Welcome to the Third Quarter Earnings Release Conference Call. [Operator Instructions] I'd now like to turn the call over to our host, Mr. Matthew Stroud. Please go ahead.

Thank you. Good morning, everyone. With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and COO; Brad Richmond, Darden's CFO; and Gene Lee, President of Darden's Specialty Restaurant Group. We welcome those of you joining us by telephone or the Internet. During the course of this conference call, Darden Restaurants' officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives. Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect the events or circumstances arising after such date. We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports, including all amendments to those reports. These risks and uncertainties include food safety and food-borne illness concerns; litigation; unfavorable publicity; federal, state and local regulation of our business including healthcare reform, labor and insurance cost; technology failures; health concerns including virus outbreaks; the intensely competitive nature of the restaurant industry; factors impacting our ability to drive sales growth; the impact of the indebtedness we incurred in the RARE acquisition; our plans to expand our newer brands like Bahama Breeze and Seasons 52; a lack of suitable new restaurant locations; higher-than-anticipated costs to open, close or remodel restaurants; increased advertising and marketing costs; a failure to develop and recruit effective leaders; the price and availability of key food products and utilities; shortages or interruptions…

Well, thank you, Matthew, and good morning. Darden's total sales from continuing operations increased 5.5% in the third quarter to $1,980,000,000. This strong top line performance compares to an estimated 0.9% total sales growth for the industry as measured by Knapp-Track, indicating our meaningful market share growth. On a blended same-restaurant sales basis, Darden's third quarter sales were up 0.9%, which is consistent with the estimates in our January 31 pre-release. For context, industry same-restaurant sales, as measured by Knapp-Track and excluding Darden, are estimated to be up 0.1% for the quarter. Olive Garden's third quarter U.S. same-restaurant sales were flat, which is 1.5 percentage points below our prior estimate. Red Lobster's third quarter U.S. same-restaurant sales increased 0.1%, or one percentage point better than our prior estimate. LongHorn Steakhouse third quarter U.S. same-restaurant sales increased 6.1%, which is 1.5 percentage points better than our prior estimate. We also saw accelerated same-restaurant growth gains in our Specialty Restaurant Group. The Capital Grille's third quarter same-restaurant sales increased 8.4%, Bahama Breeze third quarter same-restaurant sales increased 3.4%, and Seasons 52's third quarter same-restaurant sales increased 4.2%. Now let's turn to a margin analysis of the third quarter. Food and beverage expenses were 12 basis points higher than last year on a percentage-of-sales basis, as a result of increased food costs due to the planned, negative mix changes related to our promotional offerings. As we mentioned at our recent Analyst Day, we have many of our food costs locked in for the current fiscal year, and we do not expect higher -- excuse me, and we do expect higher food and beverage expenses as a percentage of sales in the fourth quarter, some of which is due to the timing of Lobsterfest promotion at Red Lobster. Now since our Investor and Analyst…

Thank you, Brad. And I'll start by sharing a few thoughts about the industry and then comment briefly on the strategy and performance of our three large casual-dining brands. As Brad already said, casual-dining same-restaurant sales, excluding Darden, as measured by Knapp-Track, were up 0.1% during the third quarter. Now we are not able to quantify the impact of weather on industry sales results; however, we note that industry same-restaurant sales declined in December and January when inclement weather, compared to the prior year, had a meaningfully negative impact on our three large brands, was followed by solid industry same-restaurant sales growth during February when weather had improved. And as our fiscal year has progressed, year-ago industry comparables have gotten progressively stronger. Consequently, our view is that the casual-dining industry continues to improve. As Gene will discuss in a few minutes, the fine dining room industry also continues to show solid growth, which is certainly important for our Specialty Restaurant Group as the recovery in business travel and luxury consumer spending gains momentum. Continued improvement in broader economic fundamentals, especially employment, should lead to continued recovery and slightly accelerated sales growth in full-service restaurants going forward. Now let's review the performance of our three large casual-dining brands. On a combined basis, Olive Garden, Red Lobster and LongHorn delivered same-restaurant sales growth of 0.9% versus prior year, consistent with the outlook we provided at our recent analyst conference. And all three brands increased their operating profit and operating profit margin compared to last year. Red Lobster's same-restaurant sales increased 0.1% in the third quarter, despite the adverse effects of 120 basis points related to the timing of Lent and their signature Lobsterfest promotion and another 50 basis points related to more severe winter weather compared to prior year. When you consider…

