Darden raises pricing 6%; returns $523 million to stockholders in Q3

By Devika Patel

Knoxville, Tenn., March 28 – Darden Restaurants, Inc. has raised its pricing 6% over last year due to increasing costs from inflation, a wheat shortage stemming from sanctions on Russia, higher labor and sick leave expenses and supply-chain disruptions.

The company also returned $523 million to shareholders last quarter through dividends and share buybacks.

“We have implemented pricing actions to mitigate the impacts of rising costs,” chairman and chief executive officer Gene Lee said on the company’s third quarter ended Feb. 27 earnings conference call on March 24.

“We recognize that all of us in the industry faced additional risk due to the current geopolitical environment, such as higher inflation and further supply-chain disruptions.

“However, I’m confident that Darden can compete effectively in any operating environment. We have a strong balance sheet and the right strategy in place,” Lee said.

These expenses were particularly sharp in fiscal January, when demand plummeted due to the Omicron variant of the Covid-19 virus.

“In fiscal January, which is a high-volume period for us, the Omicron variant significantly impacted consumer demand, restaurant staffing and operating expenses,” Lee said.

“We also experienced substantial weather impacts, all of which resulted in significantly lower sales and earnings than our internal expectations.

“In December, we could not have predicted the impacts Omicron would have on our business,” Lee said.

“In fact, the dramatic spike in cases create the most difficult operating environment since the initial onset of Covid two years ago.

“As Covid cases declined, and the operating environment normalized, sales improved throughout fiscal February, and we had strong results that exceeded our internal expectations.

“Sales strength has continued into March,” Lee said.

These higher sales are being offset by 7% inflation, the company’s top financial executive reported.

“We continue to see increasing cost pressure with inflation, with total inflation of 7% this quarter, which was higher than our previous expectations,” senior vice president, treasurer and chief financial officer Raj Vennam said on the call.

War in Europe also could factor into rising costs for the company, due to its reliance on wheat for bread products and pasta.

“When you look at our food basket, wheat makes up about 7%,” Vennam said.

“Two to 3% is pasta related and then the rest is bakery and bread, so that’s really where the exposure to wheat directly is.

“We’re continuing to see what happens in that market and we’ll work with our vendors to just make sure we get the best price we can in the environment we’re in,” Vennam said.

Costs are being passed on to the consumer and management raised prices in the last quarter then again in its fourth fiscal quarter.

“We began taking additional pricing in the third quarter and have also implemented additional actions to further preserve the strength of our business model while balancing the impact to our guests,” Vennam said.

“For the third quarter, total pricing was 3.7% [above last year’s pricing] and, for the fourth quarter, we expect our pricing to be approximately 6% compared to last year,” Vennam said.

Meanwhile, the company returned $523 million to shareholders last quarter and is retaining over half a billion dollars of cash on the balance sheet, which is less than half of the cash it was holding onto last year.

“We continue to return significant cash to shareholders, paying $141 million in dividends and repurchasing $382 million in shares for a total of over $520 million cash returned to investors in the quarter,” Vennam said.

Cash and cash equivalents were $555.3 million as of Feb. 27, 2022, compared to $1,214,700,000 as of May 30, 2021.

Long-term debt was $916.4 million as of Feb. 27, 2022, compared to $929.8 million as of May 30, 2021.

Darden is an Orlando, Fla.-based casual dining operator.

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