Darden Restaurants, Inc. (DRI) Q4 2020 Earnings Report, Transcript and Summary

Welcome to the Darden Fiscal Year 2020 Fourth Quarter Earnings Call. Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Kevin Kalicak. Thank you. You may begin. Thanks so much.

Thank you, James. Good morning, everyone, and thank you for participating on today’s call. Joining me on the call today are Gene Lee, Darden’s CEO; and Rick Cardenas, CFO. As a reminder, comments made during this call will include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the Company’s press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today’s discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation. We plan to release fiscal 2021 first quarter earnings on September 24 before the market opens, followed by a conference call. Now, I’ll turn the call over to Gene.

Thank you, Kevin, and good morning, everyone. It has been 14 weeks since our last earnings call. I don’t know about all of you, but it’s felt more like 14 months, so much has happened. Over the past three months, our business changed in ways we never imagined, so I want to spend my time with you this morning trying to put it all in perspective for you, then Rick will share some of our fourth quarter and year-end results and provide our outlook for the first quarter. When I look back on all that has transpired, one thing that stands out is the resiliency of the full service dining industry. Prior to the pandemic, total annual sales for the casual dining industry was approximately $108 billion. And while I do not know how long it will take the industry to recover from the significant impact it experienced, I am confident that this category will get back to the size it once was. Our industry plays a vital role in our communities, and that was evident in how the consumer relied on restaurants over the last several months, even in a to-go-only environment. And while off-premise will continue to play an important role as we recover, we know that the consumer still wants to enjoy an in-restaurant experience. In fact, going out to a restaurant with friends and family is the number one activity consumers say they look forward to doing as the economy opens back up, and we've seen that as our dine-ins reopen across the country. As this vital industry continues to rebuild, there is tremendous opportunity to increase market share through increased on-premise demand and incremental off-premise sales. Those executing at the highest level are going to continue to win, and Darden is well positioned to take advantage of the opportunity. When we last spoke in March, we knew the pandemic was going to have a significant impact on our business. Our ability to manage through this crisis has been driven by our commitment to prioritize guest and team member safety, invest in our team members, provide frequent and transparent communication, leverage our digital platform, and be brilliant with the basics. The health and safety of our guests and team members has always been our top priority, and we've taken a number of steps to create a safe environment in our restaurants. From sourcing masks and other personal protective equipment for our team members to developing a contactless curbside pickup process at our brands while our dine-ins were closed. We are mindful of the trust our guests and team members place in us. Today, our health and safety commitments are focused on team member health checks, personal protective equipment, enhanced sanitation processes, social distancing, and frequent hand washing. We also provide paid sick leave for all our team members so they can stay home if they're ill. But we can't do it alone, and that is why we encourage our guests to join the online waitlist or make reservations, not enter our restaurants if they are symptomatic, wear a mask, and utilize contactless or mobile payment options where available. We continued to invest in our team members as our dine-ins closed. In addition to rolling out permanent paid sick leave, we introduced a three week emergency pay program that provided nearly $75 million of pay during the fourth quarter for our hourly team members who could not work. When emergency pay ended, we covered insurance payments and benefit deductions for hourly team members who were furloughed. As we brought hourly team members back to work to support increased to-go volume, we introduced an additional payment to help cover unexpected costs such as transportation and child care incurred as a result of the pandemic. And to recognize the unbelievable work our managers did during the quarter, we paid their target bonus for the fourth quarter. We know our people are our greatest competitive advantage. Not only were these investments the right thing to do to take care of our team members, they've also created a deeper loyalty and strengthened engagement while we've seen this pay-off as we bring our people back to work. Communication is the most important aspect of leadership during a crisis. We knew frequent and transparent communication with our team members and investors was important. Beyond daily meetings with all of our brand presidents who in turn met with their operational leaders on a daily basis, we have maintained a consistent communication cadence with our team members. Since this crisis began, I have provided regular business updates to our people and have been open and honest about the impacts to our business, and consequently the impacts to them. We took the same approach with our shareholders and the analysts by providing four business updates during the quarter. The pandemic accelerated the consumer's desire for convenience, and we saw a significant increase in digital engagement. The work we have done over the past few years investing in our digital platform to reduce friction prepared us to quickly adapt to consumer behavior and deliver on their expectations of convenience in our to-go-only environment. During this time, we have strengthened our digital platform and made meaningful progress against our digital strategy. In addition to improving the guest experience across our digital channels, our strategy is focused on using technology to help our guests easily order outside and inside the restaurant, improve the wait to be seated, streamline the order pickup process, and speed up how they pay. We've been building on our digital platform to support increased demand, and we certainly tested it like never before. During the quarter, online ordering at Olive Garden grew by more than 300% over the prior year and accounted for 58% of To Go sales. And at LongHorn, online ordering grew by 400% and accounted for 49% of To Go sales. Additionally, we accelerated our timeline and rolled out online ordering at our brands that had not yet deployed it. We also added the ability to order alcohol online for all of our brands and markets where that was allowed. Our commitment to being brilliant with the basics allowed us to remain focused on operational execution even as the environment forced us to radically change how we serve our guests. Each one of our brands did a phenomenal job delivering a new guest experience by collaborating and sharing best practices. This involved creating contact -- contactless curbside pickup that included designing what was essentially a drive-thru in our parking lots while this execution in this environment meant enabling our guests to order and pay online and have our team members seamlessly place their sealed orders in their vehicles. Our operators displayed tremendous innovation, flexibility, and passion as they continue to serve our guests. And to ensure we consistently executed at the highest level, we took the opportunity to streamline our menus, and improve our processes and procedures. With these changes, we are seeing improvements in execution and direct labor productivity. So what have we learned from all this? We've learned a lot. But most importantly, this situation has reinforced that our strategy that we developed five years ago grounded in our back-to-basics operating philosophy leveraging our four competitive advantages and cultivating a portfolio of iconic brands is still the right one today. Strong brands with loyal guests have fared better, and the trust we have earned from our guests is critical. Being brilliant with the basics by consistently delivering exceptional food, service, and atmosphere is imperative. However, we know how important safety including this are to our guests right now, and we must continue to earn their trust every day. And throughout this unprecedented time we have been benefited greatly from our four competitive advantages. Our significant scale, our extensive data and insights, our regular strategic planning and our culture; whether sourcing PPE for our team members, ensuring we're not impacted by supply chain issues or sharing best practices across eight brands, the ability to leverage just scale has allowed us to quickly react to constant change. Finally, as I said earlier, we know our people are our greatest competitor advantage. And I'm impressed by how our team members responded and continue to respond to take care of our guests and each other. Having a strong culture has been part of our DNA since we were founded. We were able to keep the majority of our managers employed and we stayed connected with our furloughed hourly team members. This allowed us to bring our people back quickly and get our dinings opened safely without any delays. As you saw in our press release, 91% of our dinings have reopened with at least limited capacity. We have also brought 60,000 furloughed restaurant team members back-to-work and we expect to bring at least another 40,000 back as business continues to improve. I'm incredibly proud that our culture is actually strengthened during this most difficult period in our company's history. This, above all else is what gives me confidence in Darden's future. Now, I'll turn it over to Rick.