Thanks, Drew. The Specialty Restaurant Group had a strong third quarter and continues to build positive momentum. We delivered significant sales growth of 25%, which represents 27% of Darden's total sales growth. This growth was a result of our solid performance at our 11 new restaurants and blended same-restaurant sales growth of 6.5%, which was driven by strong comparable sales at each of our brands, led by 8.4% at The Capital Grille, 4.2% at Seasons 52 and 3.4% at Bahama Breeze. We intend to continue building on this momentum and expect the Specialty Restaurant Group's fiscal 2011 sales to exceed $500 million. Our strong same-restaurant sales growth resulted in significant margin expansion during the quarter with all three brands achieving meaningful improvement in restaurant-level margins. The Specialty Restaurant Group team remains focused on continuing improving brand delivery and operational execution to keep driving same-restaurant sales growth. We're also continuing to build our new restaurant pipeline to fuel our brands' expansion and meet our new restaurant growth targets of 14% to 16%, as well as increase our organizational capabilities and capacity to support this accelerated growth. In addition, we are implementing Darden enterprise cost-reduction initiatives and working to identify unique Specialty Restaurant Group cost-saving initiatives to mitigate inflationary pressures and further improve restaurant-level margins while continuing to enhance our support platform, making it even more efficient, effective and scalable. Now I'll turn it over to Clarence.

Thanks, Gene. Now let me say we're very pleased with our earnings per share and sales growth this quarter. We're also pleased that we're on track for nearly 20% earnings per share growth for the full year. When we think about two years ago or even a year ago, the economy is in a much better place. Our industry's in a much better place and so is our company. The evidence that economic conditions are gradually improving continues in our view of the mount and that bodes well for an increase in visits to full-service dining and it bodes well for us. There are a few headwinds, for sure, but they pale in comparison to what we've all faced over the past few years. And also during the downturn, we here at Darden took action to strengthen our brands, improve both the effectiveness and efficiency of our support platform -- action that leaves us quite well prepared, we think, to handle today's headwinds. Headwinds that again are modest when we consider all that we've been through. We're confident that as conditions continue to improve, Darden is well positioned to grow market share and to deliver competitively superior earnings growth just as we did both before and during the downturn. We've got great brands, we've got an increasingly effective and efficient brand-support platform and we have exceptionally talented people and those talented people are working well together. These strengths are why we were able to deliver this quarter and they're why we believe that as the economy continues its recovery, the best is yet to come for Darden. And with that, we will take your questions. Thank you.

[Operator Instructions] And our first question comes from David Palmer [UBS Investment Bank].

The same-store sales guidance that you have in place -- and forgive me if you touched on some of these questions during your prepared remarks, but I think it implies something like 2.6% is the low end of the guidance, what that implies for the fiscal fourth quarter. And you can correct me if I'm wrong on that. Obviously, that's a different run rate than the February quarter and even more different than the February month. So the big question is why -- do you feel comfortable with that estimate as you said? And the little questions that come to mind behind that big question are: Is Darden so far looking at a pretty good March so far? Are there particularly well-tested promotions coming that give you increased confidence? And perhaps are you reflecting back on promotion mistakes or things you would've done differently in the May quarter a year ago?

Let me just say, I mean Brad, I think, touched upon it and he talked about -- we're early in the quarter and the trajectories of our brands this early in the quarter give us confidence in the outlook that we've got. I think he also mentioned, though, that because we're early in the quarter, we don't want to get ahead of ourselves. I mean, we still have an environment that's not normalized. It's still more fragile than normal. And it's still very, very much dependent on promotion effectiveness. I would say we feel good about what we've got coming. We also have the benefit of a calendar shift at Red Lobster in terms of their promotion for Lobsterfest, so that certainly helps the fourth quarter, just like it hurt the third quarter.

So it sounds like you're doing at least what you thought you would do for the quarter so far in March, and you don't want to get ahead of yourself.

That's a fair summary.

[Operator Instructions] And our next question comes from Joe Buckley [BofA Merrill Lynch].

