C. Richmond - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Clarence Otis - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee Matthew Stroud - Andrew Madsen - President, Chief Operating Officer and Director Eugene Lee - President of Specialty Restaurant Group

Bryan Elliott - Raymond James & Associates, Inc. Brad Ludington - KeyBanc Capital Markets Inc. Jeffrey Omohundro - Wells Fargo Securities, LLC John Glass - Morgan Stanley David Tarantino - Robert W. Baird & Co. Incorporated Stephen Anderson - Miller Tabak + Co., LLC Mitchell Speiser - Buckingham Research Group, Inc. Sara Senatore - Sanford C. Bernstein & Co., Inc. Jeffrey Bernstein - Barclays Capital Joseph Buckley - BofA Merrill Lynch Steve West Karen Lamark - Federated Investors Howard Penney - Prudential Equity Group Bart Glenn - D.A. Davidson & Co. David Palmer - UBS Investment Bank Peter Saleh - Telsey Advisory Group Stefan Karlsson - UBS Investment Bank

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings release conference call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Matthew Stroud. Please go ahead.

Thank you, Mary. Good morning. With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and COO; Brad Richmond, Darden's CFO; and Gene Lee, President of Darden's Specialty Restaurant Group. We welcome those of you joining us by telephone or the Internet. During the course of this conference call, Darden Restaurants' officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives. Forward-looking statements 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 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, including all amendments to those reports. These risks and uncertainties include food safety and food-borne illness concerns; litigation; unfavorable publicity; federal, state and local regulation of our businesses, including healthcare reform, labor and insurance costs; technology failures; health concerns, including virus outbreaks; the intensity -- the intensely competitive nature of the restaurant industry; factors impacting our ability to drive sales growth; the impact of the indebtedness we incurred in the RARE acquisition; our plans to expand our newer brands like Bahama Breeze and Seasons 52; a lack of suitable new restaurant locations; higher-than-anticipated costs to open, close or remodel restaurants; increased advertising and marketing costs; a failure to develop and recruit effective leaders; the price and availability of key food products and utilities; shortages…

Well, thank you, Matthew, and good morning, everybody. Darden's total sales from continuing operations increased 6.8% in the fourth quarter to $1.99 billion. This strong top line performance compares to an estimated 2.9% total sales growth for the industry as measured by Knapp-Track. So as you can see, we had meaningful market share growth. On a blended same-restaurant sales basis, the results for Olive Garden, Red Lobster and LongHorn Steakhouse were up 2.2% in the fourth quarter. For context, industry same-restaurant sales as measured by Knapp-Track and excluding Darden are estimated to be up 1.9% for the quarter. Olive Garden fourth quarter U.S. same-restaurant sales were flat at 0.0%. This includes the adverse effect of the timing of last year's price increase, which occurred early March of fiscal 2010 but was not repeated in the fourth quarter of this year. We estimate this adversely affected same-restaurant sales at Olive Garden by approximately 100 basis points in each month of the quarter. Traffic for the quarter improved sequentially from this year's third quarter and was flat to last year. Red Lobster's fourth quarter U.S. same-restaurant sales increased 3.8% and includes the benefit of the Lent and Easter holiday shift and the shift of Lobsterfest. These shifts positively affected March sales by about 20 basis points and April same-restaurant sales by 280 basis points. LongHorn Steakhouse fourth quarter U.S. same-restaurant sales increased 6.0%. This includes the impact of the holiday shift of Lent and Easter that positively affected March same-restaurant sales by 80 basis points but adversely affected April same-restaurant sales by 180 basis points. And we also saw continued strong same-restaurant sales gains in our Specialty Restaurant group. We had 5.3% same-restaurant sales growth on a blended basis. The Capital Grille fourth quarter same-restaurant sales increased 7.9%. Bahama Breeze fourth quarter…