Thank you Gene and good morning everyone. Fiscal 2020 was on track for a solid year of performance and the beginning of Q4 was no different. The first few weeks of sales were strong and then nearly overnight, the impact of COVID-19 required us to pivot to a To Go only format. This posed unprecedented challenges for our restaurant and support center teams and I am proud of how everyone moved quickly to increase To Go sales, reduce costs, manage working capital and improve efficiency. The simplifications Gene referenced helped to reduce key variable expenses in our restaurants especially direct labor. The teams also worked to reduce or eliminate other fixed costs in our restaurants and restaurant support center as well as eliminate non-essential capital spending. Given the significant reduction in cash flow, we also had to work quickly to ensure we had enough cash for whatever might occur. During the quarter we suspended the dividend and share repurchases, fully drew down our $750 million credit facility, took out a $270 million term loan and raised over $500 million in a follow on equity offering. All these efforts, and the strong loyalty of our guests resulted in us tripling our prior To Go sales run rate averages, and materially reducing our cash burn as we disclosed to you through our periodic business updates. Given the confidence in our cash flow trends and the ability to access it in the future, we fully repaid our credit facility in early May. Now turning to the results. The total sales were $1.3 billion, a decrease of 43.0%. Same-Restaurant sales decreased 47.7% and adjusted diluted net loss per share was $1.24. Because of the significant reduction in total sales compared to last year, all of the expense lines experience sales deleverage, so I'll just touch on a few highlights. First, Food and Beverage costs were higher as a percent of sales given menu mix related to both To Go mix and simplified menus, as well as increased packaging expense and elevated beef cost. As we look at the labor line, there was significant deleverage in management labor, including approximately $25 million in manager bonuses. However, we saw an improvement in hourly labor as a percent of sales of over 150 basis points even with a substantial reduction in sales. Restaurant expenses per operating week decreased over 20% given our focus on cost management, even as we incurred over $5 million in incremental cleaning supplies and PPE related to COVID-19. For marketing and G&A expense, we were able to reduce the absolute spend by $37 million and $17 million respectively versus last year. Included in our restaurant labor, and to a small extent G&A is approximately $50 million of investment net of retention credit. This was related to emergency and furlough pay for our team members while they were not working. This negatively impacted our EPS by $0.30 which was not adjusted out of reported earnings. During the quarter, we impaired $390 million of assets as a result of lower sales, reduced profitability and lower market to capitalization. The impairments related to $314 million of Cheddar’s goodwill and trademark assets, $47 million of restaurant level assets and $29 million of other assets. We permanently closed eleven restaurants in the quarter, six of which were already impaired. The entire $390 million of impairment charges were adjusted out of our reported earnings. We ended the quarter with $763 million in cash and another $750 million available in our credit facility. This gives us over $1.5 billion of liquidity available to weather the crisis and make appropriate investments to grow profitably. Our adjusted debt-to-adjusted capital at the end of the quarter was 61% well within our debt covenant of 75%. As we shifted to an off-premise only model, we took a disciplined approach to pursue sales opportunities, with an eye toward incremental profitability and cash flow by focusing on cost management and the guest experience, while ensuring our team members were taken care of. This approach resulted in a better finish to Q4 than anticipated and is the underpinning for the strength of our business model that is reflected in our first quarter financial outlook. Now turning to fiscal 2021 performance. In today's release, we provided quarter-to-date same restaurant sales and the performance of our restaurants with dining rooms at least partially open. These results are encouraging with last week's blended same-restaurant sales down 30%, we are operating cash flow positive at these levels. Our To Go sales remain elevated in restaurants with dining rooms at least partially reopened. Olive Garden To Go sales are approximately double their pre-COVID averages and LongHorn has more than tripled their pre-COVID averages and LongHorn has more than tripled their pre-COVID averages in these restaurant. While it is our normal practice to provide an annual financial outlook, due to the uncertainty in business performance moving forward, we are only providing an outlook for the first quarter. We expect to achieve approximately 70% of prior year sales levels, total EBITDA of at least $75 million and diluted net earnings per share of greater than or equal to zero on a diluted share base of 131 million shares. At this point, we don't intend to further share intra quarter business updates since we have provided our first quarter outlook. For the full year, we intend to open between 35 and 40 net new restaurants. Our first opening of the year is expected to be in early July, with a few others likely to be opened by the end of the first quarter. In total, we expect between $250 million and $350 million of capital spending for fiscal 2021. Turning to other aspects of capital allocation. As you recall we suspended our dividend last quarter due to the level of cash flow uncertainty and the need to preserve as much cash as possible. We have been consistent in our commitment to returning cash to shareholders, and our dividend is a big part of that. As soon as we see the business begin to generate the sustainable cash flows to support a dividend and repay our term loan, we will have discussions with our board on our dividend policy. And now I'll turn it back to Gene for some closing comments.

Thanks, Rick. And as you've seen in our 8-K filing this morning, Dave George will be retiring on August 2nd. Dave will celebrate his 65th birthday later this year, and we've been discussing this transition for some time. Dave and I have been partners on this journey for 23 years. It was a joint venture partner for LongHorn when I joined RARE in 1997. I still remember the first time I met him. We're going to visit his restaurant, so he picked me up at the airport in his Volvo, with no air conditioning in the North Carolina heat. I knew at the end of the day that Dave was a special operator. I wasted no time we bought out his interest in his joint venture and brought him into the company. Over the last 23 years Dave has been a successful in every one of his leadership positions. He has led three of Darden’s iconic brands; the Capital Grille LongHorn Steakhouse and Olive Garden, and most recently he served as our Chief Operating Officer. He built great teams and became a mentor to many operators and executives. His can do approach and attitude permeates throughout Darden in each of our brands today. For many of the last 23 years, Dave and I have had lunch together on Monday to discuss what happened the previous week and talk about what needed to get done going forward. Not much has changed over those 23 years except today; we order salads instead of two or three entries each. And for the last five years, David sat next to me during every hour earnings call as he is today helped me find the details I need to answer your questions. I'll miss seeing him when I walk into the room on these days. For all the Darden team members listening today, our annual conference which usually happens in August would have been a great opportunity for everyone to see Dave, thank him and wish him well in person. Unfortunately, because of COVID-19, our conference has been postponed until next year. We will however be inviting Dave to our conference in 2021, and he's committed to come so we can celebrate all he's done for Darden and for many of you. In closing, I want to say thank you to all our team members, those currently working and those who remain on furlough. And as I've said to you repeatedly, your ability to adapt, innovate and collaborate during this time has truly been inspiring. Thank you for your on-going commitment to our guests and each other. And now we’ll open up it up for questions.

[Operator Instructions] And your first question comes from the line of David Tarantino with Baird. Go ahead please. Your line is open.

Hi. Good morning. First, I want to pass on my congratulations to Dave George on a very successful career and wish him the best as he retires. So Gene, I guess my big picture question is related to what you think the environment could look like on the other side?

I lost you – did I lose you just -- you there, David.

Can you hear me, okay?

I lost you. Last word I heard was on the other side. Is there a period after that or --?

No. Gene, I'd love to hear your thoughts on how you think the environment will look on the other side of the pandemic especially as it relates to the competition and the potential for unit closures, and how you're positioning Darden to potentially take advantage of that type of environment, whether it’s potential to grow faster or how do you think about those dynamics as you look longer term? Thank you.

Yes. Good morning, David. Yes, I think that as I said in my prepared remarks. We went into this as a $108 billion category, and I've been really impressed with the resiliency of the consumer and how important full service casual dining has been in everyday life of our guests. So, I think the industry gets back to where it was. I think it's important. I think people really miss it, probably miss it more than they know. There's been a lot of predictions of how much capacity will come out of the system. I'm not going to sit here today and say I know what the exact number is. The one thing I do believe is there'll be -- there'll be less competition as we -- and less restaurants as we move forward, and I think that's a great opportunity for us. I think scale is going to matter more than ever. I think that you know we believe that we can get back to 2% to 3% unit growth pretty quickly. We're going to continue to open restaurants. We’re going to continue to do new deals. We think the economics going forward here in the short term should get better for us on new restaurant development, and I think we'll go back to our basics. We're going to continue to try to improve our food offerings. We're going to try to make sure we have the right value that we're offering the consumer. As we mentioned in both our comments this morning, we've improved productivity in our restaurants through more streamlined menus. So, we think the opportunity is there. We also think that off-premise will play a bigger role as we move forward. We think our capabilities in that have improved dramatically over the last 14 weeks, and we -- and I think a lot of consumers have had the opportunity to maybe use our service off-premise that hadn't used it before. I think they were really pleased with the overall experience.

Great. And then, Gene you mentioned kind of streamlining the operations and the menus. Is that something you think will continue longer term or do you see that maybe some of the items coming back that you removed?

Yes. I think -- I think David, each brand’s in a different place. Each brand went to a different place when they went off premise only, so some brands I would say right now are probably back to 100% of where they will want to be other than maybe some promotional items here and there. Other brands still have 10%, 15% that they need to add back to their menus to make them competitive. But it was not only the menu. I mean, I think when we basically closed down the operation except for off-premise, we had the chance to rebuild as we opened back up and we had a chance to look at all our processes and procedures, and I think we were able to simplify and eliminate a lot of prep work in some of our businesses that we'll never get back into the business. I think these are costs that we're going to -- we've gotten out. We've had a lot of discussion around our table is that it's been much easier as we build the on-premise business back up to reimagine what the operation in the back of house looks like versus trying to reimagine it why you're operating. And we're really thrilled with the results so far.

Great. Thanks very much and good luck.

Your next question comes from the line of Brian Bittner with Oppenheimer & Co. Go ahead please. Your line is open.

Thank you. Good morning. Also would like to wish Dave George a very happy retirement. Congrats on a wonderful career. Gene, I know during this pandemic you've instituted lower order price thresholds for delivery across the Olive Garden portfolio. What are the insights and maybe the impacts you're seeing from this, and what are your updated thoughts on that opportunity as this environment has so rapidly changed these last few months?

