DARDEN RESTAURANTS, INC. 
The discussion and analysis below for the Company, which contains forward-looking statements, should be read in conjunction with the unaudited financial statements, the notes to such financial statements and the "Forward-Looking Statements" included elsewhere in this Form 10-Q. To facilitate review of our discussion and analysis, the following table sets forth our financial results for the periods indicated. All information is derived from the unaudited consolidated statements of earnings for the quarters and six months endedNovember 28, 2021 andNovember 29, 2020 . Three Months Ended Six Months Ended November 28, November 29, November 28, November 29, (in millions) 2021 2020 % Chg 2021 2020 % Chg Sales$ 2,272.2 $ 1,656.5 37.2%$ 4,578.2 $ 3,183.9 43.8% Costs and expenses: Food and beverage 694.1 475.1 46.1 1,379.5 909.6 51.7 Restaurant labor 744.8 535.5 39.1 1,480.8 1,036.2 42.9 Restaurant expenses 385.0 330.5 16.5 763.1 621.4 22.8 Marketing expenses 21.9 18.8 16.5 45.8 47.6 (3.8) General and administrative expenses 91.4 89.9 1.7 204.2 218.2 (6.4) Depreciation and amortization 92.1 86.0 7.1 181.1 173.6 4.3 Total costs and expenses$ 2,029.3 $ 1,535.8 32.1$ 4,054.5 $ 3,006.6 34.9 Operating income 242.9 120.7 NM 523.7 177.3 NM Interest, net 16.7 14.6 14.4 32.3 31.2 3.5 Other (income) expense, net 0.3 0.4 (25.0) 0.5 7.9 (93.7) Earnings before income taxes 225.9 105.7 NM$ 490.9 $ 138.2 NM Income tax expense (1) 32.5 8.8 NM 65.8 4.0 NM
Earnings from continuing operations
99.6$ 425.1 $ 134.2 NM Losses from discontinued operations, net of tax (0.2) (0.9) (77.8) (1.0) (2.1) (52.4) Net earnings$ 193.2 $ 96.0 NM$ 424.1 $ 132.1 NM Diluted net earnings per share: Earnings from continuing operations$ 1.48 $ 0.74 NM$ 3.24 $ 1.02 NM Losses from discontinued operations - (0.01) NM (0.01) (0.01) NM Net earnings$ 1.48 $ 0.73 NM$ 3.23 $ 1.01 NM (1) Effective tax rate 14.4 % 8.3 % 13.4 % 2.9 %
NM- Percentage not considered meaningful.
The following table details the number of company-owned restaurants currently
reported in continuing operations that were open at the end of the second
quarter of fiscal 2022, compared with the number open at the end of fiscal 2021
and the end of the second quarter of fiscal 2021.
November 28, May 30, November 29,
2021 2021 2020
Olive Garden 879 875 874
LongHorn Steakhouse 539 533 527
Cheddar's Scratch Kitchen 172 170 168
Yard House 85 81 81
The Capital Grille 61 60 58
Seasons 52 44 44 43
Bahama Breeze 42 42 41
Eddie V's 27 26 24
The Capital Burger 3 3 2
Total 1,852 1,834 1,818
23-------------------------------------------------------------------------------- Table of Contents OVERVIEW OF OPERATIONS COVID-19 Pandemic For much of fiscal 2021, the COVID-19 pandemic resulted in a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as public health officials encouraged social distancing and required personal protective equipment and state and local governments mandated restrictions including suspension of dine-in operations, reduced restaurant seating capacity, table spacing requirements, bar closures and additional physical barriers. Once COVID-19 vaccines were approved and moved into wider distribution inthe United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses have eased. As of the date of this report, all of our restaurants were able to open their dining rooms and few capacity restrictions remained in place inthe United States . Following increases in the numbers of cases of COVID-19 throughoutthe United States during fiscal 2022, some of our restaurants are subject to other COVID-19-related restrictions such as mask requirements or vaccine requirements for team members, guests or both. For the health and safety of our guests and team members, we continue to evaluate and implement our own COVID-19 protocols for our restaurant teams, including mask wearing, contact tracing, and exclusion or quarantine of team members who are exposed or are ill. Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant's operations and often come with little or no notice to the local restaurant management. We continue to monitor the progression of the COVID-19 pandemic and state, local and federal government regulatory and public health responses thereto, including the federalOccupational Health and Safety Administration's attempt to implement a nationwide vaccine requirement for large employers. Financial Highlights - Consolidated Our sales from continuing operations were$2.27 billion and$4.58 billion for the second quarter and first six months of fiscal 2022, respectively, compared to$1.66 billion and$3.18 billion for the second quarter and first six months of fiscal 2021, respectively. The 37.2 percent and 43.8 percent increases in sales for the second quarter and first six months of fiscal 2022 were driven by combined Darden same-restaurant sales increases of 34.4 percent and 40.7 percent for the second quarter and first six months of fiscal 2022, respectively, in addition to revenue from the addition of 34 net new company-owned restaurants since the second quarter of fiscal 2021. Fiscal 2021 sales for the second quarter and first six months were negatively impacted by COVID-19. For the second quarter of fiscal 2022, our net earnings from continuing operations were$193.4 million compared to$96.9 million for the second quarter of fiscal 2021, and our diluted net earnings per share from continuing operations were$1.48 for the second quarter of fiscal 2022 compared to$0.74 for the second quarter of fiscal 2021. For the first six months of fiscal 2022, our net earnings from continuing operations were$425.1 million compared to$134.2 million for the first six months of fiscal 2021, and our diluted net earnings per share from continuing operations were$3.24 for the first six months of fiscal 2022 compared to$1.02 for the first six months of fiscal 2021. Our diluted per share results from continuing operations for the first six months of fiscal 2021 were adversely impacted by approximately$0.28 due to charges associated with our corporate restructuring plan. Outlook We expect sales for fiscal 2022 to be between$9.6 and$9.7 billion , driven by same-restaurant sales growth of 29 to 31 percent and 35 to 40 net new restaurants. Additionally, we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and for technology initiatives to be$425 million . SALES The following table presents our sales by segment for the periods indicated. Three Months Ended Six Months Ended November 28, November 29, November 28, November 29, (in millions) 2021 2020 % Chg SRS (1) 2021 2020 % Chg SRS (1) Olive Garden$ 1,077.2 $ 829.5 29.9 %
29.3 %
31.2 %$ 1,114.3 $ 784.1 42.1 % 38.8 % Fine Dining$ 188.7 $ 107.3 75.9 % 61.6 %$ 357.5 $ 190.0 88.2 % 71.6 % Other Business$ 459.1 $ 312.3 47.0 % 42.9 %$ 938.8 $ 592.1 58.6 % 53.8 % (1)Same-restaurant sales is a year-over-year comparison of each period's sales volumes for a 52-week year and is limited to restaurants open at least 16 months. Olive Garden's sales increase for the second quarter and first six months of fiscal 2022 was primarily driven byU.S. same-restaurant sales increases combined with revenue from new restaurants. The increase inU.S. same-restaurant sales for the second quarter of fiscal 2022 resulted from a 24.7 percent increase in same-restaurant guest counts and a 3.7 percent increase in 24 -------------------------------------------------------------------------------- Table of Contents average check. The increase inU.S. same-restaurant sales for the first six months of fiscal 2022 resulted from a 30.0 percent increase in same-restaurant guest counts and a 2.4 percent increase in average check.LongHorn Steakhouse's sales increase for the second quarter and first six months of fiscal 2022 was primarily driven by same-restaurant sales increases combined with revenue from new restaurants. The increase in same-restaurant sales for the second quarter of fiscal 2022 resulted from a 28.3 percent increase in same-restaurant guest counts and a 2.3 percent increase in average check. The increase inU.S. same-restaurant sales for the first six months of fiscal 2022 resulted from a 34.9 percent increase in same-restaurant guest counts and a 2.9 percent increase in average check. Fine Dining's sales increase for the second quarter and first six months of fiscal 2022 was primarily driven by same-restaurant sales increases combined with revenue from new restaurants. The increase in same-restaurant sales for the second quarter of fiscal 2022 resulted from a 54.3 percent increase in same-restaurant guest counts combined with a 4.7 percent increase in average check. The increase in same-restaurant sales for the first six months of fiscal 2022 resulted from a 65.7 percent increase in same-restaurant guest counts and a 3.6 percent increase in average check. Other Business' sales increase for the second quarter and first six months of fiscal 2022 was