Matthew Stroud - VP of IR Clarence Otis - Chairman and CEO Bradford Richmond - SVP and CFO Eugene Lee - President and COO

Joseph Buckley - Bank of America Brian Bittner - Oppenheimer and Company Sara Senatore - Sanford Bernstein David Palmer - RBC John Glass - Morgan Stanley Priya Ohri-Gupta - Barclays

Welcome and thank you for standing by. At this time all participant lines are in a listen-only mode until the question and answer session. (Operator Instructions) Today's call is being recorded, if you have any objections you may disconnect at this point. Now I’ll turn the meeting over to your host Mr. Matthew Stroud. Sir, you may now begin.

With me today are Clarence Otis, Darden's Chairman and CEO; Gene Lee, Darden's President and COO; and Brad Richmond, Darden's CFO. 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 the ability to achieve the strategic plan to enhance shareholder value including realizing the expected benefits from the sale of Red Lobster, the occurrence of any event, change or other circumstances that could give rise to the termination of the agreement to sell Red Lobster, the outcome of any legal proceeding that may be instituted against Darden relating to the Red Lobster transaction or otherwise, the failure of the Red Lobster transaction to close for any reason including non-fulfillment of any conditions to close, the timing of the completion of the transaction, actions of activist investors and the cost and disruption of responding to those actions, food safety and food-borne illness concerns, litigation, unfavorable publicity, risks relating to public policy changes and federal, state and local…

Thank you, Matthew and good morning everyone. Fiscal 2014 was clearly obviously a year of significant transformation for us. And so we had a number of changes that complicate our financial reporting and we appreciate this opportunity to walk you through the numbers in some detail. The transformation also had many other very important dimensions and we appreciate the opportunity to discuss those with you as well. Ultimately, all the change that took place is done to do one thing and that’s to better position us to create significant shareholder value. And so this year was one that was highlighted by a number of things, certainly the launch of a comprehensive brand renaissance plan to regain momentum at Olive Garden. It’s highlighted by continued success at LongHorn Steakhouse where same restaurant sales exceeded the industry by nearly four percentage points and at our specialty restaurant group which has grown to $1.2 billion in sales. The year was also highlighted by the announcement of the sale of Red Lobster for $2.1 billion and our announcement in undertaking of significant cost restructuring. Cost restructuring which means that G&A as a percent of sales is expected to remain approximately 5% and that’s because the cost savings achieved with assistance of Alvarez and Marsal more than offset by roughly $40 million, potential stranded costs related to the sale of Red Lobster that cost restructuring also means that in fiscal 2015 SG&A as a percent of sales is expected to be the lowest, since we became a public company in 1995. The year also included continued industry-leading return to capital and that return totals $1.2 billion now in the past three years. We distributed $288 million in dividends to shareholders and we recently announced an additional $500 million to $600 million of share repurchase for fiscal 2015 for a total share repurchase program for next year or this year that just started up to $700 million. In addition we strengthened our credit profile with our plans to retire approximately $1 billion of our existing debt and we made some refinements in our management compensation incentive programs to more directly emphasize same restaurant sales and free cash flow growth. And Brad is going to discuss our sales and earnings results both with and without Red Lobster, so Brad?

Thank you Clarence and good morning everybody. On this slide I’ll be brief as a lot of its covered in our press release that went out this morning, but I would point out that combined sales reached $8.758 billion, that’s up 2.4% to the prior year. I think more importantly is when you look at continuing operation sales, and that’s excluding Red Lobster and the Red Lobster’s consumer packaged goods products and international fees and royalties, sales were $6.286 billion, or up 6.2%; a significantly higher growth rate than the combined company enjoys. Now our brands are making strong progress or maintaining high levels of performance in the new fiscal year. And so we will touch more about the activities and initiatives that are driving that, but if you look over at the far right-hand column, you see same restaurant sales for the first three weeks of our new fiscal year. The brand renaissance at Olive Garden is clearly taking hold as you see improvement in their trend. Their same restaurant sales are flat which is above the Knapp-Track industry benchmark, and you see continued strong performance from LongHorn Steakhouse and the specialty restaurants. Now, turning to next page, and talking about our earnings performance and how that’s reported. Unfortunately, GAAP reporting is not always as intuitive as we'd like for it to be and that is the case with the separation of Red Lobster. So, on this slide I'll walk us through the geography of reported earnings to what we call performance view of our results; and if you start with reported combined fully diluted EPS, that’s $2.15 for fiscal 2014. Now, in that number, we have the strategic action plan costs, and that’s really to execute our plan that involves the real estate work, legal work, advisory fees,…