We've run a lot of tests there, David. I think where we're settling in right now is $50 minimum, it’s still the 5 o'clock call the day -- the day before. We find that to be the sweet spot. The average order size is still well above that. We didn't see any benefit of going below that threshold. And so, that's where we're going – that’s what we're netting out and we think that, that opportunity will continue to be there. I won't -- we will tell you that we did test doing our own delivery, found it really inefficient, and it wasn't that additive. And so, we're really focused on this curbside operation and think that's the future for off premise.

Okay. And my follow up is just -- it's interesting to see the LongHorn sales recovery occur a bit more rapidly than Olive Garden, you know particularly in units that have reopened their dining rooms. Gene, what do you really attribute that to, and you know I ask that question in the spirit of the fact that To Go sales in the open LongHorn units are actually much lower than Olive Garden. So, I'm surprised we're seeing such a big recovery in LongHorn versus Olive Garden more recently.

Yes. You know Brian two things to consider. First of all, geography is working for LongHorn. We've got the state of Georgia. We have a huge presence there, and business has come back real strong. I would also say that the Olive Garden dining room yields a higher percentage of tables available in -- with the occupancy restrictions than Olive Garden does. And so I want to take this opportunity to talk just a little bit about occupancy. A lot of people have done a lot of work on this and I think that you're -- I think you need to think about just a little bit differently. Once your past 25% occupancy the only thing that matters is there is six feet of social distancing required. Remember, there's always significant inefficiencies in your seating capacity. We've always got twos and fours -- fours and sixes. We've got tables for large parties. Our average party side is two point three. So different layouts even in different -- inside the same brand will yield you different seating efficiencies. We will be installing temporary barriers in approximately 100 restaurants in the next two weeks to try to improve this efficiency especially in Olive Garden. We want to do that while maintaining the social distancing requirements. We'll analyze the sales growth after that we've installed those barriers and decide how many more restaurants we want to add it -- added to. So that's a long answer to your question, but I think that there's some confusion out there and we have to remember that once you're past 25% occupancy, that's six foot restriction on social distancing trumps any other restriction there is, because you can't get to 50%.

Understood. Thanks for the color, Gene.

Our next question comes from the line of John Glass with Morgan Stanley. Go ahead please. Your line is open.

Thanks. Thanks very much. I will. And congratulations to Dave on your retirement. I wanted to ask about incremental margins as you think about the recovery. So you know COVID has made a lot of businesses including yours, rethink how you do things, you talk about menu simplification, but you also talked about this heavier to go mix made influence food costs. Do you think as your AUVs recover that you're able to get back to higher margins [Technical difficulty]

Hey John, thanks for the question. As it relates to margins incrementally going forward, right now if you look at our P&L and the way our margins looked, our margins are better on a variable cost basis than they were coming into the pandemic. So if we don't make other investments going forward, you would anticipate our margins to be a little bit better than they were before. However, we're still making decisions on what we'll do as the sales continue to grow, whether we bring some things back or invest in our guest even more to grow sales even faster. So, I don't want to comment too much on what our margin structure is going to look like in a year or two years, because we may make choices that take away some of that margin gain that we had or we may let that margin flow to the bottom line. But as of right now, our variable margins are better than they were coming into the pandemic.

Okay. Thanks. And then, Gene, just following up on your question about the To Go being your -- or your curbside being the preferred off-premise channel. Did you take the opportunity to test third-party in this period of time? Do you look at your results and say, they are just as good as many of your peers with third parties? So, what's the advantage? I mean, how do you conclude or look at this period of change in any way your view on third-party or maybe stiffing your resolve against it?

John. We've had third-party delivery in some of our restaurants even before the pandemic started including some Olive Gardens, the lot of Yard House. And we actually added some third-party delivery in Yard House in a different state. And we really didn't see that the third-party delivery grew faster than our own To Go business. Our own To Go business actually grew faster than the third-party business in those restaurants. And so, we're still at the point where we believe that our off-premise business is really strong and continues to grow. And we are not anticipating, launching a third-party delivery model. Now, as we've said all the time that can change as soon as we see or if we see that those margins are equal to what we do today then maybe we'll go into the third-party model. But as of right now, our resolve is strong. We believe that doing off-premise the way we do it, especially now that we've added this significant curbside business is the way to go.

Got it. Thank you.

Your next question comes from the line of Gregory Francfort with Bank of America. Go ahead please. Your line is open.

Sure. Thank you very much. And Dave, congratulations on retirement. I have two questions. The first is a follow-up, just to the capacity restraints. I guess, the point that average party size is lower in Olive Garden, which is what's creating the six foot distancing. I think the 2.3 was overall. But I think we're just trying to understand that point. And then, the other question I had was just on off-premise and how much maybe that could look like in a fully recapture scenario. How are you guys looking at it? Because you guys give some data in the release that maybe it's like a third of prior sales volumes now or 60% of what the peak kind of off-premise was. But I'm curious how you guys are thinking about that and trying to figure out what that would look like in terms of size after this? Thanks.

As far as capacity for Olive Garden goes, I don't really think it has -- the party size has an impact on that. It just more the way the physical layout is. And we have a lot more room. We have rooms. We have less boost. And so, we’re trying to create that six feet is more difficult. Remember, some of our smaller rooms are offset. They're family tables, they're larger parties. Olive Garden does a lot of that. But the majority of our buildings right now - because the booth backs are less than six feet. We can correct the same yield. If we - and we adhering to the local jurisdictions. If we adhere to those local jurisdictions we can't create the same percentage occupancy in mostly Olive Gardens that we can in LongHorn. And that's why putting some of these temporary barriers that we're building in there could help increase the yield. And what we're seeing. We're seeing - I think, when we talk about Olive Garden, we need to focus on the absolute sales number, which is significant. And as we get towards the weekend our percentages come down a little - I mean, get a little bit tougher to keep up, right? So the bigger, bigger days that we have an Olive Garden are harder to match. Early in the week, our year-over-year sales declines are little bit less. As far as off-premise, I think that -- we believe off-premise will play a bigger role going forward. I'm not so sure that we expect to kind of keep these run rate once we get back to a normal environment as long as there's a threat of COVID and people have modified their personal behaviors that we think off-premise business will continue to stay robust. We think this will be a contributor going forward. We think when we level out we'll be at higher percentages of off-premise in all of our businesses. While I can't sit here today and say what I think that percentage is going to be. I do think it will be greater.

Thanks, Gene.

Our next question comes from the line of Andrew Charles with Cowen and Company. Go ahead please. Your line is open.

Great. Thanks. And I just also want to extend best wishes to Dave on your next chapter. Two separate ones from me. One for Rick. Can you talk philosophically for how you arrived at 1Q guidance for sales. Was this more top-down or bottoms up just in -- what recent news as the virus spreads in some key states for Darden?

Well, Andrew, it was actually both. I mean, we did a top-down look at where we are geographically. What we've been running lately. And our brands did our own bottom-up look at it by geography et cetera, and we came to around the same number. And so, if you look at what we have, we're seeing approximately 70%, which is where we are after three weeks of this quarter. Now mind you, the restaurants that are open, with dining rooms open are doing a little bit better than that. But we just want to make sure that we don't know exactly when all the dining rooms are going to open. We don't know when if there's going to be another wave or of some closures. We're hoping that doesn't happen. But that's where we came up with our 70% number for sales. And then on the profit side, as you saw in our fourth quarter, we did much better job in controlling costs and expenses and everything else. And so, we just have a stronger business model, which makes us feel comfortable with our EPS of zero or greater and a $75 million or greater EBITDA. And that's total EBITDA in that restaurant level, that everything.

That’s helpful. And then question for you, Gene. Looking beyond the 35 to 40 openings plan for 2021, can you talk about how you'll be able to achieve 2% to 3% restaurant growth in shorter term rather than the longer term? But can you talk about how the pandemic has changed your practices for site selection as well as change the restaurant prototype to help maximize ROI for what looks to be more off-premise curbside-focused future?