First question on Olive Garden. Is Olive Garden becoming more dependent on the effectiveness of the promotions as opposed to being more execution driven, do you think? And with the relative softness in February at Olive Garden, more at lunch or dinner -- and I'm asking that question given some pretty heavy competitive activity at lunch in the month of February.

The relative softness in February was more at dinner than lunch. And I think I'd frame, Joe -- and Joe, I guess I'd start by framing your question a little more broadly, that we still believe Olive Garden's a very strong brand, very strong business model. We're in an environment that continues to be very value sensitive, very promotionally driven. And the promotion we had in February just wasn't as effective as we anticipated that it would be. We went into February very confident that our promotional strategy was appropriate and our execution of that strategy was strong. The promotional strategy, to go back to what I said just a minute ago, in February was the same as it was in the last few years. There's really three things we're focused on: compelling new dishes that are broadly appealing and help drive special-visit interest; periodically feature an attractive price point that augments Olive Garden's already strong value proposition in a very value-sensitive environment; and then third, beyond short-term traffic, we want to leverage all that investment in media and culinary development to build the brand long term. And we're really looking at two things there: value, which is kind of the core point of difference for Olive Garden; and culinary distinctiveness, which is a way we can make a strong brand even stronger. And the promotion we developed for February against that, we thought was strong. Two new ravioli dishes. Ravioli is very broadly appealing. One with chicken, one with shrimp. It's an approach that has worked well for us in the past. It worked well for us in the third quarter last year. Fairly traditional recipe for the chicken dish with a very attractive $10.95 price point. And a more distinctive culinary forward execution for the shrimp dish, pear…

Just one follow-up on Red Lobster. How will you reconcile the higher expected seafood cost that you shared with us back at the analyst meeting with the new value or affordability message at Red Lobster?

Well, there's two things. One is knowing what the seafood cost environment is going to look like. We take that into account in the dishes that we design for the promotions that we're going to use in the future. We take that into consideration on the other items that we're going to put in the promotional menus that are on the tables and impact preference. And we also take a broad look across the entire brand-support platform and across the portfolio of brands that we've got, at the cost-reduction opportunities that we have and how we choose to invest those cost-savings opportunities.

Joe, this is Brad here. And what I would add to that is we don't want to be unduly influenced by any particular one line item of the P&L. We look at the total business there. And as we shared, Red Lobster, even with their promotional activity that they have going right now, continues to build absolute earnings as well as expand their margins. So when you look at the totality of that business and their ability to leverage the same-restaurant sales growth there, it still is a very value-creating proposition for us.

And I would just add -- this is Clarence, Joe, that as we look forward, we manage the entire portfolio of brands. And so we have the ability to really absorb some line items that might be particularly highly inflated in one brand by the action that we'd take in from the others that don't have the same pressure. And so that's an important attribute for our company. And we've done it the past when we've seen the market basket for Olive Garden be elevated, but not at other places. And we'll do that as we go forward with Red Lobster and seafood.

Our next question comes from Brad Ludington [KeyBanc Capital Markets].

I wanted to ask -- at the Analyst Day, there was a brief comment, I believe, that you guys and the board have been discussing maybe raising the dividend payout ratio to 40% to 50%. It seems like it's been traditionally more of a 30% to 35% range. Is that still on the table and being discussed? Or has there been any progress on that? And then also, what does that mean? Would that impact share repurchases at all?

Yes, and I'll start. This is Clarence. And I would say, yes, we're pretty comfortable with what we talked about back at the analyst meeting. And so as we think about returning cash to shareholders, our cash flows continue to grow at a very meaningful clip, which reflects basically, the fundamental strength of the entire business. We will talk more about dividends in June, but that outlook that we provided continues to be our sense of things. And I think we have the ability to get there and still have share repurchase go up from here given where our cash flows are.

And then just a brief follow-up. Are you guys no longer going to break out sales by brand in the Specialty Restaurant Group?

Yes, Brad, that's correct. There's enough data there. You can back into it, I think, and get pretty close, but we're not going to disclose the absolute numbers at this point. They're still too small for us, really.

I think the other factors is as they start to accelerate growth, the period-to-period movement gets to be less meaningful, because it really depends on operating weeks at new restaurants and at brands that small, we're not sure it provides a lot of value on an individual basis. And so the collective number's more important. And we also think about that business as a collection, as a business unit, in its totality. That's where it makes a meaningful difference for Darden.

