達登餐飲 (DRI) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the fourth quarter earnings release conference call.

At this time, all participants are in a listen only mode.

You will have an opportunity to ask questions after the presentation.

Instructions will be given at that time.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to our host, Mr.

Matthew Stroud.

Please go ahead.

Thank you, Mary.

Good morning.

With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and COO; Brad Richmond, Darden's CFO; and Gene Lee, President of Darden Specialty Restaurant Group.

We welcome those of you joining us by telephone or the internet.

During the course of this conference call Darden Restaurant's officers and employees may make forward-looking statements concerning the Company's expectations, goals or objectives.

Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date.

We wish to caution investors not to replace undue reliance on any such forward-looking statements.

By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements.

The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports, including all amendments to those reports.

These risks and uncertainties include food safety and food-borne illness concerns; litigation; unfavorable publicity; federal, state and local regulation of our businesses including healthcare reform, labor and insurance costs; technology failures; health concerns including virus outbreaks; the intensely competitive nature of the restaurant industry; factors impacting our ability to drive sales growth; the impact of the indebtedness we incurred in the RARE acquisition; our plans to expand our newer brands like Bahama Breeze and Seasons 52; a lack of suitable new restaurant locations; higher than anticipated costs to open, close or remodel restaurants; increased advertising and marketing costs; a failure to develop and recruit effective leaders; the price and availability of key food products and utilities; shortages or interruptions in the delivery of food and other products; volatility in the market value of derivatives; general macroeconomic factors including unemployment and interest rates; severe weather conditions, disruptions in the financial markets; a possible impairment in the carrying value of our goodwill or other intangible assets; a failure of our internal controls over financial reporting; and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission.

A copy of our press release announcing our earnings, the Form 8-K used to furnish the release to the Securities and Exchange Commission, and any other financial and statistical information about the period covered in the conference call, including any information required by Regulation G, is available under the heading Investor Relations on our website at Darden.com.

We plan to release fiscal 2012 first quarter earnings and same restaurant sales for fiscal June, July, and August 2011 on Wednesday, September 28, 2011 before the market opens, with the conference call shortly thereafter.

So, we are changing our earnings release process to issue the earnings at 7 AM, followed by a call at 8.30 beginning with the first quarter.

We released fourth quarter earnings results yesterday afternoon.

These results were available on PR Newswire and other wire services.

And we recognize that most of you reviewed our fourth quarter and fiscal year earnings results so we won't take the time to go through them all in detail once again in an effort to provide more time for your questions.

However we will offer a line item summary of the P&L and discuss our financial outlook for fiscal 2012, as well as discuss our brand by brand operating performance summary.

Now we expect this call to last approximately 1 hour but we're prepared to extend that if necessary.

Brad will now provide additional detail about our financial results for the fourth quarter and our fiscal year.

Drew will briefly review our operating performance of our larger brands.

Gene will discuss the Specialty Restaurant Group.

Brad will review our fiscal 2012 outlook.

And he will be followed by Clarence who will have some final remarks, and we'll then respond to your questions.

Brad?

Thank you, Matthew, and good morning, everybody.

Darden's total sales from continuing operations increased 6.8% in the fourth quarter to $1.99 billion.

This strong top line performance compares to an estimated 2.9% total sales growth for the industry as measured by Knapp-Track.

So, as you can see, we had meaningful market share growth.

On a blended same restaurant sales basis, the results for Olive Garden, Red Lobster and Longhorn Steakhouse were up 2.2% in the fourth quarter.

For context, industry same restaurant sales, as measured by Knapp-Track, and excluding Darden, are estimated to be up 1.9% for the quarter.

Olive Garden fourth quarter US same restaurant sales were flat at 0.0%.

This includes the adverse effect of the timing of last year's price increase which occurred early March of fiscal 2010 but was not repeated in the fourth quarter of this year.

We estimate this adversely affected same restaurant sales at Olive Garden by approximately 100 basis points in each month of the quarter.

Traffic for the quarter improved sequentially from this year's third quarter and was flat to last year.

Red Lobster's fourth quarter US same restaurant sales increased 3.8%, and includes the benefit of the Lent and Easter holiday shift and the shift of Lobster Fest.

These shifts positively affected March sales by about 20 basis points, and April same restaurant sales by 280 basis points.

Longhorn Steakhouse fourth quarter US same restaurant sales increase 6.0%.

This includes the impact of the holiday shift of Lent and Easter that positively affected March same restaurant sales by 80 basis points, but adversely affected April same restaurant sales by 180 basis points.

And we also saw continued strong same restaurant sales gains in our Specialty Restaurant Group with 5.3% same restaurant sales growth on a blended basis.

The Capital Grille fourth quarter same restaurant sales increased 7.9%.

Bahama Breeze fourth quarter same restaurant sales increased 2.0%.

And Seasons 52 fourth quarter same restaurant sales increased 2.2%.

Now, let me turn to a margin analysis of the fourth quarter.

Food and beverage expenses were 116 basis points higher than last year on a percentage of sales basis.

As we have discussed previously, we expected higher food and beverage expenses as a percentage of sales in the fourth quarter.

Some because of the timing of the Lobster Fest promotion at Red Lobster but mostly because of the inflationary commodity cost environment.

Our purchasing strategy has been to lock in forward contracts that we believe to be favorable, but avoid those where there are large premiums to the current market price.

This strategy has been successful because we purchase products in the cash market at levels that provide meaningful savings compared to what we would have had, had we contacted in the futures market.

Fourth quarter restaurant labor expenses were 111 basis points lower than last year on a percentage of sales basis due to sales leveraging, improved wage rate management, and continued low employment levels which led to increased productivity gains and reduced talent acquisition costs.

Restaurant expenses in the quarter were 47 basis points lower than last year on a percentage of sales basis, primarily because of sales leveraging and modestly lower pre-opening expense, utility expense and workers' compensation expense that more than offset an increase in credit card fees.

Selling, general and administrative expenses were 18 basis points lower than last year as a percentage of sales due to sales leveraging.

More specifically, because of sales leverage, selling expenses were flat as a percentage of sales despite an increase in the absolute dollar spent on media.

Depreciation expense in the quarter was relatively unchanged on a percentage of sales basis compared to last year.

For the quarter, operating profit as a percentage of sales was 10.4%.

That's 67 basis points better than last year, and came from a combination of our strong unit growth and same restaurant sales growth.

During the fourth quarter we purchased 2.3 million shares of our common stock for approximately $110 million.

When you add it all up, it was a very good quarter, with sales trends improving and growing over 6% compared to last year and earnings per share growth of more than 23%.

And it capped a very strong year.

For the full fiscal year, Darden's total sales increased 5.4% in fiscal 2011 to $7.5 billion.

This increase was driven by 70 net new restaurants, the blended same restaurant sales increase of 1.4% at our large brands, and a blended same restaurant sales increase of 4.8% at the Specialty Restaurant Group.

On a brand by brand basis, Olive Garden's annual same restaurant sales increased 1.2% and its average unit volumes were $4.8 million, well above those of any other nationally advertised full-service restaurant brand.