Yes. I would say, it's too early to say, its really changed our philosophy on new restaurant development at this point. But one thing I do believe is the economics are going to be more favorable than they were pre-COVID. I think that they'll be a lot less people growing out there. So I think the cost of construction should come down just like it did in '09, '10, and '11. I think the cost of the underlying land should come down significantly. And so, as we look forward I think the economics look promising. The best restaurant deals we did were after the recession in '09 and '10 especially for our specialty brands. So we'll push hard on that to get favorable economics where it possible. I do think that as we look at these businesses transition to more curbside than folks coming into a restaurant that picking up the take-out order. And we still don't know how we get back to a normal environment. How that's going to migrate back. Will this going to stay 100% curbside or people are going to want to come in. We've got to really go to that discovery process. I think the big work that needs to be done is to think about what do we need to do inside the box to better support and stage curbside, if its going to be that big part of our business. Up until recently in our existing restaurant we been doing remodels to create capacity for inside pickup. Now we got a really re-look at that as we go forward. We have been developing an Olive Garden more of a dedicated pickup space off the side of the kitchen that we are really happy with. But that might not be the way we want to go going forward. We don't know. And so, we'll see as we move forward. I think we'll try to build a little more flexibility in our dining rooms and think about different barriers and our floor plans. So that if something like this happened in the future we might have more flexibility. But I'm actually -- I'm really excited about the opportunity to build restaurants. I'm confident in our model. I believe the cost -- the initial investment cost is going to be less or at least not be inflating at the rate it was inflating. So we're going to be able to create significant value for Darden going forward with new restaurant growth and we'll probably be one of the few out there that's opening new restaurants.

That's helpful. Thank you.

Our next question the line of Eric Gonzalez with KeyBanc. Go ahead please. Your line is open.

Thank you so much. And I also like to add my congrats to David. Based on the discussion we had earlier about the occupancy in Olive Garden versus LongHorn. I just wondering if you could speak to why it seems that the off-premise sales perhaps are being little bit -- cannibalize little bit more at Olive Garden versus LongHorn? And then, my second question relates to the promotional environment. It seems like very few of your competitors are discounting or even advertising right now. I know, you had that $12.99 [ph] promo earlier this month. But wondering, when you think the right time to restart the promotional schedule? And how you think the competition is setting up with regards to advertising deals? Thanks.

On the first question, I think -- I mean, LongHorn just started at a much lower level for off-premise and that's why it's growing at three times and not two times. I don't think there's anything more to that. I think the absolute dollars going outside on Olive Garden. Our on-take out are impressive. I mean, they have some of the CD levels of overall sales. I mean, those are impressive numbers. If you look at 40% last week on $81,000 per week. I mean, that's a huge business. So, I wouldn't read anything else into that other than LongHorn started at a much lower level. As far as promotional go --promotions go, we've pulled back. Obviously, we've pulled back on almost all promotional activity. You're seeing us do a little bit of television Olive Garden because we own the spots. We bought them in the upfront. And so we need to -- we'll continue to advertise there. Right now, we don't think it's prudent to be promoting people into our restaurants when we have long waits to get into the dining rooms. Well, I think we would just be creating more frustration for our guests who can't get in. And so, at some point maybe we'll do some more off-premise advertising. But right now, we're looking -- we're taking this opportunity to cleanse our marketing spend to understand as we put it back in what works better. What gets us the highest return on investment as we as we put it back into the system? And when that's going to be a big opportunity, again, this is where scale will matter. We can come back in and advertise our businesses at the right time. We don't think this is the right time to be advertising. We think this is the right time to pull it back, analyze the situation and we'll make it -- whenever its doing this -- when the situation is right, then we'll start to layer some advertising back in and promotion back in.

Helpful. Thanks so much.

Our next question comes from the line of Chris Carroll with RBC Capital Markets. Go ahead please. Your line is open.

Thanks. Good morning and good to hear from you all. And congratulations to Dave on his retirement. So Gene, you referenced Georgia Performance regarding recent LongHorn strength. So following up on that, can you provide any additional detail on what you're seeing more broadly in the states that were among the first to allow dining rooms to reopen? Are you seeing sales in those states meaningfully different than that of your overall average? And how is off-premise mixing in those states now versus the average? Thanks.

Well, I think that -- I'll answer the first question -- last question first. The off-premises is strong. It's maintaining. Wouldn't see no change in off-premise in those states for the most part. As far as how those states are performing against others and all depends I think on what your brand strength is and what your relative share is in those markets. So obviously, when you look at LongHorn in Atlanta Georgia, we've got the largest share of voice there. I mean, we have 45 restaurants in the DMA. We're very trusted brand. We are borne out of LongHorn -- out of Atlanta. And so, I think people just trust the brand. And so, where we have great brand strength whether it's a Cheddar's market that has great brand strength. There an Olive Garden Market that has great brand strength. Those restaurants come back faster and perform at a higher level. And so, I don't think it really has to do with as much as when the state opened, as much as what's the brand strength in those specific markets. Another example is where we do really well in LongHorn Cincinnati is another one of those early markets. And we came back strong in Cincinnati as soon as we opened. But that's true in for Cheddar's in certain markets, is true for Olive Garden in certain markets.

Great. Thank you.

Our next question comes from the line of Jeffrey Bernstein with Barclays. Go ahead please. Your line is open.

Great. Thank you very much and congrats, Dave. That's a long time to be having weekly lunch with Gene. So congratulations. Just one question, one follow-up. Just in terms of the question, the changes you've discussed that you've made during COVID. I'm just wondering maybe you can prioritize a few of that you think maybe a good business and will remain post-COVID. I know you mentioned curbside and we talked about delivery. But thoughts around social distancing or I know you mentioned the online waitlist and reservations and the reduced menu. I'm just wondering if any of those you see is kind of more permanent. And then I had one follow-up.

Well, the most permanent and the most significant thing we've done is streamline the menus and our processes and procedures and that's forever. This was the opportunity that a lot of us have been waiting for. When we closed down our dining rooms and we knew we had to simplify for the off-premise. And then we had those three or four weeks to really focus at the corporate level with our teams. They say, okay, what do we really need to come back. And how do we keep this simple. Because we had no idea what was going to happen when we opened our dining rooms. We didn't know when it was going to show up. And so we had these simple menus out there. They're all disposable. We knew that we could change them quickly if we needed to. But what we learned was, we could get enough variety on the menus to satisfy the demand of the consumer. And we could simplify it because we want to make sure we didn't have as much labor in the back of the house to execute it. So to me that's the biggest thing our teams have done. And that's been the biggest insight on that -- some of the --what I would call this superfluous menu items that are on our menu that one out of 100 people that were buying when they were coming in just aren't important. And most of those created the complexity in the kitchen. And so with this one -- hopefully once in a lifetime opportunity we were able to pull those out. And I think that's what's going to be the lasting change. It's going to have significant impact two, three, four years from today.

Got you. And then my follow-up was just. It was mentioned earlier about the reinfections and seems like it's ramping up in recent days and weeks. So I'm just wondering if there's any color you can give directionally in states we've seen recent spikes. How your business maybe changes. Or maybe how your approach to decisions is going to change versus the first time whether speed to close or duration of closure. Just wondering what you've seen where those spikes have happened and how your business -- or how you might change a process of making decisions this go around versus the first? Thank you.

I would just say real quickly. We've seen no change in our business trends in the states that are starting to spike. Obviously, we're concerned, we're focused on it. But as a leadership team, we always talk about, let's focus on what we can control, right? We can't control it. We're not doctors. We're not in the government. Folks are going to do what their leadership inside the states are going to do what they're going to do. What we -- if we're focused a pivot again to more restrictions in restaurant dining or even if we to go back all the way to an off-premise, we can pivot that way. It's going to be a lot easier this time to pivot that way, because we know we're going to do. We know how to do it. Last time we were kind of making it up as we were going. We made a lot of right decisions as we did that. But this time it would be a lot smoother for us to pivot back to on off-premise. Its only experienced for a short period of time. I think the difference this time is that this will be micro, not macro. And that's how we're thinking about it. And that we've got a team setup to manage day-to-day what's happening in these local municipalities. And we'll adjust. But as we think about it as a management and a leadership team is, we're going to control what we can control and we're not going to worry about things that we can't control.

Thank you.

Our next question comes from the line of Jeff Farmer with Gordon Haskett. Go ahead please. Your line is open.

Thanks. I just wanted to follow-up on the question that Jeff just asked. So I appreciate that you said that so far you're not seeing much of a change. But just drilling down a little bit from that level. Again, is there any type of like a pivot back to off-premise from on-premise, reduced frequency? It sounds like you're seeing that. At least as it relates to the overall volume levels you haven't seen much of a change. But in terms of consumer behavior or taking a little bit of a deeper dive to see how those consumers are behavior -- this consumers are behaving in those states that have seen a dramatic jump in COVID cases. Is there anything you can add beyond what you've already answered for Jeff's questions?

No. Peter, I mean, we're talking here six or seven days since we've really seen something. We haven't seen any change in any behavior at this point in time that we can call out. Who knows? Maybe some will change tomorrow. I don't know. But right now there's nothing for us to say that can add any value to this topic.

