Earnings Labs

Darden Restaurants, Inc. (DRI)

Q3 2015 Earnings Call· Fri, Mar 20, 2015

$196.24

-1.24%

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Transcript

Operator

Operator

Welcome, and thank you for standing by. At this time, all participants are in listen-only mode until the question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to your host, Mr. Rick Cardenas. Thank you, sir, and you may begin.

Rick Cardenas - Executive Vice President Operations - LongHorn Steakhouse, Darden Restaurants, Inc.

Management

Thank you, Marcella. Good morning, everyone. With me today is Gene Lee, Darden's CEO; and Brad Richmond, Darden's CFO. We welcome those of you joining us by telephone or the Internet. 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 earnings press release, which was distributed earlier today, and in its filings with the Securities and Exchange Commission. Today's discussion and presentations may also include certain non-GAAP measurements. A reconciliation of these measurements is in our press release. In addition, we are simultaneously broadcasting a presentation during this call. We will post this presentation under the Investors tab on our website after the conclusion of the call. We plan to release fiscal 2015 fourth quarter earnings on Tuesday, June 23, before the market opens, followed by a conference call. Following prepared remarks from Gene and Brad, we will take your questions. Now, I will turn the call over to Gene. Eugene I. Lee - Chief Executive Officer & Director: Thank you, Rick, and good morning, everyone. Before we begin, let me say I'm thrilled to have been chosen by the board to be the next CEO of Darden. The board and I've established a terrific relationship, and I'm excited to continue to work with them and the talented team members throughout this great company. This morning, I want to take time to discuss several things with you. First, I will outline the priorities that define our operating philosophy as we move forward. Second, I will provide an update on the early developments for our real estate portfolio and…

Operator

Operator

Thank you, sir. One moment for the first question. The first question is from Jeff Bernstein of Barclays.

Jeff Andrew Bernstein - Barclays Capital, Inc.

Analyst

Great. Thank you very much. Two questions. Just first from a fundamental perspective, and I guess I should start by saying, Gene, congratulations on the full-time promotion. My first question is specific to Olive Garden comps. It seems like there's some momentum building there. Needless to say, it seems like the industry is seeing some momentum as well. So I'm just wondering if you could talk about the recent improvement in trend. I think you gave us some color on this last quarter as well, but how you kind of decipher what you think is Olive Garden's specific versus what you think is kind of more macro-driven. It seems like Olive Garden perhaps is still a little bit below the broader industry, but it just seems like a very difficult task to assess how much of it is your own internal decision-making versus the kind of broader macro trend and then I had one follow-up. Eugene I. Lee - Chief Executive Officer & Director: Jeff, when I look at the quarter, I think there's a lot of positives in the Olive Garden performance. And I want to go back to what I was talking about in our prepared comments. And last year in this quarter, we over-invested in media and price pointed promotions, aggressively trying to drive traffic, and we came back this year with a much more balanced approach. And we brought our media spending back to the historical levels. We still had some price pointed promotions in the quarter, however, last year at this time, we had two in market the whole time, which drove some guests and some same-restaurant, not sales – I mean not same-restaurant sales growth, but drove guests. When I think about the quarter now, we underperformed the industry in December and January, but we outperformed the industry in February, and February is a very difficult month from a weather perspective. So I felt as though we built momentum through the quarter with this very balanced approach, where we were able to hang with the marketplace, the industry, but improve our margin structure and get it back to more of a historical norm. So when I think about the quarter, I think there are signs that we're really starting to make some improvement in Olive Garden.

Jeff Andrew Bernstein - Barclays Capital, Inc.

Analyst

Got it. And then the follow-up. I think, Brad, you did a good kind of recap of the different shareholder value initiatives. I know you're evaluating the real estate and the cost saving opportunity you gave us an update on. There was no mention of the Specialty Restaurant Group which trends seem to be doing quite well across most of the brands. I'm just wondering where we stand in terms of thoughts of spinning off those brands or whether perhaps there is a home for those brands still within the Darden portfolio? Eugene I. Lee - Chief Executive Officer & Director: Jeff, this is Gene. I'm going to take this question. As you did mention, all five of our brands in the SRG performed very well. We're very pleased with Yard House's performance, best quarter since joining Darden. Right now, our strategic focus is on two fronts. It's running our restaurants better, and second, it's the real estate. As I said last quarter, everything is still on the table. We will come back and analyze other strategic alternatives that are available to us but right now, we're focused on those two initiatives. And I also talked in the call about our Darden philosophy and how do we get back to using scale to be a competitive advantage and allow all our brands to have a advantage in the marketplace because they're part of Darden. And I think that's key to driving long-term shareholder value.