Thank you, Brad. To frame our discussion about our strategic action plan and our outlook for fiscal 2015, we thought it made sense to provide some context, and that context in a sentence is that we’re in a more mature yet more dynamic industry. Now that said, as industry growth slows with maturity, we believe there are attractive consumer segments and we think we've created a portfolio that’s well positioned to succeed against those consumer segments going forward. So we think about the industry’s maturation. There are a number of things that are driving that. Certainly slower growth in the (Bloomberg) [ph] population, aged 50 to 60 and that’s where dining out frequency is the highest, has always been the highest, slower growth in household income overall, increased competition, not only within full-service dining but also with the emergence of attractive new segments, new dining segments like fast-casual and elevated innovation within traditional quick service. As all that happens, some important demographic and economic dynamics and where the share growth opportunity is, and that is a significant increase in millennials, significant increase in multicultural households across all age and household income spectrums, there’s increased spending power in generation X, and overarching dynamic, is that there is increased digital interconnectedness across all generations in all other demographics. Now, as we look at these dynamics, in order to create value we got some very clear priorities. And those priorities are for value creation, really are to separate Red Lobster (through the) [ph] sale, because we don’t believe that Red Lobster is well-positioned as our other brands for the future that we see. And we sold Red Lobster, again for $2.1 billion to Goldengate Capital, and we're on track to close that sale in July. Execute the Olive Garden brand renaissance. Gene is…

Good morning. I’ll spend the majority of my time this morning talking about Olive Garden and then quickly discuss LongHorn and our Specialty Restaurants. Olive Garden provides a strong foundation for the overall Darden business. It’s a premier brand in casual dining with average restaurant volumes of 4.4 million and industry leading returns. We are confident that the recently launched brand Renaissance plan is addressing erosion and visit frequency among our core guests. This plan also will enhance our solid position with millennial and multicultural households and is the platform for renewed same restaurant sales growth and margin expansion. While many of the elements have been underdevelopment during the past year, we’re in the early stages of exposing guests to what we call our brand Renaissance plan. Our objective is to make certain that our guest enjoy differentiate experience of today’s Italy where Olive Garden’s warm hospitality and superior value bring people together. In terms of food, quality, not surprisingly, is what guests want most. And freshness drives quality more than any other attribute. So we are emphasizing food prepared with the freshest ingredients presented simply with a sense of flair as very Italian. Our efforts are focused on making our service approachable and genuine, so guests can focus on sharing great food and conversation which is why they come to Olive Garden. Within our restaurants we want to make certain that our atmosphere is natural, clean and tasteful while its tone is warm, relaxed and engaging. At every turn we are looking to reinforce these aspects of the atmosphere within our restaurants. Lastly, although Olive Garden has a national presence of more than 800 restaurants, we are most relevant to our guests when we act and are viewed as a family of local restaurants making a positive difference in…

We’ve continued to achieve more cost effective platform, transformative changes that we’ve talked on the past in Darden’s operations have significantly reduced costs by over a $150 million annually in selected areas, operating areas around our support including supply chain, facilities management, water and energy usage. During the past two year, these efforts have supplemented with broad based cost reduction initiatives due to more than anticipated alluded in sales growth recovery reduce of financial crisis in the economic downturn. Despite lower total revenues following the sales of Red Lobster, we expect general and administrative expenses to remain flat at 5% excluding strategic action plan cost. Now Alvarez & Marsal has continued to assist us with the efforts to identify additional operating support and direct operating cost opportunities, as well as potential revenue enhancement opportunities. And so we expect to further reduce G&A as a percent of sales as we get further into fiscal 2015. We will minimize the impact of continued commodity cost inflation through other select initiatives to achieve a net inflation, net cost pressures of 1.5% to 2.5% in fiscal 2015. Our $2.5 billion in product expand is now better diversified with less exposure to seafood inflation post the Red Lobster separation. The table in the left shows us in by major category, you can see the change from 2014 to what we anticipate in 2015 with the separation, particularly see a much less of our cost basket coming from seafood cost. On the right hand side, we outline our coverage of our main products that we purchase as we look through the new fiscal year or in particular June to November of fiscal '15, our first half of the year. The overall coverage at 52% is little wider than it typically is at this point in the…

Thank you, Brad. And so we think that we have a very strong competitive position and that starts with a well positioned, much better positioned portfolio brand that can deliver balanced same restaurant, new restaurant sales growth which will leverage our operating support and restaurant support cost. We are committed to proactive, ongoing, cost optimization to amplify the leverage that we get from growing sales and ensure consistent margin expansion and earrings growth that will result in consistently strong cash flow growth to support meaningful ongoing return to capital shareholders again through dividends and share repurchase. And more than sufficient operating cash flow to address the emerging trends as they develop. With this competitive position, we are confident that we can return to industry leading financial performance with on a sustained basis mid-to-high single digit annual sales growth, low-to-mid teen annual operating income growth, and $350 million or more in annual return of capital to shareholders. So with that, we will open it up for your questions. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is coming from the line of Mr. Joseph Buckley from Bank of America. Sir, your line is now open.