And next question comes from David Tarantino of Robert with Bailey (sic) [Robert W. Baird]. David Tarantino - Robert W. Baird & Co. Incorporated: Just a question, Clarence. I think your comments were still pretty positive on the outlook for the industry and I just wanted to maybe ask your thoughts on rising gasoline prices and what you think that might do to the outlook for the industry here. Maybe balancing that versus some of the other macroeconomic factors they're seeing.

I would say I think they'll have a dampening effect. They definitely serve as a tax on consumers, gasoline prices. That said -- I mean, we saw that dampening effect, I think, in February. And so the industry results were stronger than they were in prior months. They have been stronger if gasoline was below $3, we think so. So it's an improving trend. The rate of improvement will be less at these gasoline levels than it would've been without them, but it's still an improving trend. And so that's essentially how we see it. We have no reason to believe otherwise, and I think February is a pretty good indicator of that and I suspect March will be as well, because we're living with these elevated levels. I think our experience is that consumers adapt and they adjust their budgets. David Tarantino - Robert W. Baird & Co. Incorporated: That's helpful and maybe a quick follow-up for Brad. I think, Brad, you mentioned some thoughts on getting margin expansion in fiscal '12, I think, was your comment. And just wondering whether that comment applies to the enterprise-level margin or the restaurant-level margin?

Restaurant or enterprise-level restaurant margins should be positively impacted from the broad cost initiatives that we showed at the Investor Conference. Those, as I've mentioned, those are pretty meaningful as we look forward, but we're also achieving those results a little bit faster than what we had originally anticipated, and see some of that benefit today already coming through.

And next question comes from Mr. Matt Frisco (sic) [DiFrisco] of Oppenheimer. Matthew DiFrisco - Oppenheimer & Co. Inc.: I think it was said earlier that the environment right now is very sensitive to promotions and promotions working. Just curious, in the context of industry, how you guys set up. Is that an advantage for you given that you do have a large advertising voice, especially against your casual-dining peers? Or is this a harbinger of the environment returning back to a more promotional environment and maybe what we've seen in the industry as far as price and check might be little a bit harder to get through in the next six months if the consumer is looking for promotions or responding to promotions?

I think that Darden has a demonstrated capability in advertising, promotion, limited-time offers that over time, if proven, help build the brand and move the business forward in the near term. So I would say that, that's a competitive strength for us. I would also say that it's a very value-sensitive environment. It's not materially different in terms of the amount of promotional emphasis that we see right now versus a year ago. It's pretty steady and it's still significant, so we would anticipate that to continue going forward.

I'll also say, Matt, that when we say promotional it's not just about price. It's about "How compelling is the offer?" And so it needs to be a compelling offer on many dimensions. And so when you look at Red Lobster this past quarter, for example, on its Surf & Turf promotion, started, I think, at $15 and ended at $20. And so it's certainly wasn't a deep price discounted promotion. And then its other promotion was the Seafood Dinner for Two for $29.99, so $15 a person. And then it ended the month, which is that first week for Lobsterfest, but Lobsterfest is a premium price promotion. And yet all of those were effective. And so it's because they were compelling, compelling dishes in a compelling, creative envelope. And so that is part of the equation, too. Value's got to be part of that promotional mix as you think about your promotions throughout the year, but it's not a continuous siren song around price points and value promotion as we think about how we approach it. I'd say the other thing, just to reiterate what Drew said, we've always run our business feeling like news was important. And so seven promotional windows, six promotional windows. One of the things that was quite attractive about RARE was that, that's how they run their business as well. And so it's not a new approach for LongHorn. We think the effectiveness of the promotions at LongHorn is better, but it's how they've run their business historically. And so that rhythm works for them operationally.

Our next question comes from Jason West of Deutsche Bank.

I just wondered if you'd give us an update. You had mentioned that you've continued to sort of extend your contracts on the commodities side. If you could give us an update of some of the bigger items like seafood, I think, was about 30% covered through December of '11. If you have an update there in beef and pasta as well.

Jason, Brad here. I would say the coverage that we've been in, as I said, has been more opportunistic. I can't say that we've pursued any one particular commodity in particular, but there have been modest opportunities here to further extend those as we move into the next year. What I would say to where we traditionally are at this point in the fiscal year is to have even more coverage, but we aren't to the levels that we have historically been. But we're expanding that a little bit further as there's some breaks in some of these prices.

