Slide 1: Strategic Action Plan to Enhance Shareholder Value
Strategic Action Plan to Enhance Shareholder Value SPRING 2014
Slide 2: Forward-Looking Statement
Forward-Looking Statement During the course of this presentation, Darden Restaurants’ officers and employees may make forward-looking statements concerning the Company’s expectations, goals or objectives. Forward-looking statements regarding our expected earnings per share and U.S. same-restaurant s
Slide 3: Important Additional Information
Important Additional Information The Company, its directors and certain of its executive officers are participants in solicitations of Company stockholders. Information regarding the names of the Company’s directors and executive officers and their respective interests in the Company by security hol
Slide 4: Table of Contents
Table of Contents I. Darden Overview and Priorities for Value Creation II. Olive Garden Brand Renaissance III. Update on Our Other Strategic Initiatives IV. Board Review of Additional Strategic Options V. Conclusion 4
Slide 5: I. Darden Overview and Priorities for Value Creation
I. Darden Overview and Priorities for Value Creation 5
Slide 6: We Are a Premier Full Service Restaurant Company
We Are a Premier Full Service Restaurant Company PREMIER BRANDS A COMPANY WITH A STRONG FOUNDATION Portfolio of unique and differentiated brands Sustained Industry Leadership & Industry leading AUVs, margins and restaurant- Superior Value Creation level returns Significant sales and earnings g
Slide 7: Since the Start of the Great Recession, Darden Has Outperformed
Since the Start of the Great Recession, Darden Has Outperformed DARDEN CUMULATIVE SAME-RESTAURANT SALES FROM BEGINNING OF FY2009 THROUGH FY2014 Q2 IS 5.5% HIGHER THAN KNAPP-TRACKTM 8% Cumulative Same-Restaurant Sales Longhorn +6.5 % 6% FY2009 to FY2014 Q2 4% 2% Seasons 52 (0.5)% 0% (2)% Bahama Breez
Slide 8: Our Casual Dining Brands Have Strong Average Unit Volumes Compared to Other Chains
Our Casual Dining Brands Have Strong Average Unit Volumes Compared to Other Chains ALL OF OUR BRANDS SURPASSED THE CASUAL DINING MAJOR CHAIN AVERAGE AUV OF $2.8MM IN 2013 Annual Average AUV ($mm) Darden Concepts Peers $ 10.4 $ 8.2 $ 6.2 $ 5.5 $ 4.6 $ 3.7 Casual Dining Major Chain Average¹: $2.8mm $
Slide 9: Restaurant Level Margins Are Top Tier
Restaurant Level Margins Are Top Tier OUR RESTAURANT LEVEL MARGINS ARE STRONG COMPARED TO OTHER MAJOR CHAIN COMPETITORS, EVEN EXCLUDING RENT EXPENSE Restaurant Level Margins1 24.2% Most Recent Fiscal Year 23.9% 23.8% 23.0% 22.2% Source: Most recent 10K filings 1 Reflects latest reported fiscal year.
Slide 10: We Also Have a Rigorous Focus on Costs
We Also Have a Rigorous Focus on Costs OUR SELLING EXPENSE IS ABOVE INDUSTRY AVERAGE TO DRIVE INDUSTRY LEADING AUVs AND OUR G&A IS IN-LINE, BUT WE DO SEE OPPORTUNITY FOR ADDITIONAL SUPPORT COST OPTIMIZATION Selling Expenses 5.7% median = 3.7% 4.8% 4.3% 3.0% 0.3% General & Administrative Expenses 8.3
Slide 11: We Have Achieved Significant Growth Over the Past Decade
We Have Achieved Significant Growth Over the Past Decade 10-Year Stacked Same-Restaurant Sales 10.6 % 4.5 % (6.5)% (28.3)% 22.7% 13.7 (0.8)% 10-Year Revenue CAGR 6.8% 5.5% 1.9% (2.2)% 10-Year EBITDA CAGR 5.1% 6.0% (1.8)% (8.6)% Source: Company filings Note: Bloomin’ Brands not considered as only thr
Slide 12: Return of Capital Is Also a Priority, with Nearly $4 Billion Returned
Return of Capital Is Also a Priority, with Nearly $4 Billion Returned to Shareholders Over the Past Decade 2004-2013 Cumulative Capital Returns 2004- 2013 Cumulative Share Repurchase $ 2.6bn $ 599 2004-2013 Cumulative Dividends Paid $ 1.2bn $ 561 2004-2013 Avg. Annual Capital Returned as % of Avg. M
Slide 13: Our Total Shareholder Return Over the Past Decade Has Been Impressive