Thank you. I’d like to ask a few questions on Olive Garden, so the remodel information you shared with us, was that based on one restaurant or maybe more than that? And then you mentioned your underperformers kind of pulling down the brand performance, how many stores are in that underperformed group and what are the common characteristics of that underperformed group? And maybe just one more, in the same-store sales projections for this year while improved particularly at Olive Garden are pretty low and what happens to margins given those same-stores sale projections, I noticed the fourth quarter LongHorn’s operating profit was down per year tax, do you need strong comps than that to get restaurant level margins healthier?

The initial results I gave on the remodel were just the one restaurant we have up at Fort Walton Beach and it’s obviously very-very early, but we can isolate that restaurant to see what happened, it will be a little bit more time before we have a good what I can say statistically significant sample. As far as the underperformers, you always have a bottom quartile. What we try to do is get to the bottom quintile and then subdivide that even more, get this down to like 50 restaurants that are really having a significant impact on the system. I would say they’re between 7% and 10% below the system average. And the characteristics around them are; first, majority of them are older restaurants that haven’t been renovated, we have probably weaker management teams there, our attributes, our ratings on prudent service aren’t close to the system average. And it’s really getting back to some really restaurant basics in there and ensuring that we’re delivering the guest experience.

Yes, and on margins, we expect Olive Garden to expand at -- at Olive Garden not as much as the other businesses and to your point really driven by same restaurant sales, but they would still have margins that increase in the 20 to 25 basis point range. And even across Darden with the work that we’ve done on the G&A cost the things that we’ve talked about some in the marketing or selling area as well as what’s driven by the same restaurants sales. And the cost environments were -- the cost pressures that I mentioned are not too severe. We were able to greatly mitigate those when you look even across Darden you’re looking that operating profit margins will expand in that 20 to 50 basis points range depending on which end of the guidance that, that you look at.

Thank you, our next question is coming from the line of Mr. Brian Bittner of Oppenheimer and Company.

Thank you and good morning. First is a clarification question, did that operating cash flow guidance for 2015 include or exclude Red Lobster’s earnings? Because I thought it’s still -- I thought I saw it say includes Red Lobster’s earnings?

It includes it for the approximate period that we would own that business still, so you know that’ll be just part of the first quarter.

Okay, so it’s a question I have is really at almost based on the EPS guidance and you are kind of close to that 100% dividend payout ratio here. And when I look at the operating cash flow guidance you are assuming working capital inflows and some other inflows from non-cash items. And I guess, the question is how confident are you that you can really maintain the $2.20 dividend going forward and how much does it rely on continued influence from working capital in certain items like that.

Obviously as we look to fiscal 2015 there is contributions in cash flows from these other items but also the reduction in CapEx that we’ve done, leaves sufficient room for us to maintain our 2.20 targeted dividend. From there I think the platform that we’ve laid out, the initiatives we have underway, earnings will grow and so the contributions from operating cash flow would grow and continue to allow us to have a $2.20 dividend and depending on the rate of those earnings growth the opportunity to modestly to start growing that dividend rate beyond 2015.

[Question Inaudible]

The new restaurant piece obviously of the capital budget is discretionary and we demonstrated that with the scale back that we accomplished in fiscal ’14 on the new restaurant side.

I see, so if, you know we saw a scenario where earnings didn’t grow as much as you expect in 2015, do you think there would be some [Indiscernible] on the CapEx to still be able to maintain that dividend.

Yes, we see sufficient room to make the adjustments that we need to make to maintain the dividend to work at our debt metrics as well to have that investment’s credit profile, so we see the ability to do both really.

Okay and then jus the second and final question is on LongHorn. Revenue growth was up double digits. And as Gene said, and you say in the press release that operating profit -- dollars actually declined year-over-year. Can you just walk through that a little bit more and the dynamics there?

LongHorn profitability, I mean it continues to grow fuelled a lot by the unit growth, we do see the margins there expanding, their particular brand performance is a little bit muted by the elevated beef cost and we see those continuing but still good progress from that brand, new unit growth is profitable and when you have same restaurant sales growth as strong as they do well above industry average, we’re able to leverage those as well.