Thanks, Brad. This morning, I'll share a few highlights regarding industry same-restaurant sales dynamics, our fiscal 2011 fourth quarter sales performance and our fiscal 2012 strategic priorities for Olive Garden, Red Lobster and LongHorn. Then Gene will do the same for the brands in our Specialty Restaurant group. Casual dining performance as measured by the Knapp-Track chain benchmark excluding Darden brands continued to improve during the fourth quarter. Same-restaurant sales increased 1.9%, which is the best quarterly performance since the third quarter of our fiscal 2006, and same-restaurant guest counts were flat, which represents the best quarterly performance since the fourth quarter of our fiscal 2005. For the full year, industry same-restaurant sales grew 80 basis points. While the broader economic recovery has not been as strong as any of us would like and full year casual dining same-restaurant sales are still negative on a 2-year basis, we are encouraged by the gradual and sustained improvement in our industry, and we anticipate continued modest recovery during fiscal 2012. It's also worth noting that we've continued to see a narrowing in the casual dining user base. Households with incomes above $75,000 have always been the biggest user group in our industry. However, this group has significantly increased their share of traffic, both during the recession and after the recession while the share from households with incomes below $60,000 has been reduced. Given this trend, we believe the ability to offer greater affordability to guests without eroding margins will continue to be very important going forward. Now let's discuss our fourth quarter performance. As Brad mentioned, our 3 large brands delivered combined same-restaurant sales growth of 2.2% during the fourth quarter, exceeding the industry benchmark by 30 basis points. Olive Garden opened 11 new restaurants, delivered total sales growth of nearly 4%,…

Thanks, Drew. Specialty Restaurant group had a strong fourth quarter, delivering 19.3% sales growth, which represents 18% of Darden's total sales growth for the quarter. This growth was a result of solid performance at our 11 new restaurants and blended same-restaurant sales growth of 5.3%, which was driven by strong performance at Capital Grille. Our strong sales growth resulted in significant margin expansion during the quarter. Restaurant level margins improved significantly, and we effectively leveraged our support platform to reduce G&A as a percentage of sales. Total sales for the group exceeded $500 million in fiscal 2011, an increase of 19% over prior year. In fiscal 2012, we will continue building on this momentum. The Specialty Restaurant group plans to open 10 to 12 net new restaurants, including 2 Capital Grilles, 3 to 4 Bahama Breezes and 5 to 6 Seasons 52 restaurants. As we continue to grow, maintaining our talent pipeline will become even more important, so we will refine management recruitment and development processes to ensure we continue to hire, develop and retain strong management teams. We will also build on the same-restaurant sales momentum that we established in fiscal 2011 by further enhancing in-restaurant operational delivery at all 3 brands. Capital Grille will leverage the personalized service that differentiates the brand and focus on growing their lunch business. Bahama Breeze will evolve its service delivery model to enhance the guest experience and deliver strong affordability and value through innovative menu development. Seasons 52 will also further enhance the guest experience through their strong service culture and utilize their expanded private dining capacity and capabilities to continue building group and event dining business. We will leverage both same-restaurant sales growth and new restaurant growth to further strengthen our business models. We've identified unique Specialty Restaurant group cost-saving initiatives, and we'll complement these by using culinary creativity to avoid some of the products where inflationary pressure is most meaningful. The combined effect of these efforts and sales leverage means we expect to see an improvement in restaurant level margins. In addition, we will continue to enhance our support platform while leveraging our leadership talent across the group. Now I'll hand it back to Brad for the fiscal 2012 finance outlook.

Thank you, Gene. Our outlook for fiscal 2012 reflects our very strong business model. In fiscal 2011, we generated nearly $900 million in cash flow from operations in what was a low-growth economic period. And we anticipate generating even stronger cash flows from our operations in fiscal 2012 despite elevated cost inflation driven by the combination of same-restaurant sales growth, accelerating new unit growth and improvements in our already strong margins. And after investing in our businesses, we plan to return even more capital to our shareholders through the increase in our dividends, which we announced yesterday and by maintaining our strong level of share repurchases. In fiscal 2012, our outlook is based on a combined same-restaurant sales growth for Red Lobster, Olive Garden and LongHorn Steakhouse of approximately 2.5%. This includes approximately 2% to 3% of pricing for fiscal 2012, and our assumption that together, traffic and mix changes will be flat. Of course, we will be both above and below our assumed range from month-to-month and quarter-to-quarter depending on promotional calendars, holiday shifts and changes in consumer sentiment. Looking ahead to unit growth, the new unit plans we outlined mean that we expect a net new restaurant increase of approximately 80 to 90 restaurants, which is about 4.5% unit growth on our current base and approximately 4.0% in operating weeks or capacity for fiscal 2012 based on the timing of our unit openings. Given our same-restaurant assumptions and new unit growth plans, we anticipate that total sales increases for the year will range between plus 6% and plus 7%. With more unit development in fiscal 2012 and our accelerating remodel program at Red Lobster and Olive Garden, we expect capital spending to be somewhat higher than in fiscal 2011 levels. We anticipate it to be approximately $600 million,…