I think the reason why we've approached, the way Brad has indicated -- I think we've mentioned is a little bit at our meeting here in Orlando -- is there is a significant premium to pay to get out very far compared to the closer-in market. And so it's much more attractive shorter. And so we've got to weigh those two things.

That's helpful. And just one on LongHorn. As we think about, into fiscal '12, when you lap the, sort of, push into national cable, what's the thinking from a media standpoint there? I mean, do you take that up another notch in fiscal '12? And if it's more of a flattening out, then would you expect that to cause some moderation in the very strong comps you're seeing in that brand?

No. We'll talk more about our specific media strategy and promotional strategy for all the brands in June. But clearly, as LongHorn expands and opens new units and adds more media weight, that's been a very positive thing for the business.

And I would just say as we think about LongHorn over the next five to seven years, it'll continue to go up. I mean, their media weights are a fraction of Red Lobster and Olive Garden, so we don't want to leave the impression that national cable means that they are competitive with Olive Garden, Red Lobster, the four or five other nationally advertised casual-dining brands. They spend a fraction of what that competitive set spends. And I think that makes their same-restaurant sales growth relative to industry average all the more impressive because that's a major handicap when you think about them against Knapp-Track, which is dominated by the nationally advertised brands.

The only thing -- this is Brad -- that I would add to that, to Clarence's point there is you also see that in our P&L. You see their strong same-restaurant sales and sales growth, but you'll also see it in our SG&A line and particularly this quarter. We were up pretty meaningful there. More than half of that was driven by our investments in the media, particularly at LongHorn, but across the other brands as well.

Next question comes from Howard Penney of Hedgeye Risk Management.

I wanted to attack the Olive Garden question differently. Do you think you may have sacrificed traffic in the quarter for margin? And then in the context of that question, can you talk about the next fiscal year?

No, I think that we didn't get the traffic that we wanted, but it wasn't because we were trying to build margin. We had the same $10.95 price point that we had a year ago. I didn't talk about it earlier, but we had soup, salad and breadstick advertising at $6.95, the same as we had a year ago. So we weren't sacrificing margin for traffic. We just leaned a little bit into a longer-term business building opportunity, culinary distinctiveness, and as a result had a dish that wasn't quite as broadly appealing. It didn't get the same preference as the ravioli promotion last year. Didn't get quite the same special-visit interest. So it was more promotion effectiveness than margin. And we'll talk about 2012 in a few months.

Next question comes from Alvin Concepcion of Citi.

You mentioned the trajectory you're seeing is giving you confidence in the same-store sales guidance. And I know it's early, but are you seeing improvement at Olive Garden as well early in the quarter? Or is that trajectory being driven more by continued strong momentum at Red Lobster and LongHorn?

Well, it is early in the month in the quarter, but we're pleased with where all three brands, all three of the large brands are so far.

You mentioned increased pricing. What do you suspect the competitive response will be to that? Do you expect similar increases by competitors or perhaps less rational pricing in order to gain market share?

We have no idea. What we do expect as an industry is that we will probably have pricing that's below supermarket. We think the supermarkets will take more. Food costs are a biggest share of their sales than they are ours. We have other costs that are much higher, labor. So that's an advantage, we think, for the industry. So that's sort of the silver lining. But in terms of what our restaurant competitors do, we just don't know.

Next question comes from Jeff Omohundro of Wells Fargo Securities.

Just a question on Olive Garden, specifically an update on the thinking around remodeling some of the older RevItalia. I think you previously talked about Via Tuscany!, and particularly in light of the success you've had in your other remodel efforts, maybe you can give us an update on your current thinking on that. And then I have a follow-up as well.

Yes, remodels for Olive Garden are going to be important for those roughly 400 RevItalia restaurants that we've got. They've got a very clear strategy. They've got a Tuscan farmhouse prototype that's very distinctive, very brand appropriate, very compelling. And their remodel strategy is to take the most compelling elements from the Tuscan farmhouse and build those into what we call the RevItalia restaurants to unify their brand look and to freshen and update the feeling, the atmosphere side of the experience in an Olive Garden. They've done about 35 of those, roughly. And we haven't had them remodeled for a long time, but so far, the impact on brand perception and same-restaurant sales lift has been positive. And they're going to continue to refine that design, figure out the most impactful elements to incorporate in the RevItalia restaurants at the most appropriate capital investment. And that's going to be a big part of what they do next year.