Jeff Andrew Bernstein - Barclays Capital, Inc.

Analyst

Understood. Thanks very much.

Operator

Operator

Thank you. We'll move on to Brian Bittner of Oppenheimer. Michael A. Tamas - Oppenheimer & Co., Inc. (Broker): Great, thanks. This is Mike Tamas on for Brian. As you've been doing your real estate analysis, what have you uncovered about a refranchising opportunity at Olive Garden? Specifically, if you're looking at Olive Garden's owned real estate, can that be accretive to earnings if there was a refranchising of that? Thank you. Eugene I. Lee - Chief Executive Officer & Director: At this point, we have done no work at all at looking at refranchising. I don't want to go back and keep reiterating the same point, but we're focused on the real estate – creating value from our real estate asset to this point in time. Once we understand and move forward with that plan, we'll come back and revisit the other strategic alternatives that are available to us. Michael A. Tamas - Oppenheimer & Co., Inc. (Broker): Okay, great. Thank you.

Operator

Operator

Matt DiFrisco of Guggenheim Securities, your line is open.

Matt J. DiFrisco - Guggenheim Partners

Analyst

Thank you. Actually, I had a question similar to that as far as the first question by Jeff with respect to the Specialty brand. I'm just curious, advertising-wise, are any of those brands changed in your opinion as far as should we still look at them as a Specialties division independent from Olive Garden and LongHorn as far as not needing advertising support? I think previously it was always sort of the line drawn was the national brands that were casual dining that needed advertising versus the big box brands. In your opinion, as now the longer term, permanent CEO, any of those have the potential maybe to migrate over and be an approachable casual dining national brand more so than a big box guy that only has maybe the potential to do 200 restaurants or so? Specifically, I would think either Yard House or Seasons 52, or are we going to continue to see them in their current brand positioning and size of the format? Eugene I. Lee - Chief Executive Officer & Director: Matt, I think for the foreseeable future, we're going to see them as big box, high-volume restaurant operators. I think Yard House has a lot of runway when you look at our current footprint. Longer term, there could be an opportunity to use a smaller box to deliver that brand, similar to what I would call their most liked competitor out there that's working on that today. But I like these businesses because the P&L has less than 1% marketing expense in them, which allows us to really work the value equation from a different angle. And that's really around the food offering and the service we provide; and, to some extent, the atmosphere we create in these bigger boxes. And so, I see them as higher volume executions with the real value in the experience that we deliver in the restaurants, and using a little bit of marketing, but it's more of that CRM one-to-one type marketing versus a national advertising type campaign.

Matt J. DiFrisco - Guggenheim Partners

Analyst

Okay. And then just a follow-up question. You keep bringing us back to focus on the real estate. I'm curious can you give us more color on that as far as what we should expect over the next coming calls? As far as is this going to be updates on how you're approaching it now with 15 sale-leasebacks moving to 30 sale-leasebacks, or are we looking for one significant transaction which was discussed in prior quarters from various investor groups as far as something as a REIT structure and other formats, or are those things off the table and we're looking more so as far as monetization of a store-by-store basis or market-by-market basis? Eugene I. Lee - Chief Executive Officer & Director: No, Matt. Everything is still on the table at this point in time. We're using these 31 properties that we've put out here really to inform our strategy going forward. What we do think is that this is going to be – there'll be multiple executions to maximize the value of the real estate. And so, we're not locked into one significant transaction, but we may end up doing one significant transaction. We are doing a very comprehensive review. We have great advisers that are helping us; and we're still evaluating our options very, very carefully. However, we're incredibly encouraged by the reaction in the marketplace for our properties. A well below 6% cap rate is pretty exciting.

Matt J. DiFrisco - Guggenheim Partners

Analyst

Great. Thank you. Eugene I. Lee - Chief Executive Officer & Director: And we're doing that with market rents and favorable lease terms for OpCo.