primarily driven by same-restaurant sales increases combined with revenue from new restaurants. The increase in same-restaurant sales for the second quarter of fiscal 2021 resulted from a 31.4 percent increase in same-restaurant guest counts and a 8.7 percent increase in average check. The increase in same-restaurant sales for the first six months of fiscal 2022 resulted from a 41.8 percent increase in same-restaurant guest counts and a 8.5 percent increase in average check. COSTS AND EXPENSES The following table sets forth selected operating data as a percent of sales for the periods indicated. All information is derived from the unaudited consolidated statements of earnings for the quarters and six months endedNovember 28, 2021 andNovember 29, 2020 . Three Months Ended Six Months Ended November 28, 2021 November 29, 2020 November 28, 2021 November 29, 2020 Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Food and beverage 30.5 28.7 30.1 28.6 Restaurant labor 32.8 32.3 32.3 32.5 Restaurant expenses 16.9 20.0 16.7 19.5 Marketing expenses 1.0 1.1 1.0 1.5 General and administrative expenses 4.0 5.4 4.5 6.9 Depreciation and amortization 4.1 5.2 4.0 5.5 Total operating costs and expenses 89.3 % 92.7 % 88.6 % 94.4 % Operating income 10.7 7.3 11.4 5.6 Interest, net 0.7 0.9 0.7 1.0 Other (income) expense, net - - - 0.2 Earnings before income taxes 9.9 6.4 10.7 4.3 Income tax expense 1.4 0.5 1.4 0.1 Earnings from continuing operations 8.5 % 5.8 % 9.3 % 4.2 %
Quarter Ended
•Food and beverage costs increased as a percent of sales primarily due to a 3.6%
impact from inflation and unfavorable menu mix, offset by a 1.7% impact from
pricing leverage.
•Restaurant labor costs increased as a percent of sales primarily due to 2.5%
impact from inflation and a 2.4% impact from decreased productivity, offset by a
4.5% impact from sales leverage.
•Restaurant expenses decreased as a percent of sales primarily due to a 4.0%
impact from sales leverage, partially offset by a 0.5% impact from higher
utility costs and a 0.5% impact from higher repairs and maintenance expenses.
•Marketing expenses decreased as a percent of sales primarily due to sales
leverage.
•General and administrative expenses decreased as a percent of sales primarily
due to a 1.5% impact from sales leverage and a 0.4% impact related to mark to
market on deferred compensation plans, offset by a 0.5% impact from travel and
other costs.
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•Depreciation and amortization expenses decreased as a percent of sales due to
sales leverage.
Six Months Ended November 28, 2021 Compared to Six Months Ended November 29,
2020
•Food and beverage costs increased as a percent of sales primarily due to a 2.9%
impact from inflation and unfavorable menu mix, offset by a 1.3% impact from
pricing leverage.
•Restaurant labor costs decreased as a percent of sales primarily due to 5.6%
impact from sales and pricing leverage, partially offset by a 3.5% impact from
decreased productivity and a 1.9% impact from inflation.
•Restaurant expenses decreased as a percent of sales primarily due to a 4.8%
impact from sales and pricing leverage, partially offset by a 0.6% impact from
higher repairs and maintenance expenses, a 0.5% impact from higher utility
costs, a 0.2% impact from prior year business interruption proceeds and a 0.7%
impact from all other costs.
•Marketing expenses decreased as a percent of sales due to a 0.5% impact from
sales leverage.
•General and administrative expenses decreased as a percent of sales primarily
due to a 2.1% impact from sales leverage and a 1.0% impact from costs associated
with our corporate restructuring in the first quarter of fiscal 2021, offset by
a 0.7% impact from travel and labor costs.
•Depreciation and amortization expenses decreased as a percent of sales due to
sales leverage.
INTEREST EXPENSE
Net interest expense decreased as a percent of sales for the second quarter of
fiscal 2022 primarily due to sales leverage. Net interest expense decreased as a
percent of sales for the first six months of fiscal 2022 primarily due sales
leverage as well as interest incurred on our $270.0 million term loan during
fiscal 2021.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net decreased as a percent of sales for the first six
months of fiscal 2022 primarily due to a postretirement benefit plan valuation
adjustment resulting from our corporate restructuring in the first quarter of
fiscal 2021.