And I would say also Brian, as we look into fiscal 2015, with the slowdown in unit growth at LongHorn and there are a lot of new restaurant opening expenses not just direct from the restaurant opening expenses but manager training, all those sorts of things, in the model that will be a lot lower in ’15 than they were in ’14 with the unit growth pace cut in half.

Thank you, and once again participants may I request everyone to please to limit yourself with one question and one follow up, our next question is coming from the line of Ms. Sara Senatore from Sanford Bernstein, Ma’am your line’s now open.

Thank you very much. I do have one follow up and one question. The follow up was just on the Olive Garden remodeling I think you said unremodeled restaurants lag by 2 percentage points and so it sounds like the core restaurants are still comping negatively and the remodeling isn’t having as much of a lift as I would have thought, because I thought it’s sort of 3% to 4%, so, if you could just clarify that and then the first question is, the real question is, can you talk about whether Alvarez and Marsal has identified any kind of unit level cost saves, I think you mentioned G&A savings, further G&A savings but it seems like if you’re going to invest in improved food and service for the Olive Garden you probably need to fund that with maybe cost savings elsewhere, thank you.

I’ll start, on the remodel side, I think what Gene was saying is that the restaurants that have not been remodeled are the ones that are in need of a remodel are lagging by about 2 points, now we’ve had some remodels in the past that have had a lift of 3, 4 percentage points but we paused on them because we believe that they really didn’t have the kind of shelf life going forward that we needed, that they didn’t make dramatic enough change, and so we would hope that, this new remodel, and again it’s too early to tell but at least 2% to 3% to 4% and perhaps more than that. And then on Alvarez and Marsal, they’re working to identify four wall opportunities, but Dave George and the team at Olive Garden have been working on that as well. And so to some of the simplification work that they have done, they have taken out about $20 million of cost on an annualized basis and they’ve reinvested a significant amount of that in food quality and some of the other things that Gene mentioned already.

And I would add that on, from A&M’s perspective where they really were able to help us is on the marketing side, help accelerate our attack on nonworking media cost, and so that’s been a big help and we think there is big dollars there. And there is some other marketing ideas that they have that we’re planning on implementing I think those are all going to be cost saves.

Thank you. Our next question is coming from the line of David Palmer from RBC. Sir, your line is now open.

Thank you, good morning. You’ve mentioned the June to-date sales for Olive Garden -- you understand that goes short-term influences on the sale like the promotion timing, the media wave better than us, can you evaluate that and perhaps just comment on what do you think that this June result is indicative or the kind of sales you’ll see perhaps for the first half in fiscal ’15 and why some of the -- why this is truly is a turning, what are the factors driving the turn specifically in terms of your initiative? Thanks.

So, I will start. I would just say promotionally June lines up pretty well year-over-year and so we don’t have a lot of promotional noise in the June to-date numbers, but June we might wind up.

David, I would say that we’ve been working hard to gain guest count momentum. If you look back in the fourth quarter, guest counts in March were down 61 affected somewhat by weather April 35, May rolling down 17 and the majority of that was one week when we had some promotional transitional issues, but June’s comes back and been pretty solid. We think it’s just a result of the focused efforts that we put on this brand from an operational standpoint from food service. We think our advertises are getting a little sharper a little bit more focused again it just -- I don’t think we’re on a straight line up to 3% to 4% comps, but I do think that we’re putting in the effort and we’re making some improvement and the guests are telling us that by coming to our restaurants more often.

Thank you. Our next question is coming from the line of Mr. John Glass of Morgan Stanley. Sir, your line is now open.

Thanks. Gene, if I could first ask you to clarify last comment? Your mix was down pretty substantially in May, so your traffic was better, but the mix was worse. So you traded -- it seems like you traded one for the others. Is that correct? Is that the way you would look at it going forward that you will take a lower check for the traffic? Or was that just a monthly?

I think that was just a monthly skew where we were out there in May with our classic promotion at $10 and last year we had a different type of promotion that didn’t impact check averages as much. I was pleased with May’s results even though we did have a mix change. I thought getting our classics which represented close to 20% of the sales in the May into our guest, on the table for our guest was a really good thing to remind them about some of the reasons why they really love Olive Garden and I think that momentum is carrying on through June.

And then on the SG&A or the G&A savings, where were you just up the benchmark -- where were you in G&A as percentage of sales in the fourth quarter after you’ve striped out all of Red Lobster? What’s the progression of events in ’15? How quickly can you keep getting if there was -- it’s above five materially ex-advertising how fast can you get it to five?

