see more of what's been going on with the hurricanes and the impact that we said the hurricanes have, including cost saves that we're doing for the year, we feel really good about the $4.38 to $4.50.

Our next question is coming from Ms. Sara Senatore from Bernstein.

This is actually Stephanie Ng representing Sara.

I had a follow-up on To Go, but more on the promotion side.

Part of that growth seems driven by ongoing promotions, so your Buy One Take One home, and the discount, which makes sense if you're attempting to drive traffic to a new channel.

But at what point do you pull back on the promos or discounts?

And then specifically for To Go, how do you think about incrementality versus just advising customers to shift from off-premise to on-premise?

Yes.

First clarification, Buy One Take One does not get into the To Go numbers at all.

That's an in-restaurant promotion, although it's the ultimate convenience because the consumer gets to take a To Go meal home with them, but that's all logged in-restaurant.

Part of what we're doing from an incentive standpoint on the To Go is we think it's an area we need to remind the consumer, and we do that in a cost-effective way.

If we could -- and it's incredibly valuable for us to be able to engage in new consumer because through To Go we pick up a tremendous amount of personal information.

It helps us market more effectively to that person.

So we'll continue to use promotional activity, and we feel the margin structure is fairly strong because -- especially when we get them to engage online.

And we think that this is somewhat incremental.

These are different visits.

These takeout visits are different.

I don't think people sit home and decide whether they're going to eat in-restaurant or they're going to eat takeout.

They've decided they want to have a takeout experience, and therefore, they're using Olive Garden for that.

So again, we go back to what we're trying to do in Olive Garden.

We're trying to feed our most loyal guests where and when they want Olive Garden food.

Okay.

And then a quick question on LongHorn.

Do we track LongHorn promotions over the quarter?

And we observed the introduction of value offering, I think it was the $10 burger and drink combo?

What was the reasoning behind introducing this product and this price point?

And then how does this fit into LongHorn's broader strategy?

I think, when we will look at it, it was just a cross-promotion with Coca-Cola we have every year.

We have so many marketing dollars to use with Coca-Cola, and it was a way for us to do a cross-promotion with them.

I thought it was a value-add without having to use dollar discounts.

LongHorn's overall [TDIs] for the quarter were down.

Their incentives were down.

So I feel good about -- I do think just, in fairness, the way you guys are accounting how we do the TDIs , you've got to be careful because a lot of those TDIs are exploding offers that are very short in nature.

And we're trying to stimulate traffic.

And I think on the LongHorn, the burger and the Coke one, I thought that was a great offer.

We have to figure a way to market lunches as effectively as we can because we know the big negative trade-down if we traded dinner into lunch from the margin standpoint really hurts us.

So we thought of a couple of creative ways to keep lunch fresh in LongHorn, and I thought that was actually the best lunch promotion there in our quarter.

Our next question is coming from Mr. Matt DiFrisco from Guggenheim Securities.

Actually, Matt Kirschner on for Matt DiFrisco.

I was hoping you could talk a little bit more about the 2 Cheddar's acquisitions.

And I guess what is your long-term philosophy on franchisees going forward?

Well, both of the -- both the Cheddar's acquisitions, the one done before we purchased Cheddar's corporate and the one that we did at the end of the quarter were rights of first refusal.

We're not actively in the marketplace trying to repurchase our franchisees.

We want to be a great franchisor.

We want to make our franchisees as successful as they possibly can.

However, when the opportunity arose, to buy especially the C&P franchise, we wanted that territory back.

We wanted to control that territory.

It's one that we know, and we were able to buy that on very, very good terms.

And I guess what do you kind of expect as far as the impact of buying back some of these larger franchisees going forward?

Well, first of all, the impact of buying C&P is pretty immaterial for this fiscal year.

And after that, there is, I think, only 14 restaurants that are franchised, so there aren't many big franchisees left.

And all of those impacts will be contemplated in the guidance that we gave.

Our next question is coming from Mr. Jason West from Crédit Suisse.