INCOME TAXES
The effective income tax rate for continuing operations for the quarter ended
November 28, 2021 was 14.4 percent, reflecting income tax expense of $32.5
million compared to an effective income tax rate for the quarter ended
November 29, 2020 of 8.3 percent, reflecting income tax expense of $8.8 million .
The effective tax rate for continuing operations for the six months ended
November 28, 2021 was 13.4 percent, reflecting income tax expense of $65.8
million compared to an effective income tax rate of 2.9 percent for the six
months ended November 29, 2020 , reflecting income tax expense of 4.0 million.
The change was primarily driven by higher net earnings from continuing
operations in the quarter and six months ended November 28, 2021 compared to the
quarter and six months ended November 29, 2020 and the impact of certain tax
credits on earnings before income taxes for the six months ended November 29,
2020 .
LOSSES FROM DISCONTINUED OPERATIONS
On an after-tax basis, losses from discontinued operations for the second
quarter and first six months of fiscal 2022 were $0.2 million ($0.00 per diluted
share) and $1.0 million ($0.01 per diluted share) compared with losses from
discontinued operations for the second quarter and first six months of fiscal
2021 of $0.9 million ($0.01 per diluted share) and $2.1 million ($0.01 per
diluted share).
SEGMENT RESULTS
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse , Cheddar's
Scratch Kitchen , Yard House, The Capital Grille , Seasons 52, Bahama Breeze ,
Eddie V's and The Capital Burger in North America as operating segments. We
aggregate our operating segments into reportable segments based on a combination
of the size, economic characteristics and sub-segment of full-service dining
within which each brand operates. Our four reportable segments are: (1) Olive
Garden, (2) LongHorn Steakhouse , (3) Fine Dining and (4) Other Business (see
Note 6 to our unaudited consolidated financial statements in Part I, Item 1 of
this report).
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Our management uses segment profit as the measure for assessing performance of
our segments. The following table presents segment profit margin for the periods
indicated.
Three Months Ended Six Months Ended
Segment November 28, 2021 November 29, 2020 Change November 28, 2021 November 29, 2020 Change
Olive Garden 21.8% 21.1% 70 BPS 22.5% 21.6% 90 BPS
LongHorn Steakhouse 15.3% 16.3% (100) BPS 17.1% 15.7% 140 BPS
Fine Dining 21.0% 19.0% 200 BPS 20.5% 16.1% 440 BPS
Other Business 13.6% 12.6% 100 BPS 15.7% 12.6% 310 BPS
The increase in Olive Garden's segment profit margin for the second quarter and
first six months of fiscal 2022 was driven primarily by positive same-restaurant
sales as well as decreased restaurant and marketing expense. The decrease in
LongHorn Steakhouse's segment profit margin for the second quarter of fiscal
2022 was driven by increased food and beverage costs, partially offset by
positive same-restaurant sales. The increase in LongHorn Steakhouse's segment
profit margin first six months of fiscal 2022 was driven primarily by positive
same-restaurant sales as well as decreased restaurant expenses, partially offset
by increased food and beverage costs. The increase in Fine Dining's segment
profit margin for the second quarter and first six months of fiscal 2022 was
driven primarily by as positive same-restaurant sales as well as decreased labor
and restaurant expenses. The increase in Other Business' segment profit margin
for the second quarter and first six months of fiscal 2022 was driven primarily
by positive same-restaurant sales as well as decreased restaurant expenses.
SEASONALITY
Our sales volumes fluctuate seasonally. Typically, our average sales per
restaurant are highest in the winter and spring, followed by the summer, and
lowest in the fall. Holidays, changes in the economy, severe weather and similar
conditions may impact sales volumes seasonally in some operating regions.
Because of the seasonality of our business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full fiscal
year. We are not able to predict the impact that the COVID-19 pandemic may have
on the seasonality of our business.