Thanks, Brad. And so when you step back, what does all this mean? It means that in a fragmented full-service dining industry that has few participants of size, we'll add roughly $0.5 billion of sales in the next 12 months, we'll deliver mid-teens earnings growth, a 34% increase in our dividend and nearly $400 million in share repurchase. And we'll do so after investing well over $0.5 billion in strengthening and expanding our business. And we'll also do so in a tough economic environment, one where there's sluggish economic growth and elevated inflation and some costs that are pretty important to us. What do those expectations tell us? They tell us that we've built something special. We've built a diverse portfolio of brands that enables us to deliver strong results even when any single one of our brands is experiencing the tactical ups and downs that every brand at some point will experience in an industry as dynamic as full-service dining. And most importantly, they tell us that we've built some wonderful teams, support teams that have expertise, that's industry-leading in the many areas that are critical to success in our business, and teams in our restaurants who are passionate about supporting one another and even more passionate about delighting guests. And so you can be sure that there are a couple of things we'll continue to do. We'll continue to leverage all that we've created to build ever strong guest loyalty, and we'll continue to leverage all that we've created to produce industry-level leadership level, total shareholder returns. And so with that, I know it's end of fiscal year so we've run a little long, but we will stay longer to make sure that we answer all your questions. And we'd be delighted to start that right now. So thank you.

[Operator Instructions] And our first question comes from the line of David Tarantino with Robert W. Baird. David Tarantino - Robert W. Baird & Co. Incorporated: First question really is about your comps guidance for fiscal '12. You're assuming 2.5%, and you just indicated that you started June very strongly. So just wondering or curious why you're assuming relatively low levels versus the pace that you've been on recently especially from a traffic and mix perspective.

Well, David, I think as we put our plans together, we really -- we start with the overall macroeconomic environment. We work with our partner, is David Cross, a well-known, well-respected economist. Market Outlook is David's firm. And so we really do start with GDP growth and all the components that go into that. And then some things that David in his model over many years working with us has identified as drivers of casual dining. And I would say as you look at the range of GDP growth projections that's out in the marketplace, David's probably towards the lower end. And so that really is the foundation for what we think the industry's going to do and then we put together our plans based on what we think we can do relative to the industry. So compared to a range of estimates, it's conservative. Unfortunately for all of us, David's been more conservative than most over the last several years, and he's been more right than most. So that's where we are. David Tarantino - Robert W. Baird & Co. Incorporated: That's helpful. And if I could squeeze one follow-up question. On the 2.5% that you're assuming for the blended comp, are you assuming that Red Lobster and LongHorn continue to lead and Olive Garden lags that figure? Or how do you expect to the comp position to play out?

Well, I don't want to go too much into specifics for each brand, but we expect all of the brands to contribute positively to our same-restaurant sales performance for the fiscal year.

And our next question comes from the line of Steve West with Stifel, Nicolaus.

Kind of quick follow-up question on the June comp. You talked about very strong and you really called out the Red Lobster. Can you maybe give a little bit some qualitative color around Olive Garden? Are you seeing maybe some improvements at least in that versus what we've seen the last couple of quarters?

Well, I think we finished the month really with a promotion -- we started the month with the same promotion that we had in May. And so we didn't see a huge trend change. The big change has occurred just last week really with, as Drew said, the introduction of the most recent -- the current promotion that reflects some of the tactical changes that we've made that are consistent with all of the observations that Drew offered.

Okay. And then real quick, Clarence, on the guidance you guys gave last year, when you guys gave the guidance, you had indicated maybe pushing a little ahead on the comps, but assuming that there would be a consumer rebound finally after so many years. But you also said that if there wasn't a rebound, you could kind of hedge on the labor side thinking that there would be some labor leverage, and we clearly saw that. Is there any kind of hedging or anything we need to think about as far as comps and maybe margin differences, if you don't get the comps or if comps are stronger at this time versus what you are guiding?

Yes, I'd say there are quite a few. I mean, labor continues to be one of those, but food cost is another. And so we've got, as Brad said, a total inflation rate -- he outlined I think 5% to 5.5%. We've locked in the first half of that for the most part. The second half we have not. We think prices are going to come down even with continued economic improvement. But if the economy flags even more than we expected -- expect rather, we don't see food cost inflation staying at the levels we've got in our plan.

Our next question comes from the line of David Palmer with UBS.

Darden has been protective of its brand in recent years with regard to price discounting going a little too heavy on the price element. Could you give us your thinking about that $15 four-course promotion at Red Lobster. Clearly, that looks like pretty deep value for that brand. Why is that the right move for that brand? Why is that not something that you'll be regretting perhaps a year from now?