Red Lobster had 0.3% same restaurant sales increase for the year and its average unit volumes were $3.6 million, which is also high within the category.

Longhorn Steakhouse same restaurant sales increased 5.4%, and its average unit volumes were $2.9 million.

The Capital Grille, same restaurant sales increased 6.2%, and its average unit volumes were $6.5 million, well ahead of its nearest multi-unit competitor.

Bahama Breeze same restaurant sales increased 2.4%, and average unit volumes were $5.5 million.

And Seasons 52 same restaurant sales increased 4.4% and its average unit volumes were $6.3 million.

For comparison, same restaurant sales as measured by Knapp-Track benchmark, excluding Darden, increased an estimated 0.8% for our fiscal year.

The combination of competitively strong same restaurant sales growth and high average unit volumes underscores just how strong our portfolio of brands is.

It's a portfolio that enables us to perform well in any environment.

Our same restaurant results on high average unit volumes support value creating new unit growth.

And in fiscal 2011, Olive Garden opened 31 net new restaurants.

Longhorn Steakhouse opened 23 net new restaurants.

Red Lobster opened 4 net new restaurants.

The Capital Grille opened 4 net new restaurants.

Bahama Breeze opened 1 net new restaurant.

While Seasons 52 opened 6 net new restaurants.

And we opened one synergy restaurant pairing Red Lobster and Olive Garden.

For a total of 70 net new restaurants for the year.

We purchased $385 million of our shares for the year.

In the last 5 years, we've purchased over $1.14 billion of our stock while maintaining a solid investment grade credit profile, which speaks to the significant cash flows we generate on a consistent basis.

We have 24.7 million shares remaining in our current repurchase authorization.

And I'll discuss later our plans for share repurchase in fiscal 2012 following Gene's remarks.

Given our ability to consistently generate strong cash flows, yesterday we announced an increase in our dividend to $0.43 per share payable on August 1, 2011, to shareholders of record on July 11, 2011.

Previously, we paid a dividend of $0.32 per share or $1.28 per share on an annual basis.

Based on the $0.43 quarterly dividend declaration, our indicated annual dividend is $1.72 per share, an increase of 34%.

This equates to a payout ratio of approximately 50% based on fiscal 2011 diluted EPS.

So looking backward, it's now at the upper end of our new targeted payout range of 40% to 50%.

And now, I'll turn it over to Drew to comment on Olive Garden, Red Lobster and Longhorn Steakhouse.

Drew?

Thanks, Brad.

This morning, I'll share a few highlights regarding industry same restaurant sales dynamics, our fiscal 2011 fourth quarter sales performance, and our fiscal 2012 strategic priorities for Olive Garden, Red Lobster and Longhorn.

Then Gene will do the same for the brands in our Specialty Restaurant Group.

Casual dining performance as measured by the Knapp-Track chain benchmark excluding Darden Brands continued to improve during the fourth quarter.

Same restaurant sales increased 1.9% which is the best quarterly performance since the third quarter of our fiscal 2006.

And same restaurant guest counts were flat which represents the best quarterly performance since the fourth quarter of our fiscal 2005.

For the full year, industry same restaurant sales grew 80 basis points.

While the broader economic recovery has not been as strong as any of us would like, and full year casual dining same restaurant sales are still negative on a 2-year basis, we are encouraged by the gradual and sustained improvement in our industry.

And we anticipate continued modest recovery during fiscal 2012.

It's also worth noting that we've continued to see a narrowing in the casual dining user base.

Households with incomes above $75,000 have always been the biggest user group in our industry.

However, this group has significantly increased their share of traffic, both during the recession and after the recession.

While the share from households with incomes below $60,000 has been reduced.

Given this trend, we believe the ability to offer greater affordability to guests without eroding margins will continue to be very important going forward.

Now, let's discuss our fourth quarter performance.

As Brad mentioned, our 3 large brands delivered combined same restaurant sales growth of 2.2% during the fourth quarter, exceeding the industry benchmark by 30 basis points.

Olive Garden opened 11 new restaurants, delivered total sales growth of nearly 4%, high single digit operating profit growth, and solid margin expansion during the fourth quarter.

Same restaurant guest counts during the fourth quarter were essentially even with prior year and equal to the industry benchmark.

Same restaurant sales were also flat versus prior year but trailed the industry benchmark by 190 basis points.

Olive Garden started the quarter with their culinary Institute of Tuscany promotion featuring 2 new entrees, sofatelli with braised beef and sofatelli with chicken.

Sofatelli, our hand-made puff pastries filled with 5 cheeses and herbs.

This was followed by their Heart of the Village promotion, which also featured 2 new dishes, pastachetti with chicken and pastachetti with sausage, as well as a starting at $9.95 price point.

Pastachetti, our parmesan-crusted lasagne squares filled with 4 Italian cheeses.

While these promotions drove traffic that was equal to the industry benchmark, traffic growth was below our expectation given the effect on check which was 170 basis points below the industry benchmark.

And accounts for essentially their entire gap versus the industry in same restaurant sales.

The lower check at Olive Garden for the quarter versus the industry reflects 2 decisions.

First, while we introduced pricing last year during the fourth quarter of fiscal 2010, we chose not to do so in the fourth quarter of fiscal 2011.

Instead we will introduce the new core menu and related pricing during the first quarter of this year of fiscal 2012.

As Brad mentioned, the year-over-year mismatch in pricing negatively impacted same restaurant sales by roughly 1% each month during the fourth quarter.

Second, the value-oriented pastachetti promotion that started in May had a starting at $9.95 price point, while last year's May promotion had a starting at $10.95 price point.

Beyond a pricing and promotion strategy that appropriately we think emphasized affordability, a third dynamic worth noting is that Olive Garden had a difficult prior year comparison during the last month of the quarter.

That's because, while reported same restaurant sales in May of fiscal 2010 for Olive Garden were up 0.5%, when you eliminate the noise introduced by a 53rd week in May of fiscal 2009 and then look at same restaurant sales for May of last year on a calendar adjusted basis, they were up plus 2.4%.

Now, stepping back from the fourth quarter, we know that same restaurant sales results at Olive Garden since February have not been what we want them to be.

As we assess the situation, there are a few observations.

Most importantly, we know Olive Garden remains a very healthy brand with a very strong business model, and has significant growth potential ahead.

That's because we have not seen any meaningful change in our key business indicators, including guest satisfaction and brand perception ratings.

We've also not seen any meaningful change in how guests are using the brand, by menu category, by day part or by geography.

We also believe the dishes we've promoted since February have not been broadly appealing enough.

In every promotion, we try to balance compelling news and approachability that drives near term visits, with distinctiveness that builds long-term brand equity.

Recent promotional offerings have tilted that balance too far towards distinctiveness.

And that tilt has been amplified by some of the names we used.

And finally, our recent advertising executions have not broken through in the highly promotional environment as well as they have in the past.

So, the primary conclusion we draw looking back over the February to May period is that our marketing has not been sufficiently effective.

In response, we've made some marketing organization changes and promotion strategy changes that will benefit fiscal 2012, which I'll discuss in just a moment.

At Red Lobster, we opened 4 net new restaurants, delivered total sales growth of 5.6%, double digit operating profit growth, and significant margin expansion during the fourth quarter.