Just a quick one and a follow-up.

Could you guys give the mix on To Go sales in the quarter?

And then just kind of big picture, as we've seen the industry numbers be so weak here these last few months even outside the hurricanes, just would love to get your thoughts on why you think the industry traffic is so weak as we're lapping some pretty weak numbers from last year and then the decision to pull back on that value promotion at lunch in this environment.

Yes, Jason, I think, I missed your first question.

Oh, To Go mix.

To Go, yes.

We're not breaking that out at this point in time.

What we're doing, we're giving you the overall percentage growth, but we're not getting into what's coming from catering and what's coming from third parties so on and so forth.

As far as the overall environment, I continue to look at the stronger players that I think are well positioned to have good value equations.

They continue to take market share.

I think I said on the last call that if you took out the bottom 25% of the indexes, there are players that are pretty weak.

You have flat to slightly -- have a little bit of growth in those benchmarks.

But at the end of the day, it keeps coming back to there's a lot of competition for the discretionary dollar.

And we've got to fight not just amongst ourselves to provide value to the guests.

But we've got to provide value against other options for them to spend their discretionary income.

And I think it's just a total focus on value.

And I think that gets back into our strategy, which is to use our scale and our platform to our advantage, underprice inflation and underprice our competitors and operate better to create a better value equation for our guests.

And I think that's what we continue to do.

I expect the environment to pretty much stay the same in the foreseeable future.

The next question is coming from Mr. John Ivankoe from JPMorgan.

The question is on delivery, not the $100-plus catering delivery, but other options that you have to maybe do smaller meals or individual.

I mean, what are you currently seeing in your current test?

Is it something that you want to do nationally?

Do you feel that you have an economic model design that can be profit additive to you as, I guess, the incremental units offset presumably what may be a lower margin of that sale?

So just whatever commentary that we can have.

We're in test with multiple vendors to see how this is going to play out.

It's in the early stages.

We're trying to learn.

We're trying to understand what the check average is.

We're trying to understand how good these third parties can execute because that's a big part no matter -- the consumer's perception is always going to be the supplier, not the person that's in the middle of delivering the product that's going to get blamed for good product, cold product, product that's been shaken or whatever.

So we're going to go -- we're going slow with this.

We're analyzing it.

It's a unique opportunity.

Let's see whether this is a phase or a fad.

And we're positioned to continue to analyze it.

I mean one of the options is to do it ourselves.

We're not sure we want to go there, but we'll continue to preview this out.

There's too many players in the space right now for it to work.

There's not enough profit for the third-party people to survive.

And so we've just got to let this whole thing play out.

And right now, I think our focus is on a bigger pie, which is B2B and B2C at over $100.

And that was my question as well, is there any thought internally about maybe broadening some of the constraints that you're currently asking the consumer in terms of ordering delivery?

I think it's $100-plus and 24 hours?

I mean, is there a thought of just giving them more options to where it still can be profitable for you to deliver it yourself?

Yes, we have a test going on right now with that to see how that works and for us to really analyze to make sure that there's enough profit for the effort and understanding the risk.

I mean, you have to remember for Olive Garden, the majority of our restaurants are in suburban neighborhoods, where there's not a lot of desire for this.

This isn't an urban concept.

It's not New York or Boston or whatever.

You don't know, there is no desire for this on a large scale.

I mean, you're not driving into suburbia.

In some of these places, not even Uber's cars are driving around.

Let's -- we want to go slow, and we want to be thoughtful about this.

Our next question is coming from Mr. Steve Anderson from Maxim Group.

Thank you for providing some of the commentary on your impacts from Hurricanes Harvey and Irma, and sharing your sentiments regarding the victims.

And I wanted to go a little more deeply into Harvey.

Given that the extent of the closures are related to flooding, likely extended into the first week of your fiscal second quarter, do you anticipate any impact on your second quarter EPS from that?

Yes, Stephen, you're right, pretty astute.