LIQUIDITY AND CAPITAL RESOURCES
Typically, cash flows generated from operating activities are our principal
source of liquidity, which we use to finance capital expenditures for new
restaurants and to remodel and maintain existing restaurants, to pay dividends
to our shareholders and to repurchase shares of our common stock. Since
substantially all of our sales are for cash and cash equivalents, and accounts
payable are generally paid in 5 to 90 days, we are typically able to carry
current liabilities in excess of current assets.
We currently manage our business and financial ratios to target an
investment-grade bond rating, which has historically allowed flexible access to
financing at reasonable costs. Our publicly issued long-term debt currently
carries the following ratings:
•Moody's Investors Service "Baa2";
•Standard & Poor's "BBB"; and
•Fitch "BBB".
Our commercial paper has ratings of:
•Moody's Investors Service "P-2";
•Standard & Poor's "A-2"; and
•Fitch "F-2".
These ratings are as of the date of the filing of this Form 10-Q and have been
obtained with the understanding that Moody's Investors Service, Standard &
Poor's and Fitch will continue to monitor our credit and make future adjustments
to these ratings to the extent warranted. The ratings are not a recommendation
to buy, sell or hold our securities, may be changed, superseded or withdrawn at
any time and should be evaluated independently of any other rating.
On September 10, 2021 , we entered into a $1 billion Revolving Credit Agreement
(Revolving Credit Agreement) with Bank of America, N.A . (BOA), as administrative
agent, and the lenders and other agents party thereto. The Revolving Credit
Agreement is a senior unsecured credit commitment to the Company and contains
customary representations and affirmative and negative covenants (including
limitations on liens and subsidiary debt and a maximum consolidated lease
adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of
default usual for credit facilities of this type. The Revolving Credit Agreement
replaced our prior $750.0 million revolving credit agreement, dated as of
October 27, 2017 and amended as of March 25, 2020 . As of November 28, 2021 , we
had no outstanding balances and we were in compliance with all covenants under
the New Revolving Credit Agreement.
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The New Revolving Credit Agreement matures on September 10, 2026 , and the
proceeds may be used for working capital and capital expenditures, the
refinancing of certain indebtedness, certain acquisitions and general corporate
purposes. Loans under the New Revolving Credit Agreement bear interest at a rate
of LIBOR plus a margin determined by reference to a ratings-based pricing grid
(Applicable Margin), or the base rate (which is defined as the highest of the
BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Eurodollar
Rate plus 1.00 percent) plus the Applicable Margin. Assuming a "BBB" equivalent
credit rating level, the Applicable Margin under the New Revolving Credit
Agreement will be 1.000 percent for LIBOR loans and 0.000 percent for base rate
loans.
As of November 28, 2021 , our outstanding long-term debt consisted principally
of:
•$500.0 million of unsecured 3.850 percent senior notes due in May 2027 ;
•$96.3 million of unsecured 6.000 percent senior notes due in August 2035 ;
•$42.8 million of unsecured 6.800 percent senior notes due in October 2037 ; and
•$300.0 million of unsecured 4.550 percent senior notes due in February 2048 .
The interest rate on our $42.8 million senior notes due in October 2037 is
subject to adjustment from time to time if the debt rating assigned to such
series of notes is downgraded below a certain rating level (or subsequently
upgraded). The maximum adjustment is 2.000 percent above the initial interest
rate and the interest rate cannot be reduced below the initial interest rate. As
of November 28, 2021 , no such adjustments are made to this rate.
We may from time to time repurchase our remaining outstanding debt in privately
negotiated transactions. Such repurchases, if any, will depend on prevailing
market conditions, our liquidity requirements and other factors.
From time to time we enter into interest rate derivative instruments. See Note 9
to our unaudited consolidated financial statements in Part I, Item 1 of this
report, which is incorporated by reference.
Net cash flows provided by operating activities of continuing operations
increased to $481.5 million for the first six months of fiscal 2022, from $428.6
million for the first six months of fiscal 2021. Net cash flows provided by
operating activities include net earnings from continuing operations of $425.1
million and $134.2 million in the first six months of fiscal 2022 and 2021,
respectively. Net cash flows provided by operating activities increased in
fiscal 2022 primarily due to higher net earnings from continuing operations,
offset by the change in working capital compared to fiscal 2021.