And then just one other follow-up question. So is it possible for some of these restaurants that are operating at 50%, 60%, 75% capacity to put up positive same-store sales numbers. Can they actually again grow sales year-over-year positive comps with that 50% to 75% capacity constraint?

Yeah. As of today we have somewhere between 10% to 15% of our restaurants that are putting up positive same restaurant sales. There are restaurants that have good solid off-premise business. And they've got a business that kind of goes all day. There an trade areas where even early in the week you've got business from two to five and after eight. So 10% to 15% of our restaurants today are positive same restaurant sales.

Thank you.

Our next question comes from the line of Peter Saleh with BTIG. Go ahead please. Your line is open.

Great. Thank you. I wanted to echo the congrats to Dave as well. Gene, I wanted to ask about how you're thinking about value. I know you said, you don't really want to promote right now. But it also seems like you've got some labor productivity benefits in your back pocket with about 150 basis points of productivity. So you've got some margin I guess to spend. How are you thinking about value maybe over the next couple months or maybe a couple of quarters? It seems like we're going to be in a relatively high unemployment environment and competition is coming more back on line. Just try to understand your perspective on value going forward?

Yes. I think it's real simple. Once we the capacity and if we see any let-up in demand, then we can pivot to value. We have that opportunity to invest in value to drive traffic. At this point it just doesn't make any sense, because we have no capacity to drive it to.

Understood. And then just my second question is on the -- you just talked about a competitive advantage and extensive data and insights that you guys have. Do you see anything in the data that would move you more towards a loyalty program or away from a loyalty program in the future as things normalize? Has anything changed there in this environment?

Yes, Peter, this is Rick. Something did changed during this environment. We actually canceled our loyalty program test. And that ended at the end of the fiscal year. And it ended for a couple of reasons. One is, we've had it out there for a while. We had seen some incremental improvement over time. But we just didn't think this is the right time to continue to invest in that. We wanted to streamline everything we were doing. That said, there is a chance that we'll bring one back in the future. We did get some good data out of a loyalty test. So the data is richer than the data that we get from our credit cards and other things. The real question was, do we have enough of that to utilize to market and to do the right things? And so, we cancel the test again to streamline to ensure that we're focusing on the things that are most important right now. That said, we may come back with another loyalty program in the future.

Very helpful. Thank you very much.

Our next question comes from the line of Chris O’Cull with Stifel. Go ahead please. Your line is open. Chris O’Cull: Thanks. Good morning. Dave, I want to wish you all the best during your retirement. I've really enjoyed covering your career at RARE and Darden. So I just have a couple of questions. Rick, the first quarter guidance implies no improvement in the current trend. So, I'm wondering if you're anticipating sales could be impacted when the supplemental unemployment benefits expire.

Well, everything that we're anticipating is in our guidance. They could be impacted. That said, we don't know if they're going to be expanded, right. Are they're going to be extended or they can be extended at different dollar amount. There's still some discussions along those lines. And so, we put everything in there. There's some positives in that could happen or some negatives can happen. And that's why we felt that our 70% sales number against last year was the right number. Chris O’Cull: Okay. And then the company had 43% sales decline in the fourth quarter and lost about a $1.25 and adjusted earnings. Expect 30% sales decline in the first quarter and earnings to breakeven. Can you give us further a little more explanation as to what are the key line items driving that improvement in earnings sensitivity?

Yes. A couple of things. One is, we had $58 million of costs that we did not adjust out of our earnings that we won't have in this quarter. As we talked about before, the $58 million of investments that we made, $50 million of that was definitely -- not definitely, but it was an impact that we wouldn't expect to happen going forward. That's one. And two. When we came into this and started declining fast, it took us a little bit of time to get some of those costs out, right? So, you go from a positive sales in one week to negative 75% and within a couple of weeks it takes you a little bit of time to move those costs. Now, we have all the fixed costs where we like them. And so with a 70% sale -- so a 30% reduction versus last year we can be profitable. Chris O’Cull: Okay, great. Thanks guys.

Our next question comes from the line of Sara Senatore with Bernstein. Go ahead please Your line is open.

Thank you. I have two questions. One about unit growth and one a follow-up on margins. The new units, we had actually anticipated that you might have much lower unit growth just because there might be constraints on construction or permitting that kind of thing. Could you just talk about what -- whether we should expect openings to be more back end loaded? Or if the pace is sort of level loaded or more like normal? And then, I guess the other -- and what brand would we expect to see? Is it safe to assume Olive Garden and LongHorn given the volume recovery there? So that's the first question just on unit’s cadence and brand.

Sara, this is Rick. In terms of opening cadence for the year, recall, we stopped construction in the fourth quarter. And a lot of those restaurants were either done or close to done. So the restaurant that's opening in July was pretty much already completed. And so, we will have some restaurants that can open quickly if we want them to. We're opening as I said one in July. We've got probably handful more that will open by the end of the quarter. And that we're doing to make sure that we can train in social distancing and make sure that we're training the teams correctly. And then after that we've got a lot of and that can open. As soon as we think that we can serve the guests need that's coming into that restaurant. And so, we can flip the switch fairly quickly. But the likelihood is it'll be a little bit more backend loaded just because we want to see what the environment is before we open a restaurant at limited capacity.

Got it. And the question I had about margins. Sorry did you say which banners you might be opening Olive Garden, LongHorn. Or is it sort of look back at historical rates in this. What the right mix?

Yes. I would look back at historical. Our plan this year is to open at least one restaurant for every brand. And some of them again, we're already under construction. But the majority of our openings will be Olive Garden and LongHorn.

Okay. Got it. Thank you. And then just on the margin follow-up. Can you just give a little more color. You talked about labor savings, but I'm also trying to understand when we look at the margin complexion sort of food, labor, other, how much of that is difference in off-premise versus on-premise? And what those margins look like? Or was there mix? I know, if LongHorn is doing slightly better I think that is negative for food but good for Labor. Just trying to understand how much of this is sort of the expense management and the efficiencies that you found versus business mix?

Yes, Sarah. Cost of sales was unfavorable to us in the fourth quarter. A lot of it because of mix in brands, mix in To Go business and the higher expense for packaging. Unlike other brands we actually put our packaging costs in our cost of sales. It's not in restaurant expenses; it’s in cost of sales. So when you think about how much we shifted To Go and we had some value platforms in To Go, Olive Garden did buy one take one for almost the whole time for To Go. So that was a higher cost of sales. We had we had To Go packaging for more entrees than normal. We had bundles at some of the other brands. So it was really a mix up To Go and mix of what we were selling. And then brand mix is a little bit of that. But it's not too much, except for the fact that our higher end brands actually had a lower same restaurant sale, so a bigger negative. And some of those brands have a fairly good cost of sales measure. On the labor front, it was all deleverage as we talked about -- as I talked about in the prepared remarks. We had restaurant managers we paid them even when they were on furlough. We had -- we kept most of our restaurant managers throughout this downturn. We had the $58 million of those expenses that Gene mentioned. That was in our restaurant labor. Primarily there was a little bit in G&A, but most of it was in restaurant labor. So that hurt our margin on that front too. Those are things that we don't expect to continue. What we do expect to continue is deleverage in the restaurant manager labor line because that's a fixed cost. But we do have some as we said some favorability on the hourly labor side.

Thank you so much.

Our next question comes from the line of Nick Setyan from Wedbush Securities. Go ahead please. Your line is open.

Thank you. Appreciating that. We don't really know what happens to the incremental $600 a week or are there stimulus measures going forward. I mean -- but is there a sense kind of looking back internally around the extent to which the stimulus measures contributed to date to the sales recovery? That's my first question. And then, I have a follow up.

And I think -- when you think about stimulus, I would say, it's definitely a positive. I'm not sure we can quantify how positive it is. And I would say that yes, right now there is -- we think it's -- some of that's going to go away at the end of July. But I have to -- you have to -- at least I think that the government's going to have to add some other stimulus to the economy that should be positive to us and it just may come to us to a different vehicle. And so, I expect the overall economy to have stimulus in it. I don't think it'll come in the same form as it's coming today. But I think that we'll get our fair share of it.

And you have given your experience and you've navigated through a number of Psycho. What's your sense that even if the capacity constraints are completely normalized, but we're in a low sort of teens or high single digit in unemployment environment. What's your sense in terms of where sales eventually do stabilize? And then just structurally around sort of the fine dining business or Yard House business given its exposure to malls et cetera. How do we think about those businesses in the medium to longer term?

