Darden Restaurants, Inc. — Fiscal 2023 Form 10-K
Reporting period: Fiscal year ended May 28, 2023 (52 weeks), compared with fiscal 2022 ended May 29, 2022. Although the request metadata refers to 2022 Q4, this filing reports annual results, not a standalone quarterly period.
Business context
Darden operated 1,914 company-owned restaurants in the U.S. and Canada across nine brands and had 69 franchised restaurants. Its business is concentrated in full-service dining. On June 14, 2023, after year-end, Darden acquired Ruth’s Hospitality Group for $21.50 per share in cash; the acquisition is not included in fiscal 2023 results.
Financial performance and liquidity
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Sales | $10.49 billion | $9.63 billion | +8.9% |
| Same-restaurant sales | +6.8% | Not stated here | — |
| Operating income / margin | $1,201.8 million / 11.5% | $1,162.2 million / 12.1% | Income +3.4%; margin down 0.6 points |
| Earnings from continuing operations | $983.5 million | $954.7 million | +3.0% |
| Diluted EPS from continuing operations | $8.00 | $7.40 | +8.1% |
| Net cash from operating activities | $1,552.8 million | $1,264.6 million | +22.8% |
| Capital expenditures | $564.9 million | $376.9 million | +$188.0 million |
| Cash and cash equivalents at year-end | $367.8 million | $420.6 million | Down $52.8 million |
Total operating costs increased 9.7%, faster than sales. Food and beverage costs rose to 32.0% of sales from 30.6%, principally reflecting inflation and mix; restaurant labor improved to 31.9% from 32.3%, helped by sales leverage and productivity despite wage inflation. Continuing-operations earnings margin was 9.4%, versus 9.9%.
Same-restaurant sales reflected higher average checks across segments; Olive Garden guest counts declined 1.6%, while LongHorn guest counts grew 1.2%. Segment profit margins fell year over year: Olive Garden 21.0% (down 1.1 points), LongHorn 16.5% (down 1.1), Fine Dining 19.1% (down 2.2), and Other Business 13.9% (down 1.3).
Operating cash flow exceeded capital expenditures by approximately $987.9 million. Financing used $1.03 billion, including $589.8 million of dividends and $458.7 million of share repurchases. Current assets were $997.7 million versus current liabilities of $1.94 billion; management notes that cash sales and payment terms typically allow current liabilities to exceed current assets. Long-term debt was $939.1 million face value ($884.9 million carrying value); the $1.0 billion revolving facility had no balance outstanding at year-end. Lease liabilities totaled $5.04 billion. Adjusted debt to adjusted total capital, including lease-debt equivalents and guarantees, was 62%, up from 61%.
Material changes, outlook, and risks
- Sales growth came from 6.8% blended same-restaurant sales growth and 47 net new restaurants. Company-operated locations increased from 1,867 to 1,914.
- Fiscal 2023’s net earnings included a $10.6 million net gain in “impairments and disposal of assets,” mainly related to property-sale gains; five property sales contributed to the year-over-year improvement. Goodwill and trademark impairment testing indicated no impairment.
- For fiscal 2024, management expects continuing-operations sales growth of 9.5%–10.5%, including Darden same-restaurant sales growth of 2.5%–3.5% and approximately 50 new openings. It expects a 12%–12.5% effective tax rate and $550–$600 million of capital expenditures. The Ruth’s acquisition contributes to the sales outlook.
- Darden borrowed $600 million under a new term loan to fund part of the approximately $715 million Ruth’s acquisition consideration. Integration, realization of expected synergies, and the resulting additional debt are key post-year-end matters to monitor.
- Management cited persistent food, wage, utility, and other cost inflation, staffing and supply-chain challenges, and sensitivity to consumer spending. Other disclosed risks include intense competition, food safety, severe weather, cybersecurity and privacy events, regulation, and long-term lease commitments.
- Fiscal 2023 included a $1.6 million after-tax loss from discontinued operations. The company reported no material adverse effect expected from its ordinary-course legal proceedings. Auditors issued unqualified opinions on the financial statements and internal controls; the audit identified long-lived-asset impairment assessment as a critical audit matter.
Investor verification checklist
- Confirm the reported year-end cash figure versus the cash-flow statement total, which includes restricted cash ($416.2 million versus $367.8 million cash and cash equivalents).
- Track food and labor inflation, average-check growth versus guest traffic, and whether operating margins recover as pricing and productivity offset costs.
- Review fiscal 2024 sales and same-restaurant sales against guidance, including the contribution from Ruth’s and new restaurant openings.
- Assess the Ruth’s acquisition financing, integration progress, synergies, and leverage after the $600 million term borrowing.
- Monitor capital spending, dividends and repurchases alongside lease obligations, debt covenants, and the company’s investment-grade credit ratings.