And then as a follow-up, just a quick question on LongHorn given the momentum there. Just curious, is there anything you're seeing different across day parts? Or is it pretty consistent, this positive direction?

It's been strong at both. Probably a little stronger at dinner, but it's been strong at both.

Let me go back to the competitor question because I don't want to be too glib. I would say as we think about it, we think you certainly have the food cost pressure, but at the same time, in an environment where comps are positive, I mean, that takes a lot of the pressure off. And so we would see -- we wouldn't see an imperative for competitive pricing to be dramatic when you're talking about getting the benefit of sales leverage.

And this is Brad. I want to go back for just a second on your question about LongHorn. They're seeing that strength on a geographical basis across all their regions. And so I think to Drew's point, this speaks to the overall breadth of the improvement in the same-restaurant sales trend that we see there.

The next question comes from Jeffrey Bernstein of Barclays Capital.

One question and then a follow-up. The question is just on the cost side of things. I think the SG&A line surprised us to the upside, but on the other side, it seemed like labor favorability was pretty significant. I know you talked about getting some early wins and that trend continuing into the fourth quarter. I'm just looking back over the past few quarters. It seems like you've had an average of north of a 100 basis points in leverage the past three quarters. Should we assume that -- I know you mentioned in fiscal '12, labor optimization being another $30 million to $35 million. Is there potential for greater savings in fiscal '12 once we see some of that labor optimization? Or is perhaps that being pulled forward a little earlier so we shouldn't expect more meaningful leverage going into '12 than what we're seeing over the past few quarters? And then I have a follow-up.

On the restaurant labor first, what I would say is, we're achieving the results there maybe a little bit faster than we had originally anticipated, but I don't think that what we've learned at this point that it necessarily changes the run rate. But I would say we're pleased with the success that we have now with those initiatives. On SG&A, when I look at those -- as we mentioned earlier, the biggest portion of that was around media support and for LongHorn. When you add that in, that can be a pretty meaningful impact to that particular line item. I think it's a great decision, but it does affect that line item. As well as some of what Drew talked about with Olive Garden on the additions and changes they've made there during the quarter around digital advertising, Spanish language and some of those initiatives there as well as with the stronger performance that we've had, there is an elevated expense for incentive-related compensation. So those all converge into that line item and make it look a meaningful increase to last year on a percentage-of-sales basis.

Okay, and then just a clarification. I know, Clarence, you were just talking about pricing for the broader industry, which is obviously difficult for you to forecast what your peers are going to be doing. But just thinking about yourselves, I know you're comfortable in good times and bad times sticking with that 2% to 3% range. I'm just wondering if you can give a little bit of color obviously with traffic is still weak and as you've mentioned, volatile. The testing that you do, if you can give some color around that. Perhaps what impact do you see on traffic or whether perhaps there was an impact on traffic, but it's more than offset by the benefits you see from the pricing. Just trying to gauge that 2% to 3% in this type of environment.

Yes, in terms of testing of pricing itself.

Testing of pricing and your confidence that perhaps pushing that 2% to 3% pricing. I know some of your peers might be talking about a little less. You're talking about the supermarkets talking about a little more. But perhaps what you do and the confidence you get that traffic is not being pressured more than the benefits of taking the price.

This is Drew. Let me start the answer to that question. Our pricing strategy really seeks, over time, over the long term, to balance two things: one, we want to maintain our relative competitive position in the market and our value equation relative to key competitors; and second, balance that with maintaining our unit-level business models. And balance those two things over time. In terms of the amount that we take and the impact it has, we do test pricing before we implement it. The biggest thing that we're looking for in the short term is shifting the menu preference. So do people move away from the items that got the price increase? Do they move towards the item that got a price reduction? Broadly speaking, we typically don't see a lot of that menu shifting. We are, longer term, looking at whether we should be a little more proactive in how we structure and engineer the price points in our core menu, particularly at a Red Lobster, let's say, to address everyday affordability. So we would consciously be trying to do that in a way that actually led to guest count increases because we had increased affordability. But so far, from the things that we've advertised, the things we've put on promotional menus, the pricing that we've tested, we haven't seen significant shifting away from items we've taken pricing on.

