Q3 Results and Cheddars Scratch Kitchen Acquisition Disclaimer / - PowerPoint PPT Presentation

Q3 Results and Cheddar’s Scratch Kitchen Acquisition

Disclaimer / Non-GAAP Information IMPORTANT NOTICE The following slides are part of a presentation by Darden Restaurants, Inc. (the "Company") and are intended to be viewed as part of that presentation (the "Presentation"). No representation is made that the Presentation is complete. Forward-looking statements in this communication regarding our expected earnings performance and all other statements that are not historical facts, including without limitation statements concerning our future economic performance and expenses, 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 first 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 place 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. These risks and uncertainties include technology failures including failure to maintain a secure cyber network, food safety and food-borne illness concerns, litigation, unfavorable publicity, risks relating to public policy changes and federal, state and local regulation of our business, labor and insurance costs, failure to execute a business continuity plan following a disaster, health concerns including food-related pandemics or virus outbreaks, intense competition, failure to drive profitable sales growth, our plans to expand our smaller brands Bahama Breeze, Seasons 52 and Eddie V's, a lack of availability of suitable locations for new restaurants, higher-than-anticipated costs to open, close, relocate or remodel restaurants, a failure to execute innovative marketing tactics, a failure to develop and recruit effective leaders, a failure to address cost pressures, shortages or interruptions in the delivery of food and other products and services, adverse weather conditions and natural disasters, volatility in the market value of derivatives, economic factors specific to the restaurant industry and general macroeconomic factors including interest rates, disruptions in the financial markets, risks of doing business with franchisees and vendors in foreign markets, failure to protect our intellectual property, impairment in the carrying value of our goodwill or other intangible assets, failure of our internal controls over financial reporting, an inability or failure to manage the accelerated impact of social media, our ability to successfully complete our acquisition of Cheddar’s Scratch Kitchen and integrate it into our business, including our ability to realize anticipated synergies and tax benefits arising from the acquisition and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission. The information in this communication includes financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”), such as adjusted net earnings per diluted share from continuing operations. The Company’s management uses these non - GAAP measures in its analysis of the Company’s performance. The Company believes that the presentation of certain non-GAAP measures provides useful supplemental information that is essential to a proper understanding of the operating results of the Company’s businesses. These non -GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Fiscal Third Quarter Highlights Darden Sales ($bn) Same-Restaurant Sales Growth 2.6% 1.7% $1.88 $1.85 $1.75 $1.79 1.3% $1.69 $1.71 $1.64 $1.61 0.9% FY15 FY16 FY16 FY17 FY16 FY17 FY16 FY17 Q4 1 Q1 Q2 Q3 2 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Darden Adjusted EPS 3 $1.32 $1.21 $1.10 $1.01 $0.88 $0.68 $0.64 $0.54 FY15 FY16 FY16 FY17 FY16 FY17 FY16 FY17 Q1 Q4 1 Q2 Q3 1 FY15 Q4 adjusted to exclude $0.13bn in sales and $0.07 in adjusted diluted earnings per share due to the 53rd week. 2 Comparable Calendar Basis. A schedule of comparable calendar dates can be found in the additional information section of this presentation. 3 EPS values, except for FY17 Q1, Q2 & Q3, are adjusted for special items. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.

Fiscal Third Quarter Highlights 1.4% 0.2% Same-Restaurant Sales Same-Restaurant Sales 560 bps 440 bps Same-Restaurant Sales Same-Restaurant Sales Industry Outperformance 1 Industry Outperformance 1 1 Industry excluding Darden brands.