Same restaurant sales increased 3.8% during the fourth quarter, roughly 200 basis points above the industry benchmark.

Adjusting for the impact of shifts in Easter and Lobster Fest, they achieved same restaurant sales growth of 2.9% during the fourth quarter, 100 basis points above the industry benchmark.

Red Lobster advertised Lobster Fest in March and most of April.

And they finished the quarter with Festival of Shrimp which included an $11.99 price point.

After a slow start to fiscal 2011, Red Lobster has regained profitable same restaurant sales momentum by optimizing their promotion strategy to feature cravable dishes at specific price points versus starting at price points.

Starting in October when they adjusted their promotion pricing strategy and advertising for Endless Shrimp, Red Lobster has exceeded the industry same restaurant sales benchmark by an average of 110 basis points.

Red Lobster also completed 42 remodels during the fourth quarter and 83 remodels for the full year.

Longhorn Steakhouse opened 7 new restaurants, delivered total sales growth of roughly 14%, high double digit operating profit growth, and solid margin expansion during the fourth quarter.

Same restaurant sales increased 6% during the fourth quarter, exceeding the industry benchmark by more than 400 basis points.

Adjusting for the shift in Easter timing, they achieved same restaurant sales growth of 6.2%.

Longhorn has now exceeded the industry's same restaurant sales benchmark for 10 consecutive quarters.

Longhorn began the quarter with their fired grilled flavors promotion featuring a new shrimp and bacon filet and their outlaw ribeye.

Their steak and seafood promotion began in May, supported by national cable television advertising.

And featured a new shrimp and lobster topped filet, plus their sirloin and cedar-grilled shrimp.

Longhorn completed 37 remodels during the fourth quarter and 112 for the full year.

Now, all 3 brands also delivered improved guest satisfaction, strong controllable cost management and competitively superior restaurant manager and team member retention during the fourth quarter.

And our direct labor optimization initiative was successfully launched at Olive Garden and Red Lobster in March.

In total, our portfolio of large full-service brands helped us to once again extend our market share leadership position in fiscal 2011.

And by further strengthening their business models, they enabled us to do so profitably and leave us well positioned for another year of profitable growth in fiscal 2012.

Now let's take a look at our fiscal 2012 strategic priorities.

Olive Garden will maintain strong new unit growth in fiscal 2012 with plans to open 35 to 40 net new restaurants.

As I mentioned earlier, Olive Garden plans to adjust their promotion strategy in fiscal 2012.

This includes the addition of 2 incremental value-oriented promotions during the first half that provide more price certainty to value-seeking guests through the use of specific price points versus the starting at price points that they have used for the last several years.

They will also adjust their creative message to focus a little more on a short-term call to action, and somewhat less on longer term equity building.

And they more consistently offer dishes that are both broadly appealing and compelling.

The Twist on Classics promotion that Olive Garden began this week is a good example of their new strategy.

The promotion features 2 new dishes, carbonara ravioli with pan-seared chicken for $10.95, and carbonara ravioli with sauteed shrimp for $12.95.

The commercial spends more time explaining the consumer benefits of this offer by describing the parmesan and pancetta-filled ravioli, emphasizing the attractive price points.

And reminding guests that each dish comes with unlimited soup or salad and breadsticks.

Beyond their new promotion strategy, to help drive lunch traffic Olive Garden has introduced 3 new grilled panini sandwiches.

Chicken caprese, chicken florentine, plus steak and portobello.

All 3 sandwiches come with unlimited soup and salad and are priced between $8.95 and $9.50.

We tentatively plan to advertise these new dishes at an attractive price point later in the fiscal year.

Additionally, as we move through the year, you'll see additional evolution in how Olive Garden tells their story in advertising.

Finally, Olive Garden will begin the second phase of testing their Via Tuscany remodel program for the 430 non-Tuscan farmhouse restaurants in their system.

This program incorporates interior and exterior design elements from their Tuscan farmhouse prototype and provides a unifying expression of generosity and warmth across their family of local restaurants.

We've already remodeled 60 test restaurants, and guest and team member response has been overwhelmingly positive.

As part of our second phase of testing, we plan to remodel an additional 75 restaurants this year starting in the second quarter.

We will review results during the second phase of testing and finalize our plans for remodeling the remaining non-Tuscan farmhouse restaurants with projected completion by the end of fiscal 2014.

Red Lobster will maintain modest new unit growth in fiscal 2012 with plans to open 3 to 5 net new restaurants.

The key priority at Red Lobster is to sustain the profitable guest count growth achieved in the last 8 months of fiscal 2011.

They have a 3-pronged strategy to achieve this priority.

First, they will improve affordability for their current core guest base by offering price certainty in more promotions this year.

Second, they will increase frequency among light and lapsed users of the brand by launching a new ad campaign that more effectively lets these guests know that Red Lobster offers a range of fresh seafood choices expertly prepared on a wood fire grill.

And by continuing their Bar Harbor remodel program that provides the up-to-date atmosphere these guests are looking for.

Red Lobster plans to remodel approximately 125 restaurants this year.

Third, their operations teams will further increase guest satisfaction through a comprehensive effort to improve food taste and temperature by optimizing restaurant processes, procedures, and kitchen equipment.

Red Lobster began the new fiscal year promoting a $15 4-course seafood feast.

This promotion was specifically designed to attract price-conscious guests with a very accessible $15 price point.

And do so at a margin that contributes to profit growth in absolute and percent terms with appropriate guest count growth.

Through the first 4 weeks of the promotion, we are generating substantially more incremental traffic than we require to achieve these objectives.

Longhorn business performance is strong and momentum is growing.

As a result, we plan to accelerate new unit growth in fiscal 2012 with plans to open 30 to 35 net new restaurants.

Competitively superior same restaurant sales growth will be driven by our variety of proven tactics.

These include the completion of their ranchhouse remodel program, 4 additional weeks of television support driving a total media weight increase of approximately 25%.

The introduction of a new steakhouse appropriate lunch program with the starting at $6.99 price point.

And the introduction of 2 proven restaurant operating systems to help further strengthen operations excellence, a table management system and kitchen display system.

Longhorn is currently promoting their new steakhouse grilled trio featuring a flavorful combination of fresh steak, shrimp, and chicken for $16.99 and their renegade sirloin for $11.99.

All 3 of our large brands plan to limit their annual price increases to the lower end of our historical 2% to 3% range to help protect the strong value proposition we offer our guests.

And to help maintain our strong business models, we have plans in place to eliminate $65 million to $75 million in costs during fiscal 2012 compared to fiscal 2011.

This will be accomplished through a combination of ongoing incremental cost reduction efforts driven by running the business closer to current standards.

Plus transformative cost reduction efforts that fundamentally change how we support our restaurants and operate the business going forward.

Our ongoing incremental cost reduction efforts account for approximately $10 million to $15 million in year-over-year savings.

And our transformational cost reduction efforts account for approximately $55 million to $65 million in savings across 4 primary initiatives.

Labor optimization, supply chain automation, sustainable operating practices, and facilities maintenance centralization.