Yes. Well, I'll start off and say the key is putting together a dish that has the right margin structure or an offer that has the right margin structure that taking something that's built for a margin at x price and trying to deliver it at 25% less. And so Red Lobster's done a lot of work over the past several months on culinary innovation. And so the offer that they have out in the market right now, the promotion, the 4-course for $15, was created with a very strong margin structure. And so we feel really good about it, good enough that this is an offer that could transition to the permanent core menu.

And the one follow-up I'd add to that is we want to make sure with any of our promotions that we're delivering an experience that people expect of the brand. And sometimes, if you take a very big discount, and you're not going to deliver the same experience that they've come to expect from you -- and this 4-course seafood feast that Red Lobster's got now is designed to deliver the experience Red Lobster guests love and do it in a way that is very value creating for Darden shareholders.

David, Brad here. I guess I'd just add one other point of view on that is when we look at it, it is a discount that's very similar to when we have our Endless Shrimp. But it really delivers a different experience, so we're touching a different guest to help motivate them to get into the restaurant.

And our next question comes from the line of Brad Ludington with KeyBanc Markets.

I wanted to ask if -- and sorry if I missed this, if you can comment on what kind of price increase level you have built into your guidance, and if there's a variation between the 3 major brands and in what levels? And then also how you look at that pricing? Are you looking to keep it low to take advantage of the fact that food at home CPI is so high, up about 4.5% in the recent months, I think?

So with our annual pricing every year, the 2 things we're looking to do is make sure we're covering the net inflation that's going into our business model and also preserve the value creation and the relative positioning competitively that each brand enjoys. So historically, we've taken pricing in the 2% to 3% range. This coming year what I mentioned is that all of our major brands are going to be at the low end of that range because we know there's an elevated need for affordability. But we also are very comfortable that, that range of pricing is very consistent with maintaining strong unit economics because of all the proactive cost management that we've got going on.

Okay. And just have you seen any impact in recent months at some of the brands with supermarket inflation up so much? Is that helping drive people to some of the restaurants do you think?

We don't know, I guess, is the answer. I'd say the thing that Drew outlined was that as you look at casual dining over the last 6 months, it's an industry where same-restaurant sales are strengthening. And so in general, the trend over that period is better months, and that's despite tougher prior year comparisons. And that's in the face of elevated gasoline prices. It's in the face of some of the supermarket inflation. So we couldn't really just aggregate it, but the industry is holding up well. And that's consistent with our view that casual dining is definitely a integrated part of people's lives.

And our next question comes from the line of Matt DiFrisco from Lazard.

I'm also just curious, Clarence, I think you said it was 2 incremental value-oriented promotions for Olive Garden. What's the timing of those? It sounds like you said the first half. Will there be incremental expense associated with those? So is that also somewhat weighing on your single-digit earnings outlook in the first half?

Yes, this is Drew. There are 2 incremental value-oriented promotions in the first half. One is going on now. But just like with the Red Lobster promotion we discussed, the products that have been developed and the price point that's been established and the traffic that we anticipate generating, we anticipate to be value creating. So we think it's going to address consumer need for broadly appealing dishes, attractive price points that are going to help us generate profit growth.

Yes, I think to be more specific, on the first half of the year in the earnings growth that we talked about, it's pretty singularly focused on the elevated cost environment -- food cost environment that we're in. And we think of these pretty high elevated levels compared to a year ago where there was very little inflation in the food cost. And as you start to get to the back half of the year when we're lapping on this, we actually see that prices will be no higher than that and probably to start moving down a little bit.

Just as a follow-up to that point. I guess your relative COGS in the fourth quarter, obviously, has the inflation in there, but was there also, I think, a comment that there was some mix effect working in there. So should we -- was that all the inflationary pressures out there and something to look for as a proxy for 1Q? Or was there some mix effect as well working against you?

I would say the mix effects was maybe 20, 25 basis points of that. It was -- we've seen the elevated commodity costs, and so that is by far and away the big driver of that. The mix impact was pretty minor. We had Lobsterfest, which delivers a higher absolute margin, but the percentage is a little bit less, or said other way, a little bit higher elevated food cost. And we've had some other promotional activity, but they're delivering margins pretty much as we would expect. So I would stay singularly focused more on commodity food cost as the headwind in the first half of the year -- first half of the new fiscal year.

Our next question comes from the line of Joe Buckley with Bank of America.

Just a couple of questions on Olive Garden. Have you taken price so far in the first quarter? And then on the sales side, could you talk about cannibalization? As you've opened new units over the last couple of years, have you seen some cannibalization? And then lastly, it sounds like you're adopting the price certainty approach that seems to have been effective at Red Lobster. Is there research behind that, that shows that's been part of the issue at Olive Garden?