Net cash flows used in investing activities of continuing operations were $177.8
million for the first six months of fiscal 2022, compared to $109.7 million for
the first six months of fiscal 2021. Capital expenditures increased to $173.3
million for the first six months of fiscal 2022 from $108.2 million for the
first six months of fiscal 2021 reflecting an increase in new restaurant
construction and remodel activity during fiscal 2022.
Net cash flows used in financing activities of continuing operations were $721.0
million for the first six months of fiscal 2022, compared to $308.4 million for
the first six months of fiscal 2021. Net cash flows used in financing activities
for the first six months of fiscal 2022 included dividends paid of $286.1
million and share repurchases of $452.3 million partially offset by proceeds
from the exercise of employee stock options. Net cash flows used in financing
activities for the first six months of fiscal 2021 included repayment of a
364-day term loan of $270.0 million prior to maturity as well as dividends paid
of $39.1 million partially offset by proceeds from the exercise of employee
stock options. Dividends declared by our Board of Directors totaled $2.20 and
$0.30 per share for the first six months of fiscal 2022 and 2021, respectively.
On September 22, 2021 , our Board of Directors authorized a new share repurchase
program under which we may repurchase up to $750.0 million of our outstanding
common stock in addition to any amount remaining under the prior authorization.
This repurchase program does not have an expiration. During the quarter and six
months ended November 28, 2021 , we repurchased 1.8 million and 3.1 million
shares of our common stock, respectively, compared to 0.0 million and 0.1
million shares of our common stock, respectively, during the quarter and six
months ended November 29, 2020 .
We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales, costs or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Impairment of our assets, including goodwill or trademarks, adversely affects
our financial position and results of operations, and our leverage ratio for
purposes of our Revolving Credit Agreement. A leverage ratio exceeding the
maximum permitted under our Revolving Credit Agreement would be a default under
our Revolving Credit Agreement. At November 28, 2021 , write-downs of goodwill,
other indefinite-lived intangible assets, or any other assets in excess of
approximately $1.39 billion would have been required to cause our leverage ratio
to exceed the permitted maximum. As our leverage ratio is
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determined on a quarterly basis, and due to the seasonal nature of our business,
a lesser amount of impairment in future quarters could cause our leverage ratio
to exceed the permitted maximum.
FINANCIAL CONDITION
Our current assets totaled $1.51 billion as of November 28, 2021 , compared to
$1.87 billion as of May 30, 2021 . The decrease was primarily due to a decrease
in cash and cash equivalents.
Our current liabilities totaled $1.78 billion as of November 28, 2021 , compared
to $1.85 billion as of May 30, 2021 . The decrease was primarily driven by a
decrease in other current liabilities.
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of sales, costs and expenses during the reporting period. Actual results could
differ from those estimates. We have discussed the development, selection and
disclosure of those estimates with the Audit Committee. Our critical accounting
estimates have not changed materially from those previously reported in our
Annual Report on Form 10-K for the fiscal year ended May 30, 2021 .
APPLICATION OF NEW ACCOUNTING STANDARDS
Information regarding application of new accounting standards is incorporated by
reference from Note 1 to our unaudited consolidated financial statements in Part
I, Item 1 of this report.