Now, since we have almost completed the first month of our new fiscal year, we thought it was appropriate to comment very briefly on same restaurant sales.

After 4 weeks, blended same restaurant sales during June for our 3 large brands are in the range of plus 5% to plus 6%, with a particularly strong contribution from Red Lobster which is well above that range.

Now, Gene will review our Specialty Restaurant Group.

Thanks, Drew.

Specialty Restaurant Group had a strong fourth quarter, delivering 19.3% sales growth which represents 18% of Darden's total sales growth for the quarter.

This growth was a result of solid performance at our 11 new restaurants and blended same restaurant sales growth of 5.3% which was driven by strong performance at Capital Grille.

Our strong sales growth resulted in significant margin expansion during the quarter.

Restaurant level margins improved significantly.

And we effectively leveraged our support platform to reduce G&A as a percentage of sales.

Total sales for the group exceeded $500 million in fiscal 2011, an increase of 19% over prior year.

In fiscal 2012, we will continue building on this momentum.

The Specialty Restaurant Group plans to open 10 to 12 net new restaurants, including two Capital Grilles, 3 to 4 Bahama Breezes, and 5 to 6 Seasons 52 restaurants.

As we continue to grow, maintaining our talent pipeline will become even more important, so we will refine management recruitment and development processes to insure we continue to hire, develop, and retain strong management teams.

We will also build on the same restaurant sales momentum that we established in fiscal 2011 by further enhancing in restaurant operational delivery at all 3 brands.

Capital Grille will leverage the personalized service that differentiates the brand and focus on growing their lunch business.

Bahama Breeze will evolve its service delivery model to enhance the guest experience and deliver strong affordability and value through innovative menu development.

Seasons 52 will also further enhance the guest experience through their strong service culture and utilize their expanded private dining capacity and capabilities to continue building group and event dining business.

We will leverage both same restaurant sales growth and new restaurant growth to further strengthen our business models.

We've identified unique Specialty Restaurant Group cost saving initiatives and will complement these by using culinary creativity to avoid some of the products where inflationary pressure is most meaningful.

The combined effect of these efforts and sales leverage means we expect to see an improvement in restaurant level margins.

In addition, we will continue to enhance the support platform while leveraging our leadership talent across the group.

Now, I'll hand it back to Brad for the fiscal 2012 finance outlook.

Thank you, Gene.

Our outlook for fiscal 2012 reflects our very strong business model.

In fiscal 2011, we generated nearly $900 million in cash flow from operations in what was a low growth economic period.

And we anticipate generating even stronger cash flows from our operations in fiscal 2012 despite elevated cost inflation driven by the combination of same restaurant sales growth, accelerating new unit growth, and improvements in our already strong margins.

And after investing in our businesses, we plan to return even more capital to our shareholders through the increase in our dividends which we announced yesterday, and by maintaining our strong level of share repurchases.

In fiscal 2012, our outlook is based on a combined same restaurant sales growth for Red Lobster, Olive Garden and Longhorn Steakhouse of approximately 2.5%.

This includes approximately 2% to 3% of pricing for fiscal 2012 and our assumption that together traffic and mix changes will be flat.

Of course, we will be both above and below the assumed range for month to month and quarter to quarter depending on promotional calendars, holiday shifts and changes in consumer sentiment.

Looking ahead to unit growth, the new unit plans we outline mean we expect a net new restaurant increase of approximately 80 to 90 restaurants, which is about 4.5% unit growth on our current base, and approximately 4.0% in operating weeks or capacity for fiscal 2012 based on the timing of our unit openings.

Given our same restaurant assumptions and new unit growth plans, we anticipate that total sales increases for the year will range between plus 6% and plus 7%.

With more unit development in fiscal 2012 and our accelerating remodel program at Red Lobster and Olive Garden, we expect capital spending to be somewhat higher than fiscal 2011 levels.

We anticipate it to be approximately $600 million which compares to $547 million in fiscal 2011.

Looking at operating profit margins from continuing operations, we expect margin expansion of approximately 30 basis points on a full year basis compared to fiscal 2011 results.

On a percentage of sales basis we expect to see unfavorability from food and beverage expenses in the first half of the fiscal year.

But this will begin to level out in the second half of the fiscal year as we wrap on the elevated inflation that emerged in the second half of our fiscal 2011.

We anticipate lower restaurant labor expenses and restaurant expenses as a percentage of sales this fiscal year because of same restaurant sales growth leverage and our transformational cost reduction initiatives.

The remaining line items of selling, general and administrative expenses and depreciation expenses are expected to be relatively unchanged on a percentage of sales basis.

Looking at food costs more specifically, while increased commodity prices will be partially offset by our supply chain related cost initiatives, we expect food and beverage expenses to be higher as a percentage of sales in fiscal 2012.

We anticipate food inflation to be in the lower half of the range of plus 5% to plus 5.5% we previously disclosed at our analyst meeting in February.

We have many of our products, approximately 75% of our total spend, contracted through the end of calendar 2011, which I will discuss in a little bit more detail shortly.

So we have about 6 months of full visibility on our cost.

There's limited coverage beyond calendar 2011, in part because we believe some commodities will experience cost declines from the current elevated levels.

And we want to be in a position to benefit from that decline.

And because we feel the premiums for future contracts are simply too great compared to what we expect prices will be in the cash market several months from now.

Quickly highlighting some of the specific items, total seafood prices for fiscal 2012 are expected to be higher than in fiscal 2011, in part because of stronger global demand.

Seafood accounts for approximately 30% of Darden's total cost of goods sold.

Category by category, shrimp is our biggest volume protein and we have coverage through the second quarter of fiscal 2012 at prices higher than they were in fiscal 2011.

Crab is contracted or purchased at prices higher than fiscal 2011 with coverage through the fourth quarter of fiscal 2012.

And we currently have lobster usage contracted or purchased through calendar 2011 at prices that are also higher than the prior year.

Beef prices are higher on a year-over-year basis, and we have approximately half of our usage covered through the calendar year.

Poultry prices are slightly higher on a year-over-year basis but we have contracted our usage through December of 2011 at prices equal to our fiscal 2011 cost.

Wheat prices are higher on a year-over-year basis.

We have contracts taking us through the fall for our bread products and contracts on our pasta products that expire this summer.

We expect that bread and pasta contracts will be renewed at prices equal or slightly better than what we are experiencing as we begin the North American harvest season in August and September.

Dairy prices are higher on a year-over-year basis driven by a strong export market.

For dairy products, more than one-half of our usage for the calendar year is contracted at prices higher than fiscal 2011 cost.

Energy costs are expected to be unchanged on a year-over-year basis, at least through the calendar year.

We have contracted nearly 100% of our natural gas and electricity in the deregulated markets in which we operate for calendar 2011 at prices slightly favorable to calendar 2010.

And we will be optimistic about adding additional coverage.

Turning to labor, as I mentioned, we anticipate that labor cost as a percentage of sales will decrease due to sales leverage and savings derived from our labor optimization initiatives which began in the fourth quarter of fiscal 2011.

We believe that restaurant expenses as a percentage of sales will be slightly favorable to the prior year.

Again, because of sales leverage and our transformational cost savings initiatives.