So the new menu for Olive Garden just went in a couple of weeks ago, and with that menu there was some pricing. So that is in the market now. Yes, we are adopting the price certainty approach that's worked well for Red Lobster. And there isn't any specific Olive Garden research to that. We have just noticed that, that approach has worked very well for Red Lobster, and we know that there's an elevated need for consumer affordability. And if they aren't sure what the range of prices are going to be in a promotion, we want to eliminate that uncertainty and tell them specifically what it is because we think, for Olive Garden $10.95 and $12.95, for instance, are very compelling prices. On the third question, there has been impact to existing restaurants as Olive Garden has opened new units. The cost of that impact is built in to the value creation hurdle that the new restaurants have to earn against, and the new restaurants that Olive Garden continue to meaningfully exceed that earnings hurdle. So we're very pleased.

And, Joe, this is Brad. I would say we haven't seen any change in that amount, that it's been pretty stable. I would take you back when we talked about Olive Garden margins. Even with that, they're still continuing to build margins. These are value -- significantly value-accretive new restaurants. But yes, they are impacting same-restaurant sales performance a little bit.

And I think we dimensionalized what that draw effect was at the investor conference that we had back in February and -- 60, 70 basis points, and that hasn't really changed.

And our next question comes from the line of John Glass with Morgan Stanley.

I wanted to follow up on Olive Garden. I was surprised that you said that you haven't noticed any way that the consumers have changed the way they're using that brand. Could you -- or perceive that brand. Could you talk about how you know that, how recent your data is? In particular, lunch has been an area that's been focused on by competitors, so is there any notion that there's a day part weakness around that, for example, that may be driving some of the flat to declining traffic?

Sure. Well, specifically speaking to day part, the comments I made are through the end of the fourth quarter. So same-restaurant sales at lunch for Olive Garden were positive 3 of the last 4 quarters. They outperformed dinner, in fact, during the fourth quarter. So we haven't seen any meaningful change in how Olive Garden guests are using the brand by day part. We do think there's an opportunity to build on the strength at lunch, which is why we're introducing Panini sandwiches. And we do think that will be a positive. But we haven't seen a meaningful change, lunch versus dinner. And lunch has always been a strength for Olive Garden. In terms of the other things that you asked about, we look at guest satisfaction in restaurants weekly. We look at brand perception within casual dining monthly and how that stacks up to the other large casual dining brands. And we haven't seen any shift there either, and Olive Garden remains very strong on everything that we look at in restaurant and perceptually in terms of the broader universe. So we're pretty convinced that the opportunity for Olive Garden is to improve our execution in marketing on some of the tactics that I discussed earlier.

Great. And then just if I could just follow up. Brad, I know you talked about the second half of fiscal '12 being the stronger one from an earnings perspective. Some of that had to do with the decline -- or more favorable food cost, and you gave a lot of detail. But how much maybe losses in some of that, how much is actually known or contracted for that second half of fiscal '12 right now? And how much of it is just your expectation or estimate of declining food costs?

Well, on the food perspective, we don't have as much of that contracted. I think we're probably in the 20% range or so. But -- so it's more built on the expectation there. But also, I would look to the items that we've talked around our transformational initiatives. They continue to build a little bit of momentum as we go through the fiscal year. I mean, you can see where we ended up last year. They came from a strong point, but they continue to build some. So it's a combination of those, of the expected decline in the commodity prices or just being more, on a year-over-year basis, more consistent, hopefully some decline there and our transformational cost initiatives that help aid in the growth as well.

Our next question comes from the line of Jeff Omohundro with Wells Fargo.

Just a question on Red Lobster and the $15 four-course promotion. Given the apparently very high mixing of this promo, just curious about how you would anticipate transitioning off of it. I believe Clarence might have suggested the possibility of adding it to the permanent menu. Do you continue to provide price certainty with this promo going forward or would you anticipate a new promo with similar price certainty to replace it? And also would you anticipate running this $15 promo perhaps a bit longer than normal? Maybe you can share with us how you're thinking of timing on the transition.