Well, we’ll get it to five in the fiscal year and I’m looking up your question there, fourth quarter.

Yes, we may have to get back to you with this John perhaps flipping through some pages, but we’ll get back to you. I think for the full year it’s 5%, so we expect to get to that level pretty quickly.

The SAP costs that I’ve laid out there are virtually…

SAP, strategic action plans.

In the G&A line there I think maybe to the heart what you giving as we look forward. We talk about a flat G&A at 5% with the opportunity in ’15 as we get through more the A&M work and things we’re doing to take that even lower. In the year, but at a flat 5%, that’s implying an absolute reduction of well over a $100 million of G&As and granted there is about say 75 million of that, that is either allocated or directly within Red Lobster that goes away. There are some stranded G&As of about $20 million, which says we’ve already got well over $50 million of G&A reductions that stays within the Darden continuing operations and more than offsets the stranded G&A cost over there. So we were really pleased with the progress and those plans are largely all in place and delivering the expected results.

If I could just ask one final question. On the low to mid teen operating profit growth longer term, how do you -- in an industry that grows comps at a very low single digit rate, you’re going to square footage at least this current year at a very low single digit rate. How do you get there? Or is it presumed that you are a unit grower -- a much more materially faster unit grower in the future again?

Well let me start it out and then I will turn it over to Clarence. I think even if you look at the guidance that we have -- our expectations for fiscal 2015, on the composition of same restaurant sales growth that we have, a cost environment, where commodity costs are in that 2% to 3% range. Through all that we’re still able to generate what I call a core operating profit growth of 10% to 15%. That’s pretty significant. There is a little bit of unit growth but a much more moderated pace that we think is appropriate for our businesses and for a large chain. And then, with that there’s strong cash flows that will allow us to begin growing the dividend and repurchase shares so that those repurchased shares also aid EPS growth as well as its how you get into that low double digit mid-teen range.

And I would say the portfolio of new Darden, in an industry that’s challenged is strongly positioned against the healthiest parts of the industry. So when you look at Olive garden and LongHorn, but also the specialty restaurants strongly positioned against the healthiest parts. The brands also have very strong -- in the new Darden X Red Lobster very strong, restaurant level returns and with the support cost activities that we’ve had, we’re able to realize a lot of that restaurant level return.

Thank you. Our next question is coming from the line of Priya Ohri-Gupta from Barclays. Ma’am, your line is now open.

One, just a point of clarification, that around the 3.7 times leverage that you mentioned for fiscal year ’14, that includes $1 billion of notional debt reduction, correct? And then secondly, as you map to getting the three times leverage at the end of fiscal ’15, a lot of it is predicated on you hitting that cooperating profit growth target, but what other levers could you pull, if for some reason you start to fall towards the lower end or below that? Thanks.

Well, first on the 3.7 times, that’s adjusted debt-to-adjusted capital. So we’re treating those operating leases as debt equivalents, which they are. That’s the range of the end of fiscal ’14. The outlook that we’ve laid out here gets us to 3 times, 3.0 times into fiscal ’15. And so that’s our expectations there. Like so the other key thing is the cash flows and to a degree there’s shortages on the operating cash flow as Clarence outlined earlier is that we’ve clearly demonstrated our willingness and ability to work on the CapEx side, particularly around new unit growth. And so that would be obviously the first item that we would look to. Olive Garden remodeled CapEx. We know it was very important. That delivers results that we’re anticipating. We would probably keep that in there. That would be hard to touch and obviously, maintenance CapEx. There’s pretty significant operating cash flows. We want to protect that as well. So the real opportunity is around new unit CapEx and the others would be more difficult for us to change but if needed, we could.

And just, I think you might have misunderstood the first question. The 3.7 times number, that you have at the end of fiscal ’14, is that on a reported basis using your current debt or is that adjusting out the $1 billion of notional debt reduction you expect to occur as a result of the Red Lobster proceeds?

That includes the reduction of debt from the Red Lobster proceeds, I’m sorry.

Thank you. Our next question is coming from the line of Jonathan Compt (ph).

Wait a second let me finish that question. I misunderstood, the 3.7 is the reported number at the end of fiscal year that does not include unit reduction. That’s based on our reported numbers.

Sorry, that’s the last question. We are out of time here today. We appreciate those of you joining us and listening in and those that asked questions. Of course we’re here in Orlando if you have further questions and further follow ups. We look forward to talking to many of you in the near future. Thank you.

Thank you. That concludes today’s conference. Thank you all for participating. You may now disconnect.