We did have more closed days in the second quarter for Harvey than in the first quarter, but that we have contemplated in the double the impact of Harvey.

So the Irma plus any impact of Harvey in the second quarter, including any pent-up demand that happens in Houston and other areas, is all contemplated in our double the impact of Harvey in Q2.

Our next question is coming from Mr. Andrew Strelzik from BMO Capital Markets.

So my question is actually on development.

You mentioned LongHorn performance in new markets, very happy with that.

And I know if you look at the long-term targets, obviously, it does imply an acceleration from a development perspective.

So I guess I'm just wondering, what other vehicles that you really see in terms of the brands to get into that?

When do we really start to see it play out in the numbers here getting towards those long-term targets?

Yes, we've been at the lower end of the long-term target for growth, and I think that as we build up the pipeline for new restaurants, hopefully, we can slide that upward.

We're very pleased with our new restaurant growth right now.

We've opened some very strong Yard House's, Olive Garden and LongHorn.

Let me just clarify the comment on -- my comment on LongHorn in newer markets.

Some of those -- when I'm referring to these newer markets, it's really non-legacy markets.

We've been in these markets for 3 or 4 years.

Historically, it's taken time for LongHorn to really develop a following and for people to really get the value equation.

And we're really starting to see that as we continue to grow.

And that's what's really driving the same-restaurant sales growth.

I mean, when you look at the LongHorn footprint, there's not much room.

These are small, small buildings of 6,000 square feet, some of them are closer to 5,000, and you're getting great average unit volumes out of Florida and Atlanta.

You don't have a lot of growth.

So if you're getting same-restaurant sales growth, they're going to come from some of these newer markets that opened a little bit slower.

One other thing on the long-term framework, we do -- we talk about our 2% to 3% over a longer period of time, we are considering acquisitions in that.

And so adding our new Cheddar's restaurants to that has a big push in this fiscal year, but think about what the impact is of that over a 5-year horizon.

Got it.

That's very helpful.

And then if I could just add one on the margin side, labor dollars per store stepped up year-over-year more than they have in the last couple of quarters.

Is that entirely related to Cheddar's?

Or is there anything else in there?

And also could you quantify for Olive Garden margins, what the CPG shift, what that impact is?

Sure.

On the labor dollars per restaurant, yes, a big impact to that is Cheddar's if you think about their AUVs or average AUVs for Darden at $4.5 million, with higher labor as a percent of sales.

And we did have some labor inflation.

So that did drive labor cost on a per restaurant basis up a little bit, but it is probably 50-50.

And in regards to the impact to Olive Garden or the CPG shift, it was 20 basis points to Olive Garden, 20 basis points improvement in margin to Olive Garden.

We're talking about less -- a couple of million dollars maybe in a quarter on CPG sales.

Our next question is coming from Mr. Joshua Long from Piper Jaffray.

I just wanted to follow up on your commentary on the newer markets for LongHorn.

I was curious if you're happy with that progress or if the comment was meant to say that there might be something you could do to help spur additional consumer awareness or it's, just as you mentioned, Gene, kind of fleshing out how the newer markets are performing.

Just curious if that's something that could be pressed a little further or if it's really going at the right pace right now?

No, I think it's going at the right pace.

I'm thrilled with some of these markets.

When you're busting in as the third or fourth steakhouse in a trade area, people have to have a reason to try you, and you have to work the LongHorn menu a little bit to really understand the value.

And we've tried to move that along through different processes and different marketing campaigns.

History tells us it's just time.

Over time, LongHorn has a pretty good growth spurt, and many of these markets we've got -- don't have a lot of penetration.

So there's no TV in those markets.

It's just something that's an organic to the brand for the last 20 years, and I'm thrilled with it because I know there's great value in LongHorn.

That makes sense.

And then I wanted to see if you also might be able to update us on where we're at with the remodel, refresh efforts and kind of how that's progressing.

Yes, we're making great progress.

We've got 116 done to date, 23 were completed in the first quarter.