Well, most broadly we think it's important for Red Lobster to offer price certainty in more of their promotions during fiscal 2012 than fiscal 2011. So that is part of our strategy. That doesn't mean we're going to run this $15 4-course seafood feast repeatedly during the year. But more of the promotions that we have are going to feature the strategy that we used in the last 8 months of fiscal 2011, where we feature price certainty at a range of prices from $11.99 to $19.99 last year, and that worked very well for us. Whether we put the $15 four-course feast on the menu is something we're evaluating. We've been testing it in market as a promotion and as an addition to the menu. We've been very careful to understand what the menu preference dynamics are with that. And we are obviously very comfortable with what we saw, which is why we advertised it. And we think it could potentially be a compelling part of the menu going forward. But that's still something we're evaluating. I would say also more broadly, the core menu has an opportunity for some innovation and reengineering as it relates to what we offer and how we price it, and that's something that the brand is working on now as well. We don't anticipate that being a major driver in fiscal 2012, but we think there's an opportunity to go beyond promotions to address affordability with the core menu in fiscal 2013.

And I would just underscore one of the things that Drew said. So Red Lobster in fiscal ‘11, price certainty from $11.99 to $19.99. So it's a range of prices. So we're not talking about necessarily steep discounts, and their business accelerated going from an $11.99 offer to a $15 offer. So it's all about, ultimately, the value that you're delivering to guests, and we think that we've got the expertise to deliver value and maintain a pretty strong margin.

And can you share how long the $15 promo is expected to run?

No.

Our next question comes from the line of Jeffrey Bernstein with Barclays.

A couple of questions. Just first, follow-up on Olive Garden. It seemed like last quarter, you guys were thinking that in order to really implement some change to the menus, it's going to take you a few quarters and we should, therefore, expect the first half of this fiscal year to be more the promotions that you guys had scheduled a year ago. That seems like that's now accelerated. I'm just wondering should we now expect these new promotions that we're seeing now to be all kind of the product of the most recent changes you guys have made and therefore, we should expect more of a first half fiscal '12 improvement? And how do you guys think of that versus the gap to Knapp-Track and whether you'd view the most recent Olive Garden shortfall as more self-inflicted or perhaps more from a peer convergence standpoint. And then I had a follow-up.

I think there are a number of dynamics that are impacting Olive Garden's relative competitive performance. We think the biggest one was probably self-inflicted in our promotional effectiveness. And that is why we've made the adjustments that I've already talked about, and that's the path we're on through the first half certainly. I would say that the first half of fiscal 2011, what we're wrapping on, particularly the first quarter of last year was very strong for Olive Garden. I think they exceeded the industry by about 300 basis points or so in the first quarter last year, and so we are wrapping on a competitively strong period. What was -- I forget the second part of your question.

Just I know you guys in the past, perhaps during the downturn, focused more on the gap to Knapp-Track versus the industry and on an improving macro, not so much. I'm just kind of wondering how you view Olive Garden versus the industry.

Yes, I'll start just by talking about how we view Darden overall. And so we think that given the portfolio of brands that we have, over the long term we should be at 2% to 4%. And that portfolio has a very strong new unit growth rate -- profile, rather, and so overall, when you factor in the units, 7% to 9%, we talked at the Analyst Meeting about where we think the industry will be. So we think we've got an industry where same-restaurant sales growth will be more like 1%, 2%, and that's over the long term. And so there's a gap implicit in that. Of course, it's going to bounce around from year-to-year and period-to-period, depending on market dynamics and competitive dynamics. But that's the long term sort of outlook.

And I forgot, the other question you asked was about industry convergence. And while we think the biggest reason for Olive Garden's performance to be equal to or slightly below the industry over the February to May period was promotion affecting us, also when you look at the market share growth that Olive Garden has captured over the last 3 years, it's been very substantial. It's been more than 10 points on a same-restaurant sales basis and probably another 12 or 13 points on a unit basis. And it is possible there's a little bit of normalization in that as well as the industry begins to improve and as consumers gradually begin to add back some of the brands and some of the occasions they cut out a couple of years ago. But we fully expect Olive Garden to continue to outperform.

And our next question comes from the line of Sara Senatore from Sanford Bernstein. Sara Senatore - Sanford C. Bernstein & Co., Inc.: Senatore. I just wanted to go back to the big picture question. You had said that you're starting to see more of the traffic disproportionately come from, I guess, the higher-income consumers. It surprises me then that where the real success seems to be is in these price point specific, very, I would, say strong value proposition. So can you just talk a little bit about is it -- are your customers -- am I hearing that your customer base is not in that higher income and that's why we would expect to -- you would need to push even harder on value, or just help me reconcile that.