We anticipate that selling, general and administrative expenses as a percent of sales will be relatively unchanged compared to the prior year.

This is because of sales leveraging and cost savings that will be offset by media inflation of approximately 8% to 9%.

Finally for fiscal 2012, we expect our tax rate to be approximately 27%, although this will vary by quarter depending on the timing of certain tax events.

And again, we expect to generate solid cash flows in fiscal 2012 which we've done consistently since we became a public company in 1995.

And to use this to pay our increased dividend and to repurchase shares.

We expect to pay out approximately $225 million in dividends to our shareholders, an increase of approximately $50 million from fiscal 2011.

We also expect to repurchase approximately $350 million to $400 million of our stock in fiscal 2012, similar to our share repurchase total in fiscal 2011.

With our same restaurant sales assumptions and new unit growth plans and cost expectations, we anticipate that reported diluted net earnings per share growth from continuing operations for fiscal 2012 will be approximately 12% to 15% compared to our reported diluted net earnings per share from continuing operations of $3.41 in fiscal 2011.

There will be some meaningful quarterly variability in earnings per share of growth this year because of food cost inflation trends in the prior year.

In the first half of this fiscal year, we will have elevated food costs inflation lapping what was a pretty modest food cost inflation last year.

So earnings per share growth is expected to be in the single digit range in the first and second quarters.

Food cost inflation started in earnest in the second half of the fiscal year so this year's third and fourth quarter, even with this elevated cost inflation, we expect to deliver double digit earnings per share growth.

Overall, we remain confident that this year we'll once again deliver competitively superior results in what is likely to be a moderately improving economic environment.

And now I'll turn it over to Clarence for some final comments.

Thanks, Brad.

So when you step back, what does all this mean?

It means that in a fragmented full service dining industry that has few participants of size, we'll add roughly $0.5 billion of sales in the next 12 months.

We'll deliver mid teens earnings growth, a 34% increase in our dividend, and nearly $400 million in share repurchase.

And we'll do so after investing well over $0.5 billion in strengthening and expanding our business.

And we'll also do so in a tough economic environment, one where there's sluggish economic growth and elevated inflation and some costs that are pretty important to us.

What do those expectations tell us?

They tell us that we've built something special.

We've built a diverse portfolio of brands that enables us to deliver strong results even when any single one of our brands is experiencing the tactical ups and downs that every brand at some point will experience in an industry as dynamic as full service dining.

And most importantly, they tell us that we built some wonderful teams.

Support teams that have expertise, that's industry leading in the many areas that are critical to success in our business.

And teams in our restaurants who are passionate about supporting one another, and even more passionate about delighting guests.

And so you can be sure that there are a couple of things we'll continue to do.

We'll continue to leverage all that we've created, to build ever strong guest loyalty.

And we'll continue to leverage all that we've created to produce industry level, leadership level total shareholder returns.

And so with that, I know it's end of fiscal year so we've run a little long but we will stay longer to make sure that we answer all your questions.

And we would be delighted to start that right now.

So thank you.

(Operator Instructions) David Tarantino with Robert W.

Baird.

Hi, good morning and congratulations on a great year.

First question really is about your comps guidance for fiscal '12.

You're assuming 2.5% and you just indicated that you started June very strongly.

So just wondering or curious why you're assuming relatively low levels versus the pace that you've been on recently, especially from a traffic and mix perspective.

David, I think as we put our plans together, we start with the overall macroeconomic environment.

We work with our partner, is David Cross, a well-known, well-respected economist.

Market Outlook is David's firm.

And so we really do start with GDP growth and all the components that go into that.

And then some things that David in his model over many years working with us has identified as drivers of casual dining.

And I would say, as you look at the range of GDP growth projections that's out in the marketplace, David's is probably towards the lower end.

And so that really is the foundation for what we think the industry is going to do and then we put together our plans based on what we think we can do relative to the industry.

So compared to a range of estimates it's conservative.

Unfortunately for all of us, David's been more conservative than most over the last several years, and he's been more right than most, so that's where we are.

That's helpful.

And if I could squeeze one follow-up question in.

On the 2.5% that you're assuming for the blended comp, are you assuming that Red Lobster and Longhorn continue to lead and Olive Garden lags that figure?

Or how do you expect the composition to play out?

I don't know if I'll go too much into specifics of each brand but we expect all of the brands to contribute positively to our same restaurant sales performance for the fiscal year.

Steve West with Stifel Nicolaus.

Yes, a quick follow-up question on the June comp.

You talked about very strong and you really called out the Red Lobster.

Can you maybe give just some qualitative color around Olive Garden?

Are you seeing maybe some improvements at least in that versus what we've seen in the last couple quarters?

We started the month with the same promotion that we had in May and so we didn't see a huge trend change.

The big change has occurred this last week, really, with, as Drew said, the introduction of the most recent, the current promotion that reflects some of the tactical changes that we've made that are consistent with all of the observations that Drew offered.

Okay.

And then real quick, on the guidance you guys gave last year, when you gave the guidance you indicated maybe pushing a little ahead on the comps.

But assuming that there would be a consumer rebound finally after so many years.

But you also said if there wasn't that rebound you had hedged on the labor side, thinking there would be some labor leverage, and we clearly saw that.

Is there any kind of hedging or anything we need to think about as far as comps and maybe margin differences if you don't get the comps or if comps are stronger this time versus what you are guiding?

Yes, I'd say there are quite a few.

Labor continues to be one of those.

But food cost is another.

And so we got, as Brad said, a total inflation rate, he outlined, I think, 5% to 5.5%.

We've locked in the first half of that, for the most part.

The second half we have not.

We think prices are going to come down even with continued economic improvement.

But if the economy flags even more than we expect, we don't see a food cost inflation staying at the levels we've got in our plan.

David Palmer with UBS.

Thanks.

Hi.

Darden has been protective of its brand in recent years with regard to price discounting, going a little too heavy on the price element.

Could you give us your thinking about that $15 4-course promotion at Red Lobster?

Clearly, that looks like pretty deep value for that brand.

Why is that the right move for that brand?

Why is that not something that you'll be regretting perhaps a year from now?

Thanks.

I'll start off and say the key is putting together a dish that has the right margin structure, or an offer that has the right margin structure.

As opposed to taking something that's built for a margin at X price and trying to deliver it at 25% less.

And so Red Lobster is doing a lot of work over the past several months on culinary innovation.

And so the offer that they have out in the market right now, the promotion, the 4-course for $15, was created with a very strong margin structure.

And so we feel really good about it, good enough that this is an offer that could transition to the permanent core menu.

And the one follow-up I'd add to that is we want to make sure, with any of our promotions, that we're delivering an experience that people expect at the brand.

And sometimes if you take a very big discount then you're not going to deliver the same experience that they've come to expect from you.

And this 4-course seafood feast that Red Lobster has got now is designed to deliver the experience Red Lobster guests love, and do it in a way that is very value-creating for Darden shareholders.

David, Brad here.

I'd just add one other point of view on that.

And that is, when we look at it, it is a discount that's very similar to when we have our Endless Shrimp, but it really delivers a different experience.

