Darden Restaurants, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended May 29, 2022 (52 weeks), compared with fiscal 2021 ended May 30, 2021 (52 weeks). This is an annual report, not a standalone 2021 fourth-quarter filing. Darden operated 1,867 company-owned restaurants in the U.S. and Canada across nine brands and had 60 franchised restaurants.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $9.63 billion | $7.20 billion |
| Same-restaurant sales growth | 30.9% | — |
| Operating income | $1.16 billion | $648.7 million |
| Operating margin | 12.1% | 9.0% |
| Continuing-operations earnings | $954.7 million | $632.4 million |
| Diluted EPS from continuing operations | $7.40 | $4.80 |
| Operating cash flow from continuing operations | $1.26 billion | $1.19 billion |
| Capital expenditures | $376.9 million | $254.9 million |
Sales increased 33.8%, driven by a 30.9% blended same-restaurant sales increase and 33 net new restaurants. Same-restaurant sales gains reflected higher guest counts and average checks across segments. Food and beverage costs rose to 30.6% of sales from 28.8%, and labor costs to 32.3% from 31.8%, with inflation and labor productivity pressures. Sales leverage helped lower restaurant expenses, marketing, general and administrative, and depreciation costs as a percentage of sales. Segment profit margins were Olive Garden 22.1% (down 1.1 percentage points), LongHorn Steakhouse 17.6% (down 0.3 points), Fine Dining 21.3% (up 3.2 points), and Other Business 15.2% (up 0.9 points).
Liquidity, debt and capital allocation
- Cash and cash equivalents were $420.6 million at year-end; the cash-flow statement reports $472.1 million including $51.5 million of restricted cash. Current assets were $1.18 billion and current liabilities $1.85 billion.
- Long-term debt principal was $939.1 million. The company had no borrowings outstanding on its $1 billion revolving credit facility and reported compliance with its covenants. Debt ratings were Baa2 from Moody’s and BBB from S&P and Fitch.
- Lease liabilities totaled approximately $4.98 billion. Adjusted debt to adjusted total capital, including a lease-debt equivalent and guarantees, was 61%, versus 55% a year earlier; reported debt to total capital was 30%, versus 25%.
- Operating cash flow funded investment and shareholder returns. Darden spent $1.07 billion on share repurchases and paid $563.0 million in dividends in FY2022. A new $1 billion repurchase authorization was approved June 22, 2022.
Outlook, commentary and risks
For fiscal 2023, management expected continuing-operations sales growth of 6%–8%, same-restaurant sales growth of 4%–6%, and approximately 55–60 new restaurants. Planned capital expenditures were $500–$550 million and the expected effective tax rate was 13.5%. These are forward-looking estimates, not guarantees.
Management cited inflation in food, wages and other costs, staffing challenges, and supply-chain disruption as pressures on operations. COVID-19 and its variants, geopolitical and broader macroeconomic developments could renew restrictions or intensify cost and availability challenges. Other disclosed risks include competition, changes in consumer spending and preferences, food safety, cyber and privacy incidents, regulation, severe weather, and long-term lease commitments.
FY2021 included a non-recurring tax benefit that increased continuing-operations diluted EPS by $0.76, while restructuring reduced it by $0.27; the tax benefit resulted from carrying back a tax loss. FY2022’s lower effective tax rate of 12.7% should therefore be viewed against the unusual FY2021 tax benefit and related period-specific tax effects. FY2022 impairments and disposal activity produced a net $2.0 million benefit; no goodwill or trademark impairment was recorded. The filing reports an unqualified audit opinion and effective internal control over financial reporting. Management said pending ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether sales and traffic growth can continue as pandemic-related comparisons normalize, and whether FY2023 same-restaurant sales meet the 4%–6% outlook.
- Whether menu pricing and operating actions offset ongoing food, labor, utility and supply-chain inflation without weakening guest demand or margins.
- Cash availability and capital allocation after substantial FY2022 repurchases and dividends, alongside planned FY2023 capital spending and the new repurchase authorization.
- The scale and duration of lease obligations, and the distinction between reported debt ratios and the company’s lease-adjusted leverage measure.
- Execution of planned restaurant openings amid hiring, permitting, construction-cost and supply constraints; the filing’s projections remain subject to these risks.