Our Total Shareholder Return Over the Past Decade Has Been Impressive 200% 150% 166.3% Dec-2004 100% Clarence Otis is named CEO 99.8% Indexed Total Return¹ 50% 57.2% 0% (50)% (100)% Feb-2004 Feb-2006 Feb-2008 Feb-2010 Feb-2012 Feb-2014 Daily from 27-Feb-2004 to 28-Feb-2014 Darden Peers S&P 500 Sourc
Slide 14: Priorities for Value Creation
Priorities for Value Creation 2 Develop LongHorn into America’s favorite steakhouse Important Refinements to Our Strategic Grow SRG total sales by more than Framework 3 $1.0bn over the next 5 years Execute Exciting New Against Robust Remodel and Operations 4 Disciplined capital allocation Logo Direc
Slide 15: II. Olive Garden Brand Renaissance
II. Olive Garden Brand Renaissance 15
Slide 16: Olive Garden Is a Leading Casual Dining Brand and the #1 Italian Full Service Concept
Olive Garden Is a Leading Casual Dining Brand and the #1 Italian Full Service Concept in the U.S… IT IS A BRAND THAT HAS TAKEN SIGNIFICANT MARKET …IN PART BECAUSE OF VALUE CREATING NEW RESTAURANT SHARE THE LAST FIVE YEARS… GROWTH 25 % Cumulative Total Sales Growth Total Olive Garden 828 FY 2009 to Q
Slide 17: …With Industry Leading Restaurant Economics
…With Industry Leading Restaurant Economics OLIVE GARDEN’S COMBINATION OF …AND SOLID RESTAURANT-LEVEL STRENGTHS RESULTS IN HIGH MARGINS1 AVERAGE UNIT VOLUMES… 25.7% $ 1.8 23.9% 23.8% $ 2.8 23.0% $ 3.2 22.2% $ 10.4 $ 4.6 ($ in Millions) Source: Company information for Olive Garden; most recent 10K fi
Slide 18: Overview of Brand Renaissance Plan
Overview of Brand Renaissance Plan WITH OLIVE GARDEN’S SAME-RESTAURANT SALES LAGGING KNAPP- TRACK™ RECENTLY, WE ARE IMPLEMENTING A COMPREHENSIVE BRAND RENAISSANCE PLAN TO REGAIN MOMENTUM We Are Building From Our Strong Foundation 1 • Important refinements to our strategic framework 2• Execute agains
Slide 19: Important Refinements to Our Strategic Framework
1 Important Refinements to Our Strategic Framework Experience Today’s Italy Food is prepared with fresh ingredients, and presented simply with a sense of flair and sophistication that is very Italian Experience is approachable and genuine so guests can focus on sharing and conversation Aesthetic is
Slide 20: Robust Operations Improvement Plan Focused on Reducing Culinary Complexity
2 Robust Operations Improvement Plan Focused on Reducing Culinary Complexity Phased Approach Resulting in Positive Results Impact Q2 FY14 vs. Q2 FY13¹ • Phase I completed October 2013 Food Taste of Food • 91 PARs eliminated (40% reduction) Complaints +4pts • Food preparation involves less labor, (12
Slide 21: A Holistic Core Menu and Promotion Plan
3 A Holistic Core Menu and Promotion Plan SUPERIOR VALUE Evolving Lighter Fare Platform New Culinary-Forward Platforms Simple, Compelling - Seasonal Offerings Price-Pointed Promotions - Dinner Specialties Intend to use promotions to introduce - All with Bolder Flavors additions to core menu Improvin
Slide 22: We Are Excited to Be Introducing New Lunch and Dinner Menus…
3 We Are Excited to Be Introducing New Lunch and Dinner Menus… A NEW LUNCH MENU Antipasti Topper Caprese Topper Smashed Chicken Meatball Sandwich FRONT BACK A NEW DINNER MENU Salmon Bruschetta Crab Topped Chicken Pappardelle Pescatore Note: Menus launched 24-Feb-2014. 22
Slide 23: …As Well As Additional Efforts that Broaden Relevance
3 …As Well As Additional Efforts that Broaden Relevance NEW TASTE AND TOASTS OFFERING NEW PLATEWARE THAT LETS THE FOOD (LAUNCHED DECEMBER 2, 2013) BE THE STAR (COMING IN FY2015) ENHANCED TO GO! OFFERING BEFORE • Take Out Specialists Re-trained • New Phone System Installed • On-line Ordering in FY15
Slide 24: New Approach to Advertising and Promotion