So we're touching a different guest to help motivate them to get into the restaurant.

Brad Ludington with KeyBanc Capital Markets.

Thank you.

I wanted to ask, and sorry if I missed this, if you can comment on what kind of price increase levels you have built into your guidance, and if there's a variation between the 3 major brands and what levels.

And then also, how you look at that pricing.

Are you looking to keep it low, to take advantage of the fact that food at home CPI is so high, up about 4.5% in the recent month, I think?

Thank you.

With our annual pricing every year, the 2 things that we're looking to do is make sure that we're covering the net inflation that's going into our business model.

And also preserve the value equation and the relative positioning competitively that each brand enjoys.

So historically, we've taken pricing in the 2% to 3% range.

This coming year, what I mentioned is that all of our major brands are going to be at the low end of that range because we know there's an elevated need for affordability.

But we also are very comfortable that that range of pricing is very consistent with maintaining strong unit economics because of all the proactive cost management that we've got going on.

Okay.

And have you seen any impact in recent months at some of the brands with supermarket inflation up so much?

Is that helping drive people to some of the restaurants do you think?

We don't know, I guess is the answer.

I'd say the thing that Drew outlined was that, as you look at casual dining over the last 6 months, it's an industry where same restaurant sales are strengthening.

And so in general, the trend over that period is better months, and that's despite tougher prior year comparisons.

And that's in the face of elevated gasoline prices, it's in the face of some of the supermarket inflation.

So we couldn't really disaggregate it.

But the industry is holding up well and that's consistent with our view that casual dining is definitely an integrated part of people's lives.

Matthew DiFrisco from Lazard.

Thank you.

I'm also just curious, Clarence I think you said it was 2 incremental value-oriented promotions for Olive Garden.

What's the timing of those?

It sounds like you said the first half.

Will there be incremental expense associated with those?

So is that also somewhat weighing on your single digit earnings outlook in the first half?

Yes, this is Drew.

There are 2 incremental value-oriented promotions during the first half.

One is going on now.

But just like with the Red Lobster promotion we discussed, the products that have been developed and the price point that's been established, and the traffic that we anticipate generating, we anticipate to be value creating.

So we think it's going to address consumer need for broadly appealing dishes, attractive price points that are going to help us generate profit growth.

Yes, I think to be more specific, on the first half of the year in the earnings growth that we talked about, it's pretty singularly focused on the elevated food cost environment that we're in.

And we think off these pretty high elevated levels compared to a year ago where there was very little inflation in the food cost.

And as you start to get to the back half of the year and we're wrapping on this, we actually see that prices will be no higher than that and probably, at the start, moving down a little bit.

Just as a follow-up to that point, your relative COGS in the fourth quarter, obviously has the inflation in there.

But was also, I think, a comment that there was some mix effect working in there?

So was that all the inflationary pressures out there and something to look for as a proxy for 1Q or was there some mix effect, as well, working against you?

I would say the mix effect was maybe 20 to 25 basis points of that.

We've seen elevated commodity cost and so that is by far and away the big driver of that.

The mix impact was pretty minor.

We had the Lobster Fest which delivers a higher absolute margin but the percentage is a little bit less.

Or said another way, a little bit higher elevated food cost.

And we've had some other promotional activity.

But they're delivering margins pretty much as we would expect.

So I would stay singularly focused more on commodity food cost as the headwind in the first half of the new fiscal year.

Joe Buckley with Bank of America.

Thank you.

Just a couple of questions on Olive Garden.

Have you taken price so far in the first quarter?

And then on the sales side, could you talk about cannibalization?

As you've opened new units over the last couple years, have you seen some cannibalization?

And then lastly, it sounds like you're adopting the price certainty approach that seems to have been effective at Red Lobster.

Is there research behind that that shows that's been part of the issue at Olive Garden?

So the new menu for Olive Garden just went in a couple weeks ago and with that menu there was some pricing.

So that is in the market now.

Yes, we are adopting the price certainty approach that's worked well for Red Lobster.

And there isn't any specific Olive Garden research to that.

We have just noticed that that approach has worked very well for Red Lobster.

And we know that there's an elevated need for consumer affordability.

And if they aren't sure what the range of prices are going to be in a promotion, we want to eliminate that uncertainty and tell them specifically what it is, because we think for Olive Garden, $10.95 and $12.95, for instance, are very compelling prices.

On the third question, there has been an impact to existing restaurants as Olive Garden has opened new units.

The cost of that impact is built in to the value creation hurdle that the new restaurants have to earn against.

And the new restaurants at Olive Garden continue to meaningfully exceed that earnings hurdle, so we're very pleased.

And Joe, this is Brad.

I'd say we haven't seen any change in that amount.

It has been pretty stable.

I would take you back and we talked about Olive Garden margins, even with that they're still continuing to build margins.

These are significantly value accretive new restaurants, but yet, they are impacting same restaurant sales performance a little bit.

And I think we dimensionalized what that draw effect was at the investor conference that we had back in February.

67 basis points and that hasn't really changed.

John Glass with Morgan Stanley.

Hi, thanks.

I wanted to follow-up on Olive Garden.

I was surprised that you said that you haven't noticed any way that consumers have changed the way they are using that brand, or perceive that brand.

Can you talk about how you know that, how recent your data is?

And in particular, lunch has been an area that's been focused on by competitors.

So is there any notion there's a day part weakness around that, for example, that may be driving some of the flat to declining traffic?

Sure.

Specifically speaking to day part, the comments I made are through the end of the fourth quarter.

So same restaurant sales at lunch for Olive Garden were positive.

3 of the last 4 quarters they outperformed dinner, in fact, during the fourth quarter.

So we haven't seen any meaningful change in how Olive Garden guests are using the brand by day part.

We do think there's an opportunity to build on the strength at lunch which is why we're introducing panini sandwiches.

And we do think that will be a positive.

But we haven't seen a meaningful change lunch versus dinner, and lunch has always been a strength for Olive Garden.

In terms of the other things that you asked about, we look at guest satisfaction in restaurants weekly.

We look at brand perception within casual dining monthly, and how that stacks up to the other large casual dining brands.

And we haven't seen any shift there either.

And Olive Garden remains very strong on everything that we look at in restaurant and perceptually in terms of the broader universe.

So we're pretty convinced that the opportunity for Olive Garden is to improve our execution in marketing on some of the tactics that I discussed earlier.

Great.

And then just if I could follow-up.

Brad, I know you talked about the second half of fiscal '12 being the stronger one from an earnings perspective.

Some of that had to do with the decline or more favorable food cost.

And you gave a lot of detail.

But how much -- maybe I lost this in some of that -- is actually known or contracted for that second half of fiscal '12 right now and how much of it is just your expectation or estimate of declining food costs?

On the food perspective, we don't have as much of that contract, and I think we're probably in the 20% range or so.

So it's more built on the expectation there.

But also I would look to the items we've talked about around our transformational initiatives.

They continued to build a little bit the momentum as we go through the fiscal year.

You can see where we ended up last year, they came from a strong point, but they continued to build some.

So it's the combination of those, of the expected decline in the commodity prices, or this many more on a year-over-year basis more consistent, hopefully some decline there, and our transformational cost initiatives that help aid in the growth, as well.