I think it's important to reiterate one of the things that Drew said, which is so we talk about 2% to 3% as the range that we typically are in. It's important to keep in mind that, that's not across-the-board pricing. And so we're introducing a new core menu every year or maybe twice a year. And as we do that, there are new items. We feel how we price the new items has an effect on it. And there are items that we move down on the pricing side given testing and our confidence about what that'll do to mix and to traffic. And so, it gives us a fair amount of flexibility, I guess, is the way to think about it versus someone that doesn't have the number of products that we've got when you think about our entire menu.

And the other thing that gives us some flexibility is we don't typically take it all at one time. So we'll take some at the beginning of the year. We'll assess what the cost situation looks like. We'll assess what the consumer environment looks like. We'll see how guests have responded to what we've already done as we go through the year.

I think that the final piece is that there are a lot of items where the price is not fixed on the menu, so that's even more flexibility, especially on the beverage side, beverage, alcohol, and nonalcoholic beverages as well.

And next question comes from John Ivankoe of JPMorgan. John Ivankoe - JP Morgan Chase & Co: Just a couple of things, pretty short ones. First, at Olive Garden, it seems like the tone is you kind of didn't get the promotion rate in February and at least what I can find online and what looks to be a television ad, you're advertising something called soffatelli. That is a word I quite frankly have never heard before and I don't think has a lot of recognition across the U.S. without a price point. That's a very culinary-focused product. It almost seems even more extreme than the previous product that you ran in February. So, I mean, is that the right message? And is that message working in this current environment? Or is there still something that's yet to come that's going to bring Olive Garden back to more American-Italian core? And then I have just a few follow-ups.

I would say you need to think about the promotion strategy and what we're advertising at any one particular point in time in the context of an ongoing advertising campaign and an ongoing promotional strategy. So like I mentioned at the beginning, there's three basic things that we seek to do with our promotions. Compelling new dishes that drive special-visit interest. Second, periodic. Not every promotion, not every month, but periodic price points that strengthen an already superior value proposition for Olive Garden. We tend to do those in seasonally appropriate times when the guest need state is one of higher value. So, for instance, back-to-school time in September right after the holidays. And then the third thing is build long-term brand distinctiveness and brand equity because the biggest part of our business, on an ongoing basis, doesn't relate to promotions. It's having a core message and a core brand promise that's differentiated and compelling. And that's the other thing we're trying to do. So the Culinary Institute of promotion -- Culinary Institute of Tuscany promotion that we're doing now and we tend to do every year at this time leans more towards the culinary distinctiveness objective that we've got, just like it did last year at this time. And it comes after a period where we had a more overt value and price message, the promotion that we just ended.

And I would also say, John, that in the creative, we take the time to tell people exactly what it is. So when you do that, it can get pretty simplified. Like pear and Gorgonzola, when you tell them exactly what that is, which is exactly what I just told you, it's still not necessarily broadly appealing. That's part of it as well. John Ivankoe - JP Morgan Chase & Co: And if it's working, it's working. So it doesn't mean -- you can still have that type of direction in your brand without a price point. Again I think you just have to consider just February it wasn't right, it doesn't necessarily mean that you have to change something going forward into March, I suppose, at least as it relates to, like, the Culinary Institute promotions. And then secondly, it seems like there's been some allusions of pulling some cost savings forward from fiscal '12, maybe, into fiscal '11. Was that like, for example, the labor scheduling, which I think was an incremental 30 to 35 basis point positive impact, at least as we calculated guidance for fiscal '12 versus fiscal '11? And so does that therefore mean there'll be less incremental benefit in fiscal '12 versus fiscal '11?

Yes, it is the labor optimization. And it does not mean that necessarily there'll be less because if you recall, there's still an incremental benefit from that even in fiscal '13. And so it's a multiyear initiative. John Ivankoe - JP Morgan Chase & Co: Okay, so we should expect the same amount as you guided to in fiscal '12 year-over-year then, more or less?

Yes. John Ivankoe - JP Morgan Chase & Co: And then just a final thing, and I'm sorry if you've mentioned this, what was that lease cancellation charge in G&A? Could you quantify that?