Yes. I think what you're asking me is impossible to predict right now. Because what we -- we don't really understand the competitive situation. We don't understand how many competitors are going to be out there. We don't understand the stimulus that the government going to put it in. So I don't know where this levels out. But I do think it's important to note that our fine dining businesses and most of primary all our specialty businesses are going to return to normal more slowly than I think casual dining will return to normal. Primarily because Capital Grille, Eddie V's rely on business travel and entertainment as a big part of their sales. And we saw that in '09 and '10, the businesses do shift. You become more weekend-focused in fine dining and in an environment like this. And we're already seeing that shift that our weekends are actually fairly good in fine dining. Our Midweek business is weak. And so, I think to sum it up, the specialty brands are going to -- are going to come back a little bit lower especially in some of -- like some of the yard houses that are tied to ballparks or stadiums or something like L.A. Live, as those areas come -- those entertainment areas come back slower. They will have some tough sledding going forward there. But I don't know where this all ends up. All I do know is that with our strategy and we believe with our scale and our competitive advantages that we are positioned to gain market share as we move forward. And I'm confident in that. And I believe the investments we've made in our people are going to be the biggest advantage we have.

Thank you very much.

Our next question comes from the line of Dennis Geiger with UBS. Go ahead please. Your line is open.

Great. Thanks for the question. And Gene thanks for the commentary on capacity constraints. Just wanted to follow-up on Jeff's question about kind of getting those AUVs headed back towards flat or positive. Just wondering if you could talk a bit more about the things you can do other than the partitions to increase capacity. Your capacity utilization while the restrictions are in place. And maybe even more broadly in addition to the capacity utilization, just speaking to some of the other key things that you can do to drive that AUV recovery with those restrictions in place? Thanks.

Well, I think it's tough. I think that that's -- we're balancing how much do we want. How much capital we want to invest in some sort of temporary solution. If you asked me two weeks ago, I would have thought they were on a better path to being able to see all the restrictions lifted. Obviously that has changed here in the short term. So there's not -- I don't think there's much more that we can do than create some physical barriers without ruining the atmosphere in the restaurants to create capacity. I mean, some of our folks have been really creative with outside seating, which I applaud, and I hope they continue to do that. But then, as we get into the summer months down south, that gets more difficult because of the thunderstorms and things like that. So I really don't see. I think we have to learn to live with what the restrictions are until such time they're removed.

Got it. Thank you.

Your next question comes from the line of Nicole Miller with Piper Sandler. Go ahead please. Your line is open.

Thank you. Good morning and thanks for this extended time for the conversation. I wanted to ask about your team in the store is. How are they feeling? If you think about reopening the dining room, how many of -- what would have been a prior concept in play? Were you able to retain or not retain, but actually bring back. And is that something that you're leveraging in terms of the reopening process?

Yes, absolutely. That's what we think the investment that we made with the emergency pay and then paying their benefits has really paid off. We've had very little problem bringing our people back to work. They're excited to come back to work. They miss their work family. And so depending on the brand we're anywhere between 50% and 70% of the initial workforce coming back. In the restaurant business, our reputation is one of the most important things that we have. And so, we have great basic hygiene processes and procedures already developed. And so our team members are used to working in this environment. Now we're enforcing some social distancing. They have to wear a mask. But they're great already at washing their hands. The restaurants are already clean. They've got great food handling procedures. And so, there's a lot of confidence in our restaurants that these are great environments to work in and they feel safe. Our people are just so excited to get back to work. And even -- I would even say, even when we were in our off-premise only, the amount of people that were coming back to work and doing different types of jobs and just looking to contribute anyway was incredible. And so that's why one of the things that we talked about was the leadership team. The first thing that we're going to do is we're going to try to take care of our team members the best we possibly could in this very, very difficult situation. And that's why we've invested in a gross level $75 million an additional pay for those first three weeks. And I think we're being paid back for that not just today but I believe we'll be paid back for that in two, three, four, five years. Our restaurant managers are incredibly loyal. We treated them very, very well during this process.

And just to confirm and closed the loop on that. If you think about being relatively back in the range of 70% of sales, the staffing levels are 50% to 70% as a match to the 70% of sales. Is that the way to think about that?

That's how we think about it.

Okay. Alright. Thanks again.

Our next question comes from the line of Andy Barish with Jefferies. Go ahead please. Your line is open.

Hey guys. I'll ask one and then a quick follow-up. Just Gene, can you give us sort of an update progress report on how Cheddar's has come through this. I know you were making some good strides on the people side. Obviously, this was unprecedented. But just an overview on where Cheddar's is heading?

Yes. I think Cheddar's has made it through this very well. There's two things I would highlight on Cheddar's. First of all they've always under-indexed on off-premise. And we were able to do a couple of things through this a lot quicker than we were planning to do. First of all, we only had two antiquated phone lines going into each restaurant. And through this we were able to get them an upgraded phone systems, so people could actually call in orders and get a response from our team members. Second, we were able to transition them to online ordering. And we just had a big impact. And so their off-premise business has built and continues to build each and every week through this process, which we think will be very beneficial. The most important thing that happen for Cheddar's through all this is the way that we at Darden treated them. And I think that when you think about the management and employees, especially management this was a critical. I always look at when we do acquisitions, there's always this critical moment. When the management forgets about the old days. And they don't have that romance with it. And then they're thankful for the new days. And through this process, this is the time I think that our Cheddar's leadership and people in our restaurant. So just thankful that they were a big part of a big company that could step up and do the right thing. And I think that is going to create incredible loyalty. We've lost very few management people through this time. And people are really excited about what they're doing. And lastly, they have the opportunity and through this they made the biggest change with their menu and processes and procedures in the back of the house. That's going to have a long lasting impact on that business and improve the overall financial performance. So we're pleased. We think leadership did a great job. We think management and the restaurants did a great job. The team members came back excited. So we think this was a positive for Cheddar's when it's all set and done.

Great. And just a quick follow-up on the on the efficiency and the back of the house in lower prep hours. Was that simply the menu changes or did you also -- where were you also able to layer in some supply chain changes with more value added product or something like that?

No. I think it was a little bit of value add, but not much. I think it was really -- there was just a -- there was a handful of products that weren't providing a whole lot of value to the consumer that caused a lot of chaos and a lot of additional prep and cost in the kitchen that we just removed from the menu. And our guests haven't been asking for it back. So I mean, there's just a lot of streamlining. But that menu has come down to a lot simpler. And they did some really good procedural work from the back door to the front -- to the dining room table that has just made it easy to execute.

Thanks, Ricks.

Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Go ahead please. Your line is open.

Hey, good morning. I just wanted to circle back on the comment you made about some of the investments you're considering making going forward. I just wanted to better understand the decision making process there. Is there something specific that you're looking for? Is it just a matter of timing? Just curious for any color on that please?

You talking about the investments in the facilities that create capacity?

There was a comment about kind of margins two or three years from now and not wanting to commit to something around that. So I guess, I'm just curious around those potential investments that you're considering?

Andrew, this is Rick. Yes, I made the comment on margins. And there are a lot of investments we can make. One of them is to bring marketing back. And so we took -- we're taking marketing down significantly. Now, we'll still have some number in our P&L in Q1 for marketing as percent of sales. So, I would encourage none of you to put zero in there. We do have some marketing, but we significantly reduced it. These menu simplifications that we made. Are there some items that we need to bring back as we do some more research down the road when we have full dining rooms? Do we have enough breadth of appeal? And so, if we bring them back how do we do those. How do we bring those back with a simplified process. But it would still be a small investment. So there are other investments that we can make. We can make investments in taking less pricing, because we have margin to do that. We can make investments in quality which we're doing right now. LongHorn has just made some more significant quality investments in their menu even throughout this process. I don't know if it's in the restaurant yet, but its coming. It’s a higher ounce weight for one of their best products without really pricing for it significantly. Olive Garden is making some significant investments right now in their menu in terms of a better quality and better value. And so, we still have a lot of investments that we can make. We're not going to talk necessarily about what we're going to look forward -- whether we make those investments or not. But just be sure to know that the margin that we have today gives us room to make investments or gives us room to drive into the bottom line.

Great. Thank you very much.

Our next question comes from the line of Jon Tower with Wells Fargo. Go ahead please. Your line is open.

Great. Thanks for making time for the questions. And Dave, congratulations on your retirement. Just a few follow-ups for me. First, kind of going zeroing in on this specifically. What percent of in-store sales can Olive Garden regain with the six foot capacity constraints still in place?

Hey, Jon, this is Rick. That's actually a difficult question to answer, because every restaurant is different in their layout. Not every restaurant, but a lot of restaurants are different in their layout. And we actually showed in our presentation what they're doing today. So what the restaurants are doing that are open. What are they doing in total sales and To Go sales and kind of get an idea of where they are. We think we can make that a little bit better overtime with some of these barriers that we're looking at. But any one brand is different. It's kind of hard to tell you exactly what percent we can do. It all also depends on how much people are willing to go on the shoulders of a meal period. And so, as the capacity constraints happen are people willing to wait a little bit longer or come in a little bit earlier and that'll help us drive more sales. But I couldn't tell you exactly what percent is the right number.