4 New Approach to Advertising and Promotion CURRENT FUTURE • Largely limited time product-at-a-price • Targeted offers that are relevant to different guest occasions • Some offers repeated two to three • Introduce news that stays around times a year • Be in the market with simultaneous targeted mess
Slide 25: Robust Service Strengthening Path Beginning in FY2015
5 Robust Service Strengthening Path Beginning in FY2015 FROM TRAINING THAT… TO TRAINING THAT… • Is perceived to be too procedural • Teaches from a guest and steps based point of view • Uses stories from guests to reinforce experiences that matter to guests • Encourages personalized service delivery
Slide 26: An Exciting Remodel Direction…
6 An Exciting Remodel Direction… Exterior Lobby and Bar Dining Room 26
Slide 27: …Set to Drive Strong Sales Momentum
6 …Set to Drive Strong Sales Momentum Finish designing Currently 350 First 75 restaurants and testing new Remodel 125 – 150 restaurants in need remodeled FY15 remodel in 2015 restaurants a year of remodeling in FY16 and FY17 2014 2015 2016 2017 2018 Remodeled 0 75 200 – 225 350 Restaurants Cumulativ
Slide 28: Reinvigorated Logo to Represent the Improved Brand
6 Reinvigorated Logo to Represent the Improved Brand NEW LOGO IS CLEAN, FRESH AND APPEALING New logo development based on work assisted by Lippincott, a nationally-recognized design firm, that started with the modified brand positioning as the foundation for initial creative design, followed by qual
Slide 29: Business Renaissance Plan Strengthens Olive Garden's Hard Earned Position
Business Renaissance Plan Strengthens Olive Garden’s Hard Earned Position in the Market “A NICER PLACE THAN THE PRICE SUGGESTS” BAR & GRI LL POLI SHED CASUAL Price-focused Value-focused Convenient Attentive Service Casual / Family Friendly Sophisticated Ambiance Broadly Appealing Food Culinary Forwa
Slide 30: III. Update on Our Other Strategic Initiatives
III. Update on Our Other Strategic Initiatives 30
Slide 31: LongHorn: Journey to Becoming America's Favorite Steakhouse
LongHorn: Journey to Becoming America’s Favorite Steakhouse Significant Progress Has Been Made Since FY2008 Acquisition… National Penetration Opportunity ($ in millions) • Leveraged and drove further integration of Darden’s Current Ultimate restaurant support platform Potential • Elevated brand mark
Slide 32: SRG: Strong Portfolio of Brands with Unique Differentiation
SRG: Strong Portfolio of Brands with Unique Differentiation and Significant Growth Opportunity Key Brand Highlights National Penetration Opportunity ($ in millions) • The Capital Grille is the premier upscale steakhouse chain in Current Ultimate the U.S. Potential • Yard House is one of the fastest
Slide 33: New Unit Growth: Reduced Expansion Allows for More Efficient Capital Allocation
New Unit Growth: Reduced Expansion Allows for More Efficient Capital Allocation and Supports Improved Financial Results Previous Current Rationale ~1% new unit growth Discontinuing new unit growth to increase Hiatus on new unit focus on stabilizing the brand and regaining ~10 new units annua
Slide 34: Reducing Costs: Significant Progress Towards Our Targets
Reducing Costs: We Have Made Significant Progress Towards Our Targets and Continue to Focus on Identifying Additional Opportunities • Announced operating support cost reductions of $60 million annually • Progress this year suggests actions driving those reductions likely to yield higher savings • Al
Slide 35: Better Aligned Management Compensation
Better Aligned Management Compensation: Will Ensure Efficient Growth and Strong FCF Incentive Program Current Plan Proposed Measures Under Consideration New Darden (FY15) • EPS (Darden) or Operating Profit (Business • EPS (Darden) or Operating Profit (Business Annual Management Incentive Plan Units)