We expect to do almost another 100 in fiscal '18.

I do think that, that number -- we didn't look at that number after the 2 storms.

You can only imagine that there is some labor shortage out there from that skill set.

So we don't know how that's going to be impacted, but we've got plans to do a lot more in the back half of the year.

The next question is coming from Mr. Gregory Francfort from Bank of America.

I have 2 questions.

The first one is just on the labor cost.

In terms of -- one of your major competitors is testing shifting their model to where they're adding runners into the restaurant to potentially reduce hours.

Is there something that you can test along those lines?

Is that something you've explored?

And maybe how are you thinking about the current labor model?

Yes, we -- for the past 20 years, we've looked at different ways to run our dining rooms.

Some of our businesses use runners.

Some of our businesses don't use runners.

At the end of the day, trying to cut back labor and taking -- that is dedicated to taking care of your guest is not a smart move.

And we will continue to improve and then try to enhance the service that we're providing our guests.

And so we believe in 3-table stations.

When we're really busy, we have runners behind them, but we are focused just on trying to improve the service, and we talked a lot about it at Darden.

We want to put the full back into full service.

That just makes a ton of sense.

And the other question was on Cheddar's.

How meaningful is the switch of the distribution business from the external party onto the Darden platform?

And can you help us understand the timing of that?

And maybe sort of what goes into those changes?

Yes, I mean, it's a big part of the synergies that we've given you.

It's probably half of it just getting on our platform.

And so the timing, I think it starts next week or the week after.

And hopefully, it's going to be seamless.

They have to order differently than what they have in the past.

We've got a little bit more of an electronic ordering process.

They probably may have to think out a day -- a date further ahead than they had in the past.

So there is some operational complexity there, but this is a big part of putting anybody on our platform.

We work extremely hard to ensure that our supply chain is as efficient as it possibly can be.

And this is a big part of us getting our synergies.

Our next question is coming from Mr. Jake Bartlett from SunTrust.

First, I had a question about -- on the inflationary environment.

You mentioned that you're in the high end of the labor inflation guidance in the first quarter.

You expect that to continue throughout the year.

And I might have missed it, but if you could tell us what the commodity inflation was in the first quarter?

Yes, we didn't specifically point out what the commodity inflation was in the first quarter.

We did say that for the year, it's 0% to 1%, and the commodity inflation in the first quarter was within that range.

So it was inflationary, where in the past, we were deflationary.

And then on wage inflation?

Wage inflation, we said it was at the high end of our 3% to 4%, so you can assume around 4%.

Okay.

Is the environment such that you think that's going to continue?

Are you still seeing that kind of wage inflation that we've been...

We've been seeing this wage inflation roughly around the 3% to 4% range for a while, and we don't see anything in the horizon that says that it's going to come down.

With that said, we have the industry-leading turnover, so we're able to offset some of the wage inflation by spending our time training our folks to get better and to be more effective and more efficient than maybe training somebody to learn our systems.

So we think that helps our productivity in the long run.

Okay.

And I have a question about the promotional environment and how you play into it.

It looks like for the past couple of years, your market share gains have accelerated as the environment became much more promotional or more value-oriented.

If I know -- and I don't think this is to your view, but if the environment got less value-oriented, how do you think you'd fair?

Would that imply some market share kind of narrowing of that gap?

Or do you think you can kind of maintain your outperformance even if the promotional environment was less value-oriented?

I think we have levers to pull and are nimble enough to compete effectively in any type of environment.

If the environment was a little bit better, maybe we'd take a little more price.

I think that we'll continue to compete effectively.

We are -- the loyalty between both LongHorn and Olive Garden with our guests and what -- especially Olive Garden, what Olive Garden means to the American cultural fabric is just incredible.

I mean, we just did the Pasta Pass promotion, the amount of participation in that, the amount of comments that were posted, the amount of press coverage.

Olive Garden is an important brand in American society, and I think it's going to compete effectively now and for a long period of time.