Yes. I would say, no, not at all. I think, given our price points are in the higher end of the range of casual dining price points, our customer tends to be a pretty well-heeled customer from a mass-market perspective. But all customers, even those that are accounting for more of the traffic, so the north of $65,000, $70,000, all customers are budgeting with a lot more discipline. And so it really is around price certainty in that environment, not necessarily a price discount. Customers aren't looking for a discount. But they want to kind of know a little bit more, with a little bit more precision what they're going to spend when they choose to go out or when they choose do anything else. So we are well positioned because our brands sit where they sit, and that customer base has always been core to them. We do think, though, you've got a lot of customers below $65,000 household incomes, and we want to make sure that we stay as relevant as possible to them. And so it is critically important for that reason to maintain everyday price accessibility, and all of our brands are working on improving on that score.

Yes, and I would just add that the promotion you referenced at Red Lobster was designed specifically to address the heightened need for affordability among a more modest income group. But everybody loves a $15 four-course seafood feast.

Yes that’s a lot of food for not a lot of money. The follow up was about LongHorn. We're seeing obviously strong trends across steakhouses. Can you maybe just talk a little bit about if you had to say what piece of that is just cyclical, lapping, multi-year easier comparison versus maybe what you're doing for that brand.

Well, we think it reflects very sustainable business momentum and improvement in the way people think about the brand and the experience they get in the restaurant. So LongHorn had a good year last year also, so they're continuing to improve. As we've talked in the past, LongHorn has always had a very strong foundation of operations excellence and deliver very well a consistently good experience inside the 4 walls of their restaurant. And over the last couple of years, what we've been able to do is broaden appeal by improving the advertising, improving promotions, refining the menu. And we've been able to increase reach by strengthening our advertising, and all those things working together are making the brand more visible and more relevant to more people. When they come in, they love the experience, and they're coming back more frequently. I forgot to mention remodel. That's also been a big part of it.

And LongHorn is really got some other things working in its favor. I mean, LongHorn built itself and its legacy to a region. The Southeast is one of the regions where -- the spend for customer is actually lower than it is in most of the country. So LongHorn, as it expands, expands out into an environment where people spend more. And that's a big positive for average unit volumes as you move away from comps and look at just AUVs, which are important to business model health.

Our next question comes from the line of Bryan Elliott with Raymond James. Bryan Elliott - Raymond James & Associates, Inc.: I'll be quick. Drew, you mentioned last quarter and again here the sort of 2-pronged Olive Garden marketing approach, equity versus more tactical calls to actions. My question is some of the a bit more, call it, sophisticated food promotions over the last couple of quarters that didn't result in the kind of traffic and sales you were hoping for, would you characterize those as brand-equity type advertising? Or were those promotions designed to be the call to action and a short-term traffic driver? So in other words, sort of thinking about moving the brand to a more differentiated place through its food, does that remain a kind of a long-term equity building focus?

So the -- take the food and -- I'll talk about the food and the advertising. The food, say, soffatelli, which is the puff pastry dish that we advertised in March, that was not designed to reposition the brand. That was designed to broaden the appeal of the brand. We've got a very, very broadly appealing brand today, a very strong brand. But culinary distinctiveness is one of the things our research says is an opportunity to attract some guests who don't come as frequently as they might if we had some additional culinary forward food on the menu. So it was really an attempt to continue to broaden the appeal of Olive Garden. And in advertising, we want to make sure that we communicate the crave of the dish, but we also want to make sure we're continuing to emphasize this emotional benefit of Italian generosity and sense of family and connection. And what we've found is on the product side, soffatelli went a little too far on culinary distinctiveness. And in the current environment, our advertising needs to rebalance more on the short-term product message, a little bit less on the emotional benefit sense of family that's a longer-term advantage for Olive Garden. So we've adjusted both things. More broadly appealing product and more time in the commercial spent on the consumer benefits of that as a call to action in the short term. Bryan Elliott - Raymond James & Associates, Inc.: Should we expect to continue to see periodically, I'll call it, more sophisticated or the term you used was more culinary forward food? Should we continue to see that from time to time?

Occasionally because we've still got to have exciting news, but not 2 or 3 promotions in a row like we did at the end of fiscal 2011. So not as often.

Our next question comes from the line of Steve Anderson with Miller Tabak. Stephen Anderson - Miller Tabak + Co., LLC: I just wanted to get a clarification on the cost savings numbers you have. You said -- I remember at the Analyst Day, you mentioned the $35 million to $40 million -- $35 million to $40 million annualized, and you just mentioned $65 million to $70 million. Is that an increase from -- of your cost expectations? Just wanted to take a look at that.

Yes, that is about roughly a $10 million increase. As I mentioned a little bit earlier, we are seeing some good progress there, and so we're just trying to reflect that progress.

Our next question comes from the line of Bart Glenn with D.A. Davidson. Bart Glenn - D.A. Davidson & Co.: Yes, I was just curious, could you talk a little bit about what your appetite is for taking up debt levels modestly in order to facilitate incremental share repurchase, and if you could also quantify kind of what you expectations are for stock buyback for this year.