It was in the couple million dollar range and it was a restaurant where we're not going to continue to lease to its full term. And so once we made that determination, we had to take that charge in the current quarter.

Next question comes from John Glass of Morgan Stanley.

This quarter, you had a promotional misfire on Olive Garden. I think last quarter, we were talking about the same thing for Red Lobster. So is there something that's changed in the way -- typically Darden has been very driven by testing and data and so these things don't happen as often. Is there something that you've changed the way you've tested products or the speed at you've -- that's created this? Or should you, I guess, better ask, should you change something so that doesn't occur in the future?

Well, for Red Lobster, at the beginning of the year, we knew that consumer need for affordability was elevated and they changed their promotions strategy for the first three or four months of this year compared to last fiscal year to add starting-at price points, which have worked well for Olive Garden, worked well for LongHorn. But given that Red Lobster has a higher check and some higher-priced individual items, a starting-at price point didn't give enough price certainty for their core guests to motivate a special visit. So we determined that, that approach, while it works for other brands in our portfolio, wasn't as effective for Red Lobster. So in October, in the middle of Endless Shrimp, basically, we changed the approach. And for Endless Shrimp, for the Surf & Turf promotion that came after that, for the Seafood Dinner promotion for Two that came after that -- three promotions in a row, that new approach has worked for Red Lobster. For Olive Garden, I think the approach is still sound. We just had a dish that, even though it tested well conceptually, didn't play out as well in the market as we had anticipated. So there is some art and there's some science to the way we test.

And I would say, John, that as we think about promotions, there always is going to be some variability around our estimate, just probably a little bit more in this environment where the consumer is particularly cautious about spending. But there's always going to be some. And so one of the advantages we have is we have three major brands that really run their business that way, and so we can get some offsets, which is what we got this quarter. And so yes, a little bit lighter at Olive Garden than we anticipated. Significantly heavier, on the plus side, at LongHorn than we anticipated. And meaningfully heavier on the Red Lobster side. All netted out to a combined number that was pretty much what we thought we'd get at up about 1%.

And the next question will come from a Mitch Speiser of Buckingham Research.

On the pricing theme, it looks like pricing across the board is running at around, call it, 1 1/2-ish percent. 2% to 3% is your long-term view and you did mention 2% to 3% should be adequate to offset your cost pressures going forward. Should we imply then that you are going to uptick pricing over the next several months? And how do you weigh that into the topics you've talked about in terms of the consumer being a little bit fragile at this point?

Mitch, I'll start the answer to that and then turn it over to Drew. I would say our pricing is probably a little bit more reflective than what you see as you look at same-restaurant sales and same-restaurant guest counts because for some time where there's some mix of the business that we have, mix within day parts of the business, so that's not always reflective of the pricing that we're taking. So the pricing is running a little bit higher than the net check average that we're most recently seeing. And that's been that way for a while, so as we develop our estimates and think of that. As we look forward...

I think the net of that is just going to be roughly the same going forward as it's been looking backward.

That's pretty much the answer there.

I'm sorry, so are you -- the pricing, you did give us specific pricing data in the press release. Are you saying it's effectively higher than that at this point? Or...

No. We're saying that, that pricing reflects day part mix. And so those mix changes, lunch versus dinner, will make that pricing look like less than our actual dinner pricing. And we're not changing our dinner pricing and we don't expect the mix to make the kind of changes going forward that it's made looking back.

And one follow-up. Can you remind us on your appetite for acquisitions and the criteria for acquisitions that you outlined at the February Analyst Day?

Yes. I would say as we think about acquisitions, we want something that is doable, has sustaining consumer appeal. Something that's got a fair amount of runway ahead of it in terms of unit expansion potential; has a strong restaurant-level business model, because that's ultimately what speaks to the durability from a financial perspective; and that has a valuation that enables us to create value for our shareholders. And so those are the most important things. Not a long list when you look at the restaurant industry. More names that would be consistent with our Specialty Restaurant Group than not and that's generally what we see out there.

We'd like to thank everybody for joining us on the call this morning. We apologize that we couldn't get to everybody in the queue. Of course, we're here in Orlando for additional questions if you didn't get your question asked this morning. We hope everybody has a great weekend and we look forward to talking with you again in June. Thank you very much.

All right. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using the AT&T executive teleconference. You may now disconnect.