A full- service restaurant company with … 1 Be financially successful through great people consistently delivering outstanding food, drinks and service in an inviting atmosphere making every guest loyal. Mission 4 Significant Extensive Rigorous Results-    Scale Strategic Planning Oriented Culture Data & Insights Competitive Advantages Back-To-Basics Operating Philosophy 1 Culinary Attentive Engaging Integrated Innovation    Service Atmosphere Marketing Driving Philosophy & Execution 7 Iconic Brands

Shared Operating Philosophy Culinary Innovation & Execution Attentive Service Scratch prepared modern Team Members as real and genuine classics & American favorites as our scratch cooking Engaging Atmosphere Integrated Marketing Timeless restaurant design Targeted local marketing brings t he “scratch” positioning to life & décor with character

Strategic Portfolio Fit Differentiated “scratch” kitchen concept complements portfolio Allows Darden to compete as an undisputed value leader in the full-service, varied menu category Experienced management team with shared values

Attractive Restaurant-Level Economics $ 617 M $ 4.4 M Total Revenue Avg. Restaurant Volume ~ 6,300 Avg. Wkly. Guest Count ~ $ 13.50 Average Check ~ 17 % $ 72 M Average REBITDA 1 Adjusted EBITDA 1 1 Trailing twelve months ended December 2016

Significant Room for Growth Currently: 165 Locations Across 28 States* Company-Owned Restaurants Franchisee Restaurants Pipeline: 3 under construction, 6 signed leases, 3 additional LOIs * Represents company-owned and franchised restaurants.

Powerful Brand Perception Major CD Chains – Value vs. Intent to Recommend 53% Intent to Recommend Top Box % 48% 43% 38% 33% n= 700 for each brand 28% 38% 40% 42% 44% 46% 48% 50% 52% 54% 56% Value Top Box % Source: Technomic Time Period 12 months ending Sep. '16

Financial Discussion

Margin Analysis Fiscal Q3 2017 vs. PY* (bps) ($ millions) % of Sales Favorable/(Unfavorable) Sales $1,878.7 Food & Beverage $541.5 28.8% 30 Restaurant Labor $578.3 30.8% 20 Restaurant Expenses $320.4 17.1% (60) Marketing $54.6 2.9% (20) Restaurant-Level EBITDA $383.9 20.4% (20) G&A $87.2 4.6% 20 Depreciation & Amortization $67.9 3.6% Flat Impairments ($0.7) 0.0% (10) EBIT $229.5 12.2% (10) Interest Expense $9.3 0.5% 10 EBT $220.2 11.7% Flat $53.9 Income Tax Expense 2.9% 30 24.5% Note: Effective Tax Rate EAT $166.3 8.9% 40 Note: Percentages may not foot due to rounding. * Compared to FY16 Q3 adjusted performance. A reconciliation of reported to adjusted numbers can be found in the additional information section of this presentation.

Segment Performance Segment Sales ($ millions) Fine Dining Other $1,035 $1,020 $434 $426 $256 $256 $154 $146 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 Segment Profit Margin 1 Fine Dining Other 23.7% 23.2% 21.6% 21.0% 20.0% 19.6% 17.5% 16.5% FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 FY16 Q3 FY17 Q3 1 Segment profit margin calculated as (sales less costs of food & beverage, restaurant labor, restaurant expenses and marketing expenses) / sales.

Fiscal 2017 Annual Outlook and Fiscal 2018 Capital Spending Total Sales ~2.3% Same-Restaurant Sales ~1.5% Fiscal 2017 Total Inflation ~1.5% Outlook Effective Tax Rate 25% to 26% Earnings per Diluted Share $3.95 to $4.00 New Restaurant Openings 30 to 35 Fiscal 2018 Capital Capital Expenditures $360 - $400 Spending Outlook New Restaurants $150 - $175 ($millions) Remodels/Maintenance/Tech/Other $210 - $225 Note: Does not include the impact of Cheddar’s acquisition.

Darden to acquire Cheddar's for $780 million 10.4x LTM EBITDA 1 purchase multiple, net of certain tax benefits estimated at approximately $30 million Additional $ 10 million for certain Cheddar’s transaction -related tax attributes Reimburse equityholders for pre-closing capital expenditures on new restaurants under development Funded with new debt and cash-on-hand Resulting in Adj. Debt to Adj. EBITDAR of 2.3x Expected to close in fiscal 2017 fourth quarter Pro forma for Cheddar’s acquisition of the restaurants owned by its largest franchisee, Greer, for the (1) trailing twelve months ended December 2016. This acquisition occurred in January 2017.