Our next question is coming from Mr. Peter Saleh from BTIG.

I believe last quarter you had mentioned that the guest satisfaction scores at Olive Garden were at an all-time high.

Can you give us an update on where the guest satisfaction scores are today?

And maybe where your value scores are in relation to last quarter?

Yes, overall, we -- quarter-to-quarter, we are flat.

However, service did tick up.

And when I think about the drivers of that, it's we've got to continue to simplify the operation.

These are very high-volume, complex restaurants, and the more simplicity that the team can bring to it.

And if you think about just doing 1 less promotion side that last quarter, that improved our -- that simplified things for the restaurant managers dramatically by not having to do one more rollout.

So that's where we're really focused on is the simplicity of it.

And hopefully, that will continue to lead to better execution.

Was there a second question there, Peter, I missed?

No, I was just curious as to the value scores this quarter versus last.

Yes, value scores have ticked up just a little bit.

Not -- I wouldn't say they're significant, but I mean they're already fairly high.

And when you do come off your [TDIs] a little bit, your value is going to take a little bit of a hit, too.

But I look at -- you can't look at one metric.

You have to look at all the metrics together to inform you to make good decisions.

If you're just trying to get one metric -- hate to use this sports analogy, but it doesn't matter how many first downs you get in the football game.

You've got to put the most scores -- points up on the board.

And so we've got a lot of data coming in.

We think we've got a competitive advantage here.

We look at all that data, and I think that helps inform us to make decisions that we think are good for the long term for that specific business, not what's good for the first quarter -- I mean, for the quarter that we're in, what's good for the long term.

Our next question is coming from Mr. Jeffrey Bernstein from Barclays.

Two questions.

One, just when you think about the cost savings or productivity enhancements, I'm just wondering what are the dollars assumed within the fiscal '18 guidance?

It sounds like you are reiterating the 10 to 40 basis points of EBIT margin expansion.

I'm just wondering what the dollar expectation is and where we are kind of on that ultimate opportunity from a cost savings perspective?

Yes, Jeff, it's Rick.

We stopped talking about what the dollar impact was about -- probably about 6 months ago as we wanted to make sure that we talk long term about our margin enhancements of 10 to 40 basis points coming from cost saves.

The reason we're not talking about all the dollars because we may reinvest some of that, right?

So as we think about what our cost saves are, and whenever we tell you a number, we want to tell you what the net P&L impact of that was.

And so the 0 to 1% inflation may actually end up being less than that if we have cost saves.

And we'll talk about that at the end of the year, what our total was when we get the cost saves at the end of the year.

Got it.

And then just from the cash usage, it looks like you did $100 million in repo in the first quarter.

I think when you gave initial guidance in fiscal '18, you thought it would be $100 million and $200 million in repo for the year, but it would be more evenly paced to repurchase throughout '18.

So I'm just wondering if the guidance is for it to be evenly split, it would seem like you're going to run well above $100 million to $200 million.

Should we assume that, that's possible?

Or whether we should assume a big pullback in repo the rest of the year?

Yes, I'll start by saying that remember the long-term framework was $100 million to $200 million a year, and there will be years we'll be above and there will be years that we will be below.

We did anticipate somewhere in that range, but we also said that when the market gives us opportunity, we'll be aggressive.

And we think the market gave us some opportunity in the first quarter and so we were aggressive in the first quarter and bought $100 million.

Most of that was at the end of the first quarter, though, so it shouldn't really have had an impact on Q1.

Most of that purchase was at the end of Q1.

That said, there'll be a possibility that we'll be above the $200 million this year.

And as we know more of that, we'll let you know.

And we're showing no further questions in queue at this time, [speakers].

Now I'll turn the call over to you, Kevin.

Thank you, Sean.

That concludes our call.

I would like to remind you all that we plan to release second quarter results on Tuesday, December 19, before the market opens, with a conference call to follow.

Thank you for participating in today's call.

And that concludes today's conference.

Thank you all for your participation.

You may disconnect at this moment.