Slide 36: Red Lobster Separation: Strategic Rationale
Red Lobster Separation: Strategic Rationale 1 Separation will allow “New Darden” and “New Red Lobster” to better serve their increasingly divergent guest targets 2 Red Lobster and the remainder of the Darden portfolio have a divergent unit growth profile and therefore differing capital priorities
Slide 37: Red Lobster's Guest Target Increasingly Different from the Rest of Darden
1 Red Lobster’s Appropriate Guest Target Is Becoming Increasingly Different from the Rest of Darden’s Portfolio Red Lobster Olive Garden LongHorn 6% 23% 92 87 (16)% 11% 70 63 (4)% 57 59 53 53 0% 50% 38 37 38% 33 33 26% 26 20 20 17 16 15 % Traffic 47% 43% 29% 30% 25% 27% % Traffic 44% 42% 29% 32% 27%
Slide 38: Runway for Future Unit Growth at Olive Garden, LongHorn and SRG
2 Runway for Future Unit Growth at Olive Garden, LongHorn and SRG, But Not For Red Lobster FY2010 – FY2013 Openings Actual vs. Hurdle (Excluding Relocations and Rebuilds) +228 Average Weekly Guest Count (AWGC) (474) 4,862 4,634 +318 +100 3,755 3,281 3,201 2,883 2,785 2,885 Hurdle Actual Hurdle Actua
Slide 39: Red Lobster's Same-Restaurant Sales Increased Darden's Operating Volatility
3 Red Lobster's Same-Restaurant Sales Results Have Increased Darden’s Overall Operating Volatility Sequential Quarterly Same-Restaurant Traffic Changes 12.1 % 8.6 % 7.0 % 2.8 % 4.8 % 6.2 % 6.4 % 1.4 % 3.3 % 2.1 % 2.6 % 3.7 % 3.0 % 2.3 % 2.4 % 1.8 % 2.4 % 0.6 % 1.3 % 1.2 % 1.3 % 0.3 % 0.1 % 1.0 % (0.
Slide 40: Red Lobster Transformation Plan and Dedicated Management Team
4 Red Lobster Transformation Plan Benefits From a Tailored Strategy and Dedicated Management Team Selected Strong Management Team with a Clearly Defined Vision for the Brand Three-Pronged Approach and Multi-Year Plan to Drive Sales and Profitability Greater focus on seafood quality, craveability a
Slide 41: Separation Results in Two Independent Companies
5 Separation Results in Two Independent Companies Each Better Able to Execute On Their Strategic Focus “New Darden” “New Red Lobster” Retaining core customers and expanding customer Retaining core customers to maintain stable same- base to grow same-restaurant sales restaurant sales Strategic
Slide 42: Update and Timeline for Red Lobster Separation
Update and Timeline for Red Lobster Separation Potential tax free spin-off of Red Lobster, which will result in 100% pro rata distribution of Red Lobster stock Transaction Structure Sale process also being conducted that may result in greater value “New Darden” Use proceeds from Red Lobster tr
Slide 43: IV. Board Review of Additional Strategic Options
IV. Board Review of Additional Strategic Options 43
Slide 44: We Have an Independent Board with the Right Experience to Lead
We Have an Independent Board with the Right Experience to Lead • Independent oversight — 11 of 12 directors are independent; annually elected Board — Experienced lead independent director — Fully independent Finance, Audit, Nominating & Governance and Compensation committees — The board conducts an
Slide 45: Darden's Board – Diverse and Proven Leadership
Darden’s Board – Diverse and Proven Leadership with Investor, Financial and Executive Backgrounds • William M. Lewis, Jr. • Michael W. Barnes — Managing director and co- chairman of Investment Banking at — CEO of Signet Jewelers Lazard — Experience in consumer marketing and supply chain operations —
Slide 46: The Board Regularly Evaluates Alternatives to Enhance Shareholder Value
The Board Regularly Evaluates Alternatives to Enhance Shareholder Value Sale / Spin-Off • 8 board meetings during fiscal year 2013 SRG Brands — In fiscal year 2014, Board has been meeting almost “monthly” including enhancing its oversight through Portfolio Reconfiguration a Transaction Committee Sal