Okay. Thanks. And then just on the labor savings so far. How much of 150 basis points you saw this quarter? Do you think can stick when volumes kind of return back to normal. And then just lastly. I don't think anybody asked yet and maybe I missed it. But you guys raised quite a bit of capital there in the quarter. Can you just discuss your intent on use of those proceeds? Thanks.

Jon, as regards to the 150 basis points how much can stick as sales go up. All of -- our hourly labor is primarily variable. So unless we're making some significant changes to our menu or where we have to bring in some training again because there's a little bit less training in the fourth quarter. That would be the reason that our labor as a percent would go up. Or if we determine as we look at our guests experience, did we take a little bit too much out. And so, we don't believe that was the case because a lot of this labor came out of the kitchen. But we'll look at and see that and determine whether we need to bring some of it back. But I would still say that the first quarter should have an hourly labor benefit. Now remember, it's going to be offset by deleverage in the management labor side. And so, if you can remind me the second question, sorry.

Just in terms of the proceeds you raised.

On the capital front, yes, when we raised that additional $500 million in capital, we said it was to invest in growth and to shore up our balance sheet. And so, we believe our balance sheet is shored up as we mentioned our adjusted debt to adjusted capital ratio of 61% and our covenant is 75%. Had we not raised that capital we would have been a lot closer to that covenant. We are making investments in growth. Right now, as I mentioned, some of the investments that we're making are investments in quality. We're using some of that capital to invest in quality. We use some of that capital to invest in our team. As Gene mentioned, so the things that we did that we think are going to benefit us in long term. We now have the capital to be able to start growth again And as we've said, we're going to start opening restaurants again. We think that others might not have as much of a balance sheet to be able to do that. And so, those are the investments we're talking about today. And we'll continue to look at other ways to invest that capital for future growth. We think there's tremendous opportunity to invest. And that's why we took out that extra equity.

Great. Thank you.

Our next question comes from the line of Brett Levy with MKM Partners. Go ahead please. Your line is open.

Great. Thanks for taking the call. And Dave, I think you really misunderstood what Gene was saying when he said that this is going to be a work at home, a stay at home economy. So congrats to your time off. When you think about the capital that you've provided us, the outlay for the $250 million to $300 million. How much of that is going to go in towards the new level of maintenance that these units are going to take? And also just how are you thinking about areas like the stepped-up IT and the digital onslaught that we're seeing? And then just when you think about your portfolio, you've talked about LongHorn, Olive Garden, Cheddar's a bit. Where do you still see additional need to work on at the other change to catch them up to where you are, and I'll stop there? Thanks.

Okay, so you got Maintenance CapEx technology and brand mix. So if you think about our maintenance CapEx you know our number of 250 to 300 is probably got $100 million to $125 million, $100 million to $120 million of maintenance, which is a little bit lower than we normally say about 120 million, so let's just say we take a $20 million number out of that. On the technology front, we're still investing in technology. That's one of the things that we're going to continue to invest in, and we -- and we made a lot of investments in the fourth quarter. When you think about what we did to bring Cheddar's online, bring all the other brands that didn't have online ordering up to make some investments now on our curbside and how do we make that curbside even more streamlined through technology. How do we improve payment, and doing other things? So there's a lot more we're going to do in technology, that team’s really really busy. We're really, really proud of what they did over the last couple of a couple of weeks of the actual 14 weeks to ensure that our website stayed up in running as we drove a lot more traffic. I mean, as it turns to the brand that we're investing in a week, we believe that we should invest in all of our brands. As we mentioned in the number of the openings, we're going to open I believe at least one restaurant for every brand. If we can get through all of the, all of the space limitations and the social distancing limitations in that 35 to 40 restaurants, and we are we are very excited about every one of our brands and their ability to grow.

And our next question comes from the line of David Palmer with Evercore ISI. Go ahead please. Your line is open.

Thanks. Good morning and Dave congratulations on your career. Obviously a huge work done in the past on Olive Garden. Two questions; first on seating capacity. You talked about how social distancing is more of a constraint. It sounds like it was more of a constraint for Olive Garden than LongHorn. I don't know if you meant to imply that, and if that is the case, how much of a booster capacity can occur with those barriers? And I have a follow up.

Well the barriers that we're testing in Olive Garden can boost capacity significantly because the booth backs are so low in an Olive Garden, and that’s the difference between Olive Garden and LongHorn is that the booth backs are much higher. And you think about a LongHorn, LongHorn is just one big room. What we do in a LongHorn is we use dividers to create space and to create the ambiance that we want, which ended up working in our favor that created some social distancing. Whereas, in Olive Garden, everything is at a much lower level, it's like at four feet. So we're looking at how do we, how do we you know we have gone in the majority of the Olive Gardens already and put plexiglass in certain places to create some barriers, to get us to the occupancy that we're at. And then also in Olive Garden, you have a lot of nooks and crannies, where we have you know four tables in there. And now we're lucky if we can, only know only going to use two, and if we can, in some of those instances in those rooms you only really get to use one. And so it's just, it just had to do more with what you know how the floor plan was. And our ability to harm, create barriers with Booth backs.

I mean, is this -- is that 7% percent difference in the recent open stores roughly the difference? I mean how much of a boost to know you could you get?

There's some decent [Ph] geography that's favoring LongHorn versus Olive Garden. A lot of Olive Garden’s you know I mean -- just the way the way it's laid out. When you think about Georgia and the percentage of restaurants that LongHorn has in Georgia, and there are no restrictions in Georgia right now for the most part, they've really benefited from that.

And I -- and I guess you mentioned there is positive comps in 10% to 15% of restaurants. I mean, we're talking about these capacity constraints. It's hard to get your head around how that's possible. Can -- you have any comment on that and how what sort of information that gives you about what's possible for the rest of your restaurants?

Well it's just -- it's just you know you've got to -- you've got a significant off-premise business in those restaurants. And you have a consumer that probably has limited access to other restaurants that is willing to eat at two o'clock in the afternoon. And that's why I look at those restaurants. Some of them are more rural, especially in Georgia. And so you know I think each individual situation has got a specific reason why I think that that individual restaurant is performing the way it does. But it just says that you know combined with good off-premise consumer -- a consumer base that is willing to roll through the whole day and use the facility you can you can create some volume greater than last year -- situations though David.

Yes. I mean do you don't feel like sharing what percent capacity increase you can get from these barriers on Olive Garden. Is that something you have put your finger on?

Maybe up as much as 20%. You're putting your pipe, get to put every booth in, and then maybe a little bit higher and put every booth in play. Right now every other booth is out.

Yes. Very helpful. Thank you very much.

Our next question comes from the line of John Ivanka with JPMorgan. Go ahead please. Your line is open.

Hi. Thank you. I know we've kind of touched on unit development a couple of times, you know just looking for maybe some clarification and also maybe a little bit of forward guidance. 35 to 40 net, how many is that gross? In other words you know how many are you expecting to actually close in 2021 and obviously I did see some impairments and you're wondering if that was going to lead to some closures. And that CapEx number of 250 to 300 is a low number given the number of units that you are opening and certainly any CapEx that you have in 2021 would also kind of foretell whatever you're going to open in 2022, so are you kind of thinking that you can get back to a 2% to 3% unit development in fiscal 2022 and how should we think about -- it's a lot of different questions here. How should we think about overall maintenance CapEx as perhaps a percentage of DNA in a post crisis environment as you've kind of rethought the overall business models? And I'd like another question as well.