Well, on the debt side, first, I'd like to say we always price the having an investment grade credit portfolio, so that's clearly in our plans. As you look at our specific debt metrics, where we are, we see just a very slight moderation up from where we are because we're at the low end of the ranges, particularly the adjusted-debt-to-capital and adjusted-debt-to-EBITDAR. And so the share repurchase that we've guided to this year, about $350 million to $400 million, it's really based on our strong operating cash flows that we have and not leveraging up the balance sheet at all.

Our next question comes from the line of Howard Penney with Hedgeye Risk Management.

I can confirm the success of Red Lobster having waited 40 minutes on a Tuesday night for my $15 meal, which was fantastic. But can you comment on if there's a -- if the promotion is too successful, meaning the customer preference is too high and that it may be at roads with historical performance because there's too many customers in there or the margins suffer because they're trading down to that product as opposed to...

So there are -- there's 2 potential opportunities there. One is if the restaurant is so busy that the guest satisfaction isn't what it needs to be or if the menu preference is well beyond -- on the promoted item is well beyond what we expected and the financial performance isn't what we expected. And that's why we tested this promotion in restaurant for over 3 months to make sure that the range of entrées we had in the lineup and the operational procedures we had to make sure we could deliver effectively were fine-tuned to the point that we were set up for success and our restaurants were set up for success. So the guest satisfaction that we've been measuring since this program started, still very strong, although we have noticed an increase in the value ratings for the brand, which is great. And the preference for -- on this promotion's a little higher than we expected, but traffic is higher than we expected. So it's good.

The next question comes from the line of Mitch Speiser with Buckingham Research.

All of my questions were answered, so I'll just focus on the first quarter where you told us comps are running about 5% to 6%. The comparison was a little bit easier in the June period. I guess my question is with EPS growth expectations expected to be in the low single-digit range, with comps running at these levels, do you expect then the comps to slow down throughout the quarter? And maybe put another way, can you give us a sense of what your first quarter costs will be year-over-year? And then maybe what you're expecting for the back half of the year? Are you embedding costs to be down year-over-year in the back half?

Well, I'll talk about the first quarter, and I would say it would be wonderful if June and July -- July and August looked like June, but we are not planning that. And so the answer to that question is yes, we do expect them to be a little bit lower. This promotion has started off, it’s much more a blockbuster than we had planned, but we are not planning to see that continue. If it does, earnings will be better than we expect.

Our next question comes from the line of Peter Saleh with Telsey Advisory Group.

You guys talk about raising menu prices in the -- closer to the 2% range. You also talked about the expectation of commodities possibly coming down in the back half of the year. If commodities don't come down and they're actually up a little bit more than you're expecting, are you prepared to take pricing closer to the 3% or even higher to offset it?

I think Clarence touched on service maybe part of the natural hedge that would occur there. So if commodity price is running higher, that probably speaks to -- supported by stronger economic growth. So I would suspect that we could do a little bit better on the same-restaurant sales side, which would be actually a slight positive to us. Or if they were to be a little bit less, probably driven more by the economy and so we would be expecting a little bit lower same-restaurant sales guest counts, but we're going to have lower cost. So the earnings piece we feel more comfortable with because of the natural hedge that's there.

And I would just add, and Brad can correct me if I'm wrong, but we haven't built our plans on commodity prices cost coming down. We've built them on them flattening out in the second half. To the extent they come down, that would be a plus up.

Correct.

And our last question comes from the line of Karen Lamark with Federated Investors.

I know it's early but do you have any insight into the profile of the 4 for $15 buyer? I mean, is it a new user, a lapsed user? And also is the attachment rate for beverages higher or lower than average?

No, I think to get a sense of the demographic profile of the guest coming in Red Lobster and how that is potentially different from the past, we'd want to get more than 4 weeks. So it's going to take a little longer for us to be able to get that. So we don't yet have a sense of whether it's attracting the people we were looking to attract differentially.

Karen, I'm sorry. We missed the second half of your question.

Sorry. Is the attachment rate for beverages with that 4 for $15 promotion, is it higher or lower than average?

I'm not sure, I'm afraid.

And I believe that...

To answer your question on beverage, really on a year-over-year basis, virtually no change.

Great. We'd like to thank everybody for joining us on the call today. Of course, we're here in Orlando if you have additional questions. We wish everybody a safe and happy Fourth of July holiday, and we look forward to talking to you all next quarter. Thank you.

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