Slide 47: Review of Other Potential Portfolio Separation Alternatives
Review of Other Potential Portfolio Separation Alternatives THE STRATEGIC RATIONALE FOR THE RED LOBSTER SEPARATION WAS DISCUSSED IN THE PRIOR SLIDES. THE BOARD ALSO CONSIDERED A NUMBER OF FINANCIAL FACTORS WHEN ANALYZING THE OTHER SEPARATION ALTERNATIVES SRG LongHorn / SRG • Removes benefit/synergy
Slide 48: Considerations for Real Estate Separation
Considerations for Real Estate Separation Operational Financial Capital Structure • Significant loss of control • Rent burden hurts margins and • Significantly increases leverage inhibits flexibility — Inhibits ability to easily close — Likely loss of investment or relocate underperforming • Diminis
Slide 49: Review of Darden's Existing Real Estate Portfolio
Review of Darden’s Existing Real Estate Portfolio WHILE A SIGNIFICANT PORTION OF OUR REAL ESTATE IS OWNED, THE MAJORITY IS LEASED AND GROUND LEASED PROPERTIES Counts Total Square Footage (k) Ground Ground Leased Owned Total Leased Owned Total Lease Lease Red Lobster 39 184 456 679 335 1,388 3,381 5,
Slide 50: A Darden REIT Is Likely to Trade at a Significant Discount
A Darden REIT Is Likely to Trade at a Significant Discount GIVEN THAT A DARDEN REIT WOULD LIKELY LACK THE CHARACTERISTICS OF HIGHLY-VALUED REITS – IN PARTICULAR ITS EXPOSURE TO A SINGLE PROPERTY TYPE AND SINGLE TENANT RISK WITH SPECIFIC USE LIMITATIONS – IT WILL LIKELY TRADE AT, OR BELOW, THE LOW EN
Slide 51: How Does Darden Compare? Tenant Diversification and Credit Quality
How Does Darden Compare? Tenant Diversification and Credit Quality • A Darden REIT would initially lack any property-type or tenant diversification as its assets would be leased to a single, non- investment grade credit, and opportunities to expand its tenant base may be limited • REITs that lease c
Slide 52: How Does Darden Compare? Review of Property Type and Switching Costs
How Does Darden Compare? Review of Property Type and Switching Costs Darden Property Type Diversification vs. Peers GAMING AND LEISURE NATIONAL RETAIL DARDEN REIT GOVERNMENT PROPERTIES PROPERTIES PROPERTIES AGREE REALTY LEXINGTON REALTY Restaurant Bank Retail / Convenience 1% Multi-tenant 2% O
Slide 53: How Does Darden Compare? Significant Proportion of Ground Leases Is Unattractive
How Does Darden Compare? Significant Proportion of Ground Leases Is Unattractive • Darden has a high concentration of ground leased properties instead of fee simple real estate ownership whereas publicly- traded NNN REITs typically own very few or in many cases zero ground leased properties due to t
Slide 54: Penn National REIT Is Not Analogous to Darden REIT
Penn National REIT Is Not Analogous to Darden REIT Penn National separated its gaming operating assets from its real property assets into two publicly traded companies, one an operating company and one a REIT, called Gaming and Leisure Properties (GLPI) Penn National REIT (GLPI) Proposed Darden REIT
Slide 55: Potential Friction Costs Overview
Potential Friction Costs Overview FORMATION OF A REIT WOULD INVOLVE MEANINGFUL FRICTION COSTS, THE MOST SIGNIFICANT BEING THE DEBT BREAKAGE EXPENSE ASSOCIATED WITH THE EXPECTED REFINANCING OF DARDEN’S APPROXIMATELY $2.5 BILLION IN CURRENT DEBT, WHICH WOULD BE NECESSITATED BY SUCH A TRANSACTION Issue
Slide 56: V. Conclusion
V. Conclusion PX DARDEN
Slide 57: Priorities for Value Creation
Priorities for Value Creation 2 Develop LongHorn into America’s favorite steakhouse Important Refinements to Our Strategic Grow SRG total sales by more than Framework 3 $1.0bn over the next 5 years Execute Exciting New Against Robust Remodel and Operations 4 Disciplined capital allocation Logo Direc
Slide 58: Nourish & Delight
NOURISH & DELIGHT Everyone We Serve.