All right, John. So the 35 to 40 restaurant is really almost gross and net. So there, we don't have a whole lot of closings that we would anticipate in this fiscal year. We just closed eleven restaurants in the fourth quarter. Some of them were already impaired and the rest of them we impaired when we closed them. And so if we had something that we were going to close, we already did it, unless we had something where the lease wouldn't allow us to close. So we don't anticipate closing any more restaurants this year unless there's a lease expiration that we couldn't move or if something gets damaged in other ways. So the gross to net is about the same. In terms of CapEx, the 250 to 300, remember we had stopped construction of 17 restaurants that were supposed to open in Q4 or in the fourth quarter really of FY 2020. And so a lot of that CapEx has already been spent. Even if we ramp up development, we wouldn't be able to ramp it up enough to spend a lot of CapEx in the late FY 2021 for FY 2022. We're not ready to talk about FY 2022 openings. So if you take out the 17 openings that we had delayed from FY 2020 to FY 2021 that cuts to 35.5. Right. And it cuts the 40 down to 23. And so we do believe, we could get to the 2% to 3% unit growth, get back to that fairly quickly. We'll probably be close to that this year when you think about the 35 to 40. The question will be 22 and how fast do we ramp up development when we have to make sure that the landlords and the landowners and the construction folks understand there's probably a new price out there today. And so that takes a little bit of time for price discovery. And so we'll see how long it takes us to ramp back up. We have the team to be able to do it, and we're ready to do it when we need it. On the maintenance side I think, I mentioned $100 million to $120 million. It's not too different than what we've been doing before. Remember, our number one priority with Capital is to make sure our restaurants are maintained beautifully. And we've been consistent in that all along. And so, we do not want to cut down on maintenance that is essential than it is needed, and we believe, maintaining our restaurants is essential maintenance. So while we did reduce that during the fourth quarter because basically restaurants weren't very busy, we will bring that back. And that's why we've got 100 million to 120 million in our CapEx number for this year.

Okay. And maybe thinking about maintenance CapEx as a percentage of DNA, maybe that's kind of something to think about over the very long term and it doesn't necessarily have to play out over a couple of years I suppose is what you’re telling me.

Yes, it won't play out much.

Okay, understood. And the second tier topic and it's kind of a completely different one, but it's a big spending bucket. A lot of companies are you kind of thinking about and re-evaluating their calendar 2021 versus calendar 2019 G&A. I mean, we're all kind of recognizing how different we can work in efficiency and how much travel we actually need to do, and how much money and time virtual work and work at home what have you actually saves us. And that's you know that's something separate even in head count. But how many of the changes you know in terms of the organization are you making whether it's spending per employee, not in salary, but on things on top of salary and also a number of employees. Are we beginning to think might be the right level for the organization and if it's possible that you know because it's such an important number to put in the model and this thing and to think about what that calendar 2021 versus calendar 2019 if it's fair to think about it in that way could look like for Darden?

John, it's hard to answer calendar for us, because we're a fiscal year company. We don't think calendar. So to think that way would take a little bit of mental math.

Yes, I understand. But it's like I just want to put an asterisk on calendar 2020. I bet you're unusual now you're right in the middle of it. So no. Okay, but…

And just let me give you an idea. We would anticipate in the first half of our fiscal year to have significantly less spend per employee in travel and in some of the department expenses that we have. We're also looking at our organization to see what the right size the organization is based on -- based on our sales levels today. And so as we mentioned after in Q4 we save $17 million in G&A. We don't anticipate to save $17 million in Q1, but we're going to save some G&A in Q1 and continue into Q2, without talking about what the percent G&A percent is. It's not going to be hugely hugely different than what it was at the end of the fiscal year -- in fiscal 20. So I wouldn't model dramatic changes. It could be 50 basis point to 100 basis points different, but higher, just because of those sales deleverage. But that's all in our guidance, that's all what we have in Q1, and as we get better understanding of what our sales levels are going to be going forward, we'll have a better understanding of what our G&A as a percent will be, but we will spend less per person on the on the department stuff and the travel in the first half of this fiscal year.

Very helpful. Thanks for the patience and time.

Our next question comes from the line of Matthew DiFrisco with Guggenheim. Go ahead please. Your line is open.

Thank you so much. I have two quick questions. One for Gene, in particular you guys have talked a lot about the bigger your scale being an advantage, and the consolidation at the top. So, some smaller independents, small original players potentially falling out, some capacity coming out. I wonder if you could update us on sort of your outlook say the next six months or so what we should look at as year-over-year capacity that potentially could come out of a full service casual dining sector. And then secondly for Rick, I wanted to sort of walk through that model where you gave about 30% down on sales equates to a little over 600 million in sales in your model in 1Q and then your EBITDA is about 200 million or so less. I wonder how do we get back to a whole basis year-over-year on EBITDA. Do we need all of the 600 million or so of sales to come back? Or could we get a portion of that to get greater than 200 million of EBITDA back. I'm trying to understand the flow through on this new lower variable cost model? Thank you.

Okay, Matt. On capacity, I think, I'm not going to probably sit here today and predict a number whether that's 10%, 20%. There are a lot of people throwing around different numbers out there. The one thing I will say, I believe there will be significantly less restaurants out there to compete against in the near term. And the longer this environment last, I think the more fallout you're going to have. And so I think that that is an advantage for us going forward.

Matt, and as it relates to sales to get back to our EBITDA, yes you're right. It's about 600 million is what you mentioned on the 30%. We don't need all 600 million to get back to that EBITDA based on what our margin structure looks like today. You know I'm not going to give you exactly what we need, but it it's not 100% of what we were doing before. That said, the reason I'm not going to give you that number is because we may invest some of that stuff. Some of that back. So I don't want, I don't want to add a number to say it's 90%, 95% or 100% because we're going to do the right thing for our guests and our team members to make sure that this cost structure that we have today is the right cost structure in the future. And if it's not we'll make some investments. But I will say that those investments may take a little bit of time. So we will have a better flow through in the first quarter on some of these sales than we would have had in the past.

Excellent. Thank you for the color.

And our next question comes from the line of Catherine Fogarty with Goldman Sachs. Go ahead please. Your line is open.

Great. Thank you for the question. I have a couple of questions mainly around the menu for simplification that you may have said you went through during the quarter. And I was hoping you could kind of walk through bright brands and where you found the greatest amount of efficiency. And you mentioned some are about 15% to 20% below prior menu points. What would be the catalyst to bring them back, and any kind of numbers you could put around the cost savings you found on that side? And I have a follow up.

Okay. This is Rick. On a brand by brand level to tell you what the margin differences are, and what we've done that's it could be pretty, pretty long conversation. But I would say that as Gene mentioned earlier, Cheddar’s made a lot of change to their menu, and a lot of change in their procedures to bring a lot of direct labor out of the system. So if you think about kind of an order of magnitude Cheddar’s had the most change in their menu and the improvement in their labor cost over time. All of our brands are doing better in direct labor as a percent of sales than they were last year. All of them, Cheddar’s is doing a lot better. But to tell you exactly what we did, again, all brands did things differently, all brands change their menus a little bit differently. But all brands focused on and we went into it optimists only model. They focused on how can we serve? What can we serve? What are our highest value items? What are highest guest satisfaction items, and what are the items that we can actually run it with just managers. And so if you think about brands, like Cheddar’s, like Capital Grille, the smaller you know the specialty brands most of their To Go sales when they were To Go only were done with managers only. So we had to simplify that menu. And Olive Garden also simplified even though they had team members in the restaurant at the same time. But those simplifications again were to streamline the menu to the most value item, value items for the guest and the ones that the guest wanted the most. And so what's interesting now, and without the menu marketing and the different things that we do on a menu development, you know guests are voting with what they're buying. And it's amazing what as we simplified the menu we can actually see what the guest’s favorites really are. And the great thing is, for a brand like Olive Garden, it's a few products that are on a few different menu items and so it actually is better to keep it that way because we streamline. And so without giving you specific examples, those are some kind of high levels of how we did it. And again, all brand had hourly labor efficiency improvements and we expect those to stay maybe not as good as they were, but we expect the efficiencies to stay.

[Indiscernible] helpful ranking on that guys. And then my follow up question is actually around the comments you made about investing for growth. Am I right to be thinking that M&A is at potential opportunity just given you have some of the benefit of your balance sheet and if that is right, what categories look particularly attracted to you? What do you think would help with your overall [Indiscernible] or do you have any holes in your portfolio that you are particularly excited about going forward?

But you know what the management and the board will continue to look at the opportunities that are available out there; we'll look at our own portfolio. We look at what, it's out there that could possibly fit our portfolio. The only thing I would say on specifics around that is that we believe we want to be in the full service business, that's where we get the advantages of our scale. So as we look out there at the full service environment, I think that we'll continue to analyze the opportunities and if something makes sense, then we'll try to bring an end to our platform. Our thought process is always does it benefits by coming on our platform, and does the platform benefit it by them coming on the platform to get through that screen and they can grow a little bit. Then it makes sense. I think right now it's about timing. It's about what's the right, what the price. You know the price discovery. And then we'd have to make the decision at that point in time.

Okay. Thank you.

And it looks like that's all the questions that we have at this time I'd like to turn the call back over to our presenters.

Thank you, James. That concludes our call. I'd like to remind everyone that we plan to release first quarter results on Thursday September 24th before the market opens. Thank you for participating in today's call.

This concludes today's conference call. You may now disconnect.