Darden Restaurants Earnings Call Nuggets: Free Cash Flow and Program Spending Cuts
Free Cash Flow
Matthew DiFrisco – Lazard: My questions with respect to, I guess, just looking at the free cash flow. I might have missed this, if you gave some guidance on that or updated the guidance on it. I heard you mentioned that in the second half of fiscal ’14, you are going to resume the Olive Garden remodel and if there is a 100 more remodels of Red Lobster. So, can you give us an update as far as how that might affect your free cash flow and your CapEx budget in aggregate?
C. Bradford Richmond – SVP and CFO: Yeah. Matt, this is Brad. The guidance we’ve given before in terms of our total cash flow and in this case, our CapEx really incorporates that we had some testing funds for Olive Garden. So, they will continue that and Red Lobster will continue on their plans. So, there is really no change in our overall cap expectations. We bounce a little bit around here in there, but no major change there.
Matthew DiFrisco – Lazard: Then I guess I had a question with respect to the specialty division, G&A, I think, you mentioned that there was the Yard House, some integration issues. I guess, looking at the comp was that primarily the reason for the comp going negative or are there some regional things maybe specific to its Southern California regional exposure?
C. Bradford Richmond – SVP and CFO: I think the point we are trying to make Matthew is that every time we’ve done an integration, we take the focus off of the I think 100% on the guest on to implementing systems. We experienced that with LongHorn and we experienced with Eddie V’s and we think we are experiencing that somewhat in Yard House. We wouldn’t say there is an issue with integration, we think integration is on track, but the point we’re trying to make is, that is a distraction. When you change every point of sale or POS terminal inside a restaurant, there is a distraction to every single employee and until they become unconsciously competent with that your service tenant will drop a little bit. We think beyond that at this point in time, and we think that restaurant operations are improving and we would expect if the conditions continue – stay the same or improve we will see positive same restaurant sales in Yard House in the next six to 12 months.
C. Bradford Richmond – SVP and CFO: Matt, Brad here. Let me just add a little bit more on our free cash – on our CapEx guidance we’ve provided before. We are seeing $600 million to $650 million really working towards the middle of that range. So, the adjustments we’ve talked by here, still keeps us in the middle of that range, hopefully in the bottom half of the that range, but clearly, probably more in the middle of the range.
Program Spending Cuts
Michael Kelter – Goldman Sachs: On the $50 million of cost cuts, you mentioned a reduction of 85 support positions. You also in the release mentioned, beyond the workforce reductions, there were program spending cuts; to what were you referring when you said program spending cuts. And then could you help with the $50 million number overall. Are you confident that there is not more you can do that that’s all you can cut at the organization level?
Clarence Otis Jr. – Chairman and CEO: I would say on the program side, we are talking about a number of different initiatives across several functions that we think are value-added initiatives, but lower priority than some of the other things that we need to focus on. So, that spans marketing and it also include some of the things that we’ve been doing on the supply chain side. So, it touches a lot of different places, but it adds up to a meaningful part of that total that’s $50 million. I would say that with the cuts that we made, we’re pretty comfortable that $50 million on an ongoing basis is the reduction. There is the possibility it could be somewhat higher than that. But that’s the number we’re comfortable with right now. With that number we still are able to make the investments that we need to make beyond affordability. So, we are investing in a number of things that we think we need to invest and to stay relevant to our guest as their lifestyles change. So, we are continuing to invest in making our technology platform more robust, for example, so we can better engage with our customers from a digital perspective. It also sets up, we think, our opportunity to do much more segmented, targeted one-on-one marketing with our customers, and ultimately, hopefully, that will allow us to scale back our broadcast media spend.
Michael Kelter – Goldman Sachs: And then separately, your free cash flow this quarter post dividend payment was firmly negative. Was there anything particular about the quarter or is this a dynamic we’re going to have to expect until the business turns around? And given that dynamic, doesn’t it make sense to cut CapEx further until the business stabilizes?
C. Bradford Richmond – SVP and CFO: There is some seasonality to our cash flows probably as we look out across the year and the features that we may run in the different brands during the time. So, it is down principally driven by the earnings that we reported. But in terms of the – our annual expectations with the guidance we’ve given, we still feel comfortable with that range. To the tune of CapEx and opportunities there, we continue to look at those. We’re still seeing approximately 80 new restaurants this year. That’s still a pretty good number. If anything, we maybe one or two shy of that versus one or two over that, but we continue to evaluate those opportunities as we go through the year. But we don’t see what we’re looking at, any need to make more significant adjustments other than the adjustment that Clarence talked about earlier in terms of our support cost.
A Closer Look: Darden Restaurants Earnings Cheat Sheet>>