FORWARD-LOOKING STATEMENTS
Statements set forth in or incorporated into this report regarding the expected
increase in the number of our restaurants and capital expenditures in fiscal
2022, projections for sales and all other statements that are not historical
facts, including without limitation statements with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of Darden Restaurants, Inc. and its subsidiaries that are preceded by,
followed by or that include words such as "may," "will," "expect," "intend,"
"anticipate," "continue," "estimate," "project," "believe," "plan," "outlook" or
similar expressions, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and are included, along with
this statement, for purposes of complying with the safe harbor provisions of
that Act. Any forward-looking statements speak only as of the date on which such
statements are made, and we undertake no obligation to update such statements
for any reason to reflect events or circumstances arising after such date. By
their nature, forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by such forward-looking statements. In addition to the risks and
uncertainties of ordinary business obligations, and those described in
information incorporated into this report, the forward-looking statements
contained in this report are subject to the risks and uncertainties described in
Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year
ended May 30, 2021 and in our Forms 10-Q (including this report), which are
summarized as follows:
•The impacts of the novel coronavirus (COVID-19) pandemic on our business,
including the response of governments and of our company to the pandemic and the
effectiveness, acceptance, availability, timing and distribution of approved
vaccines;
•Health concerns arising from food-related pandemics, outbreaks of flu viruses
or other diseases;
•Insufficient guest or employee facing technology, or a failure to maintain a
continuous and secure cyber network, free from material failure, interruption or
security breach;
•Food safety and food-borne illness concerns throughout the supply chain;
•The inability to hire, train, reward and retain restaurant team members;
•A failure to recruit, develop and retain effective leaders or the loss or
shortage of key personnel;
•Insufficient or ineffective response to legislation or government regulation
may impact our cost structure, operational efficiencies and talent availability;
•Litigation, including allegations of illegal, unfair or inconsistent employment
practices;
•Unfavorable publicity, or a failure to respond effectively to adverse
publicity;
•An inability or failure to recognize, respond to and effectively manage the
accelerated impact of social media;
•The inability to cancel long-term, non-cancelable leases that we may want to
cancel or the inability to renew the leases that we may want to extend at the
end of their terms;
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•Labor and insurance costs;
•Our inability or failure to execute a comprehensive business continuity plan
following a major natural disaster such as a hurricane or manmade disaster,
including terrorism;
•Intense competition, or an insufficient focus on competition and the consumer
landscape;
•Changes in consumer preferences that may adversely affect demand for food at
our restaurants;
•Our failure to drive both short-term and long-term profitable sales growth
through brand relevance, operating excellence, opening new restaurants of
existing brands and developing or acquiring new dining brands;
•A lack of suitable new restaurant locations or a decline in the quality of the
locations of our current restaurants;
•Higher-than-anticipated costs to open, close, relocate or remodel restaurants;
•A failure to identify and execute innovative marketing and guest relationship
tactics and ineffective or improper use of other marketing initiatives and
increased advertising and marketing costs;
•A failure to address cost pressures, including rising costs for commodities,
labor, health care and utilities used by our restaurants, and a failure to
effectively deliver cost management activities and achieve economies of scale in
purchasing;
•The impact of shortages or interruptions in the delivery of food and other
products from third-party vendors and suppliers;
•Adverse weather conditions and natural disasters;
•Volatility in the market value of derivatives we may use to hedge commodity and
broader market prices;
•Volatility in the United States equity markets that may affect our ability to
efficiently hedge exposures to our market risk related to equity-based
compensation awards;
•Economic and business factors specific to the restaurant industry and other
general macroeconomic factors including energy prices and interest rates that
are largely out of our control;
•Disruptions in the financial markets that may impact consumer spending
patterns, affect the availability and cost of credit;
•Risks associated with doing business with franchisees and licensees;
•Risks associated with doing business with business partners and vendors in
foreign markets;
•Failure to protect our service marks or other intellectual property;
•Impairment of the carrying value of our goodwill or other intangible assets;
•Changes in tax laws or treaties and unanticipated tax liabilities; and
•A failure of our internal controls over financial reporting and future changes
in accounting standards.
Any of the risks described above or elsewhere in this report or our other
filings with the SEC could have a material impact on our business, financial
condition or results of operations. It is not possible to predict or identify
all risk factors. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. Therefore, the above is not intended to be a complete discussion of
all potential risks or uncertainties.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including fluctuations in interest
rates, foreign currency exchange rates, compensation and commodity prices. To
manage this exposure, we periodically enter into interest rate, foreign currency
exchange rate, equity forward and commodity derivative instruments for other
than trading purposes (see Note 9 to our unaudited consolidated financial
statements in Part I, Item 1 of this report).
We use the variance/covariance method to measure value at risk, over time
horizons ranging from one week to one year, at the 95 percent confidence level.
As of November 28, 2021 , our potential losses in future net earnings resulting
from changes in equity forwards, commodity instruments and floating rate debt
interest rate exposures were approximately $80.5 million over a period of one
year. The value at risk from an increase in the fair value of all of our
long-term fixed-rate debt, over a period of one year, was approximately $70.1
million . The fair value of our long-term fixed-rate debt outstanding as of
November 28, 2021 , averaged $1.08 billion , with a high of $1.09 billion and a
low of $1.06 billion during the first six months of fiscal 2022. Our interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows by targeting an appropriate mix of variable and
fixed-rate debt.
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