Jeff Omohundro with Wells Fargo.

Thanks.

Just a question on Red Lobster and the $15 4-course promotion.

Given apparently the very high mixing of this promo, just curious about how you would anticipate transitioning off of it.

I believe Clarence might have suggested the possibility of adding it to the permanent menu.

Do you continue to provide price certainty with this promo going forward?

Or would you anticipate a new promo with similar price certainty to replace it?

And also, would you anticipate running this $15 promo perhaps a bit longer than normal?

Maybe you can share with us how you're thinking of the timing on the transition.

Most broadly, we think it's important for Red Lobster to offer price certainty in more of their promotions during fiscal 2012 than fiscal 2011, so that is part of our strategy.

That doesn't mean we're going to run this $15 4-course seafood feast repeatedly during the year.

But more of the promotions that we have are going to feature the strategy that we used in the last 8 months of fiscal 2011 where we feature price certainty at a range of prices from $11.99 to $19.99 last year.

And that worked very well for us.

Whether we put the $15 d4-course feast on the menu is something we're evaluating.

We've been testing it in market as a promotion and as an addition to the menu.

We've been very careful to understand what the menu preference dynamics are with that.

And we are obviously very comfortable with what we saw, which is why we advertised it.

And we think it could potentially be a compelling part of the menu going forward, but that's still something we're evaluating.

I would say also, more broadly, the core menu has an opportunity for some innovation and reengineering as it relates to what we offer and how we price it.

And that's something that the brand is working on now, as well.

We don't anticipate that being a major driver in fiscal 2012 but we think there's an opportunity to go beyond promotions to address affordability with the core menu in fiscal 2013.

And I would just underscore one of the things that Drew said.

So, at Red Lobster in fiscal '11, price certainty from $11.99 to $19.99, so it's a range of prices.

So we're not talking about necessarily steep discounts.

And their business accelerated going from an $11.99 offer to a $15 offer.

So it's all about ultimately the value that you are delivering to guests.

And we think that we've got the expertise to deliver value and maintain a pretty strong margin.

And can you share how long the $15 promo is expected to run?

No.

Jeffrey Bernstein with Barclays.

Great.

Thank you.

A couple of questions.

Just first to follow-up on Olive Garden.

It seemed like last quarter you guys were thinking that in order to really implement some change to the menu it was going to take you a few quarters, and we should therefore expect the first half of this fiscal year to be more of the promotions that you guys had scheduled a year ago.

That seems like that's now accelerated.

I'm just wondering should we now expect these new promotions that we're seeing now to be all the product or the most recent changes you guys have made and therefore we should expect more of a first half fiscal '12 improvement?

And how do you guys think of that versus the gap to Knapp-Track and whether you'd view the most recent Olive Garden shortfall was more self-inflicted or perhaps more from a pure convergence standpoint?

And then I had a follow-up.

I think there are a number of dynamics that were impacting Olive Garden's relative competitive performance.

We think the biggest one was probably self-inflicted in our promotional effectiveness and that is why we've made the adjustments that I've already talked about.

And that's the path we're on through the first half certainly.

I would say that the first half of fiscal 2011, what we're wrapping on, particularly the first quarter of last year was very strong for Olive Garden.

I think they exceeded the industry by about 300 basis points or so in the first quarter last year.

So we are wrapping on a competitively strong period.

I forget the second part of your question.

I know you guys in the past, perhaps during the downturn, focused more on the gap to Knapp-Track versus the industry and now on an improving macro not so much.

I'm just wondering how you view Olive Garden versus the industry.

I'll start just by talking about how we view Darden overall.

And so we think that given the portfolio brands that we have over the long term, we should be at 2% to 4%.

And that portfolio has a very strong new unit growth profile.

And so overall, when you factor in new units, 7% to 9%.

We talked at the Analyst meeting about where we think the industry will be.

So we think we've got an industry where same restaurant sales growth will be more like 1%, 2%, and that's over the long term.

And so there's a gap implicit in that.

Of course, it's going to bounce around from year to year and period to period depending on market dynamics and competitive dynamics but that's the long term outlook.

I forgot, the other question you asked was about industry convergence.

And while we think the biggest reason for Olive Garden's performance to be equal to or slightly below the industry over the February to May period was promotion effectiveness, also when you look at the market share growth that Olive Garden has captured over the last 3 years, its been very substantial.

It's been more than 10 points on a same restaurant sales basis and probably another 12 or 13 points on a unit basis.

And it is possible there's a little bit of normalization in that, as well, as the industry begins to improve and as consumers gradually begin to add back some of the brands and some of the occasions that cut out a couple years ago.

But we fully expect Olive Garden to continue to outperform.

Sarah Senatore from Sanford Bernstein.

Thank you.

I just want to go back to the big picture question.

You had said you're starting to see more of the traffic disproportionately comes from the higher income consumers.

It surprises me, then, that where the real success seems to be is in these price points.

Specific, very, I would say, strong value proposition.

So can you just talk a little bit about are your customers, am I hearing that your customer base is not in that higher income and that's why you would need to push even harder on value?

Or just help me reconcile that.

Yes, I would say not at all.

I think given our price points, which are in the higher end of the range, as regarding price points, our customer tends to be a pretty well-heeled customer from a mass market perspective.

But all customers, even those that are accounting for more of the traffic, so north of $65,000, $70,000, all customers are budgeting with a lot more discipline.

And so it really is around price certainty in that environment.

Not necessarily a price discount.

Customers aren't looking for a discount but they want to know a little bit more with a little bit more precision what they're going to spend when they choose to go out or when they choose to do anything else.

So we are well positioned because our brands sit where they sit, and that customer base has always been core to them.

We do think, though, you've got a lot of customers below $65,000 household incomes, and we want to make sure that we stay as relevant as possible to them.

And so it is critically important for that reason to maintain everyday price accessibility, and all of our brands are working on improving on that score.

Yes, and I would just add that the promotion you referenced at Red Lobster was designed specifically to address the heightened need for affordability among a more modest income group.

But everybody loves the $15 4-course seafood feast.

Yes, that's a lot of food for not a lot of money.

The follow-up was about Longhorn.

We're seeing obviously strong trends across steakhouses.

Can you maybe just talk a little bit about, if you had to say what piece of that is just cyclical, lapping multi-year, easier comparisons versus maybe what you're doing for that brand?

So we think it reflects very sustainable business momentum and improvement in the way people think about the brand and the experience they get in the restaurant.

So Longhorn had a good year last year also, so they are continuing to improve.

As we've talked in the past, Longhorn has always had a very strong foundation of operations excellence, and deliver very well a consistently good experience inside the 4aa walls of their restaurant.

And over the last couple of years, what we've been able to do is broaden appeal by improving advertising, improving promotions, refining the menu.

And we've been able to increase reach by strengthening our advertising.

And all those things working together are making the brand more visible and more relevant to more people when they come in.

They love the experience and they're coming back more frequently.

I forgot to mention remodel.

That's also been a big part of it.

And Longhorn has really got some other things working in its favor.

Longhorn built itself and its legacy through a region.

The Southeast is one of the regions where the spend per customer is actually lower than it is in most of the country.

So Longhorn, as it expands, expands out into an environment where people spend more.

And that's a big positive for average unit volumes as you move away from comps and look at just AUVs which are important to business model health.

Bryan Elliott with Raymond James.

Good morning.

I'll be quick.

Drew, you mentioned last quarter and again here the 2-pronged Olive Garden marketing approach, equity versus more tactical calls to action.

My question is, some of the more, call it, sophisticated food promotions of the last couple quarters that didn't result in the kind of traffic and sales you were hoping for, would you characterize those as brand equity type advertising or were those promotions designed to be the call to action in short-term traffic drivers?

In other words, thinking about moving the brand to a more differentiated place through its food, does that remain a long-term equity-building focus?

So take the food.

I'll talk about the food and the advertising.

The food, say sofatelli, which is the puff pastry dish that we advertised in March, that was not designed to reposition the brand.

That was designed to broaden the appeal of the brand.

We've got a very, very broadly appealing brand today, very strong brand.

But culinary distinctiveness is one of the things our research says is an opportunity to attract some guests who don't come as frequently as they might, if we had some additional culinary forward food on the menu.

So it was really an attempt to continue to broaden the appeal of Olive Garden.

And in advertising, we want to make sure that we communicate the crave of the dish.

But we also want to make sure we're continuing to emphasize this emotional benefit of Italian generosity and sense of family and connection.

And what we've found is, on the product side, sofatelli went a little too far on culinary distinctiveness.

And in the current environment, our advertising needs to rebalance more on the short-term product message, a little bit less on the emotional benefits, sense of family that's a longer term advantage for Olive Garden.

So we've adjusted both things.

More broadly appealing product and more time in the commercial spent on the consumer benefits of that as a call to action in the short-term.

Should we expect to continue to see periodically, I'll call it more sophisticated, or the term you used was more culinary forward foods, at least continue to see that from time to time?

Occasionally because we've still got to have exciting news but not 2 or 3 promotions in a row like we did at the end of fiscal 2011, so not as often.

Steve Anderson with Miller Tabak.

Yes, good morning, and congratulations on the fiscal year.

I just want to get a clarification on the cost savings numbers you have.

You said, I remember at the analyst day you mentioned $30 million to $40 million annualized and you just mentioned $65 million to $70 million.

Is that an increase from your cost expectations?

Just want to take a look at that.

Yes.

That is about roughly a $10 million increase.

As I mentioned a little bit earlier we are seeing some good progress there and so we're just trying to reflect that progress.

Bart Glenn with D.A.

Davidson.

Thank you.

Yes, I was just curious, could you talk a little bit about what your appetite is for taking out debt levels modestly in order to facilitate incremental share repurchase?

And if you could also quantify what your expectations are for stock buyback for this year?

Thank you.

On the debt side, first I can say we always pride having an investment grade credit portfolio, so it's clearly in our plans.

As you look at our specific debt metrics where we are, we see just a very slight moderation up from where we are, because we're at the low end of the ranges, particularly the adjusted debt-to-capital and adjusted debt to EBITDAR.

And so the share repurchase that we've guided to this year, about $350 million to $400 million, is really based on our strong operating cash flows that we have and not leveraging up the balance sheet at all.

Howard Penney with Hedgeye Risk Management.

Thanks very much.

I can confirm the success at Red Lobster.

Having to wait 40 minutes on a Tuesday night for my $15 meal, which was fantastic.

But can you comment on, if the promotion is too successful, meaning the customer preference is too high, and that it maybe erodes historical performance because there's too many customers in there or the margins suffered because they are trading down to that product?

There's 2 potential opportunities there.

One is, if the restaurant is so busy that the guest satisfaction isn't what it needs to be.

Or if the menu preference on the promoted item is well beyond what we expected and the financial performance isn't what we expected.

And that's why we tested this promotion in restaurant for over 3 months to make sure that the range of entrees we had in the line up, and the operational procedures we had to make sure we could deliver it effectively were fine tuned to the point that we were set up for success, and our restaurants were set up for success.

So the guest satisfaction that we've been measuring since this program started still is very strong, although we have noticed an increase in the value ratings for the brand, which is great.

And the preference for this promotion is a little higher than we expected but traffic is higher than we expected, so it's good.

Mitch Speiser with Buckingham Research.

All my questions were answered so I'll just focus on the first quarter where you told us comps are running up 5% to 6%.

The comparison was a little bit easier in the June period.

My question is, with EPS growth expectations expected to be in the low single digit range, with comps running at these levels, do you expect then the comps to slow down throughout the quarter?

And maybe put another way, can you give us a sense of what your first quarter costs will be year-over-year?

And then maybe what you're expecting for the back half of the year.

Are you embedding costs to be down year-over-year in the back half?

Thank you.

I'll talk about the first Quarter and I would say it would be wonderful if July and August looked like June, but we are not planning that.

So the answer to that question is yes, we do expect them to be a little bit lower.

This promotion has started off, it's much more of a blockbuster than we planned but we are not planning to see that continue.

If it does, earnings will be better than we expect.

Peter Saleh with Telsey Advisory Group.

Great, thanks.

You guys talked about raising the menu prices closer to the 2% range but also talked about the expectation of commodities possibly coming down in the back half of the year.

If commodities don't come down and they are actually up a little bit more than you're expecting, are you prepared to take pricing closer to the 3% or even higher to offset it?

I think Clarence touched on several of this, it may be part of the natural hedge that would occur there.

So if commodity prices are running higher, that probably speaks to they're supported by stronger economic growth.

So I would suspect that we could do a little bit better on the same restaurant sales side which would be actually a slight positive to us.

Or if there were to be a little bit less, probably driven more by the economy and so we would be expecting a little bit lower same restaurant sales guest counts but we would have the lower cost.

So the earnings piece we feel more comfortable with because of the natural hedge that's there.

And I would just add, and Brad can correct me if I'm wrong, but we haven't built our plans on commodity prices costs coming down.

We've built them on them flattening out in the second half.

Exactly.

To the extent they come down, that would be a plus though.

That's Correct.

We have time for one more question this morning.

Karen Lamark with Federated Investors.

Good morning.

I know it's early but do you have any insight into the profile of the 4 for $15 buyer?

Is it a new user or a lapsed user?

And also, is the attachment rate for beverages higher or lower than average?

Thanks.

I think to get a sense of the demographic profile of the guests coming in Red Lobster and how that is potentially different from the past, we would want to get more than 4 weeks, so it's going to take a little longer for us to be able to get that.

So we don't yet have a sense of whether it's attracting the people we were looking to attract differentially.

And then I'm sorry, we missed the second half of your question.

Is the attachment rate for beverages, with that 4 for $15 promotion, is it higher or lower than average?

I'm not sure, I'm afraid.

To answer the question of beverage, really on a year-over-year basis, virtually no change.

Great.

We would like to thank everybody for joining us on the call today.

Of course we're here in Orlando if you have additional questions.

We wish everybody a safe and happy 4th of July holiday and we look forward to talking to you all next quarter.

Thank you.

Thank you.

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