Operator

Operator

The next question is from Sara Senatore of Bernstein. Your line is open. Sara H. Senatore - Sanford C. Bernstein & Co. LLC: Thank you. I have two follow-ups, if I may. The first is on the real estate. In the past, I know – I recognize a lot has changed, but the view was that based on what your advisors had or investment banking advisors had suggested was that a real estate transaction may not be the most value creative in the sense that it was looked at as sort of a more expensive way to add leverage. And I guess my question is why is the analysis different now? Is it just because the cap rates are so much lower than what you had expected or what these advisors had suggested might be the case? And I guess, when I look at cap rates of 6% or even below 6%, it kind of looks similar to what kind of interest rates your debt's (30:24) carrying. So I'm just trying to figure out why the real estate makes so much more sense now than maybe it did before? So that's the first question. The second question is just a little bit diving into the marketing spend. I think Brad said 100 basis points tailwind. In dollar terms, is that down around 20%? Is that right? How would we think about it going forward? Thank you. Eugene I. Lee - Chief Executive Officer & Director: Sara, I'll take the real estate question and Brad's looking up the answer for the marketing spend. What's different is that we're just taking a fresh look at this and a comprehensive look with a new set of advisors and looking at the marketplace and seeing what's available to us. We're encouraged at this point…

Operator

Operator

John Glass of Morgan Stanley, your line is open. John Glass - Morgan Stanley & Co. LLC: Okay, thanks, good morning. I wanted to go back to the cost cuts. And Gene and Brad, you talked about $90 million to $100 million. That is less, though, than half of what your Chairman had originally proposed was probably available to the company. So, is that just the starting point, but you still think $200 million-plus is available to you? Is this more just a – more sober assessment now that you've had a chance to – cooler heads have prevailed and you've really looked at the business? How do you frame that versus what was proposed before? Eugene I. Lee - Chief Executive Officer & Director: John, I would say that we're pleased with the progress we've made to identify these cost saves at $90 million to $100 million, but we're just starting. We think the next level of cost reductions are going to be more entailed around process improvement and changing the way we approach a lot of our work. We haven't really gone back and focused on trying to match up what was said by Starboard, and what we're doing today. We've just taken a fresh look at the business, and we're trying to get costs out. There's been an intense focus on areas that are non-consumer-facing, and that's what – that's where our focus has been through the last nine months is, how do we take costs out that will not affect the overall experience for the guest. And that's what I'm most pleased with, is that this $100 million is coming out of our business, and the guest will not feel any of it. And so once we – we will continue to look for additional cost…

Operator

Operator

David Tarantino of Robert W. Baird, you may ask your question. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi, good morning. Gene, I wanted to come back to the strategy on Olive Garden, with respect to pulling back on the marketing, I know this has been covered in several questions. But I'm just curious to know your thoughts on the overall traffic decline that you saw in the quarter, and how much of that do you think was related to the decision to pull back on marketing? And is that going to be a theme as you move through the next several quarters, negative same-store traffic, or are you hoping to sort of turn the tide on traffic trends in the coming quarters and get back into positive territory? Eugene I. Lee - Chief Executive Officer & Director: Dave, I think there's going to be pressure on traffic for the next six months, as we were aggressively trying to grow traffic last year, and doing it in a way that wasn't good for the overall business. I'm pleased with the trend against the industry throughout the quarter, we're basically on the industry for traffic standpoint in February. The other thing, when you look at our traffic numbers, is you have to remember all this large party takeout food that we're selling, it's 60 basis points effect on the traffic number, because we're not counting those as entrees at all, so it's not in our traffic number and I expect that to continue to grow. I mean that's a part of the business we're putting a lot of pressure on but we're not giving ourselves any guest counts for that. And the reasons for that is it really would – the way we do our labor planning…

Operator

Operator

Thank you. Will Slabaugh of Stephens, you may ask your question.

Will Slabaugh - Stephens, Inc.

Analyst

Yeah, thanks, guys. Just a couple quick follow-ups. On the first one, could you quantify what you think the estimate for the weather impact was in January and February? C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Yeah, for the entire quarter for our large brands, it's approximately 100 basis points. And on a month by month basis, December was impacted by about 210 basis points, January was adversely impacted by 110 basis points. In February, it actually reversed on a year-over-year basis, and there was 30 basis points hurting us this year. So, just to repeat that, we were benefited by 210 basis points in December, 110 basis points in January but adversely affected by 30 points in February and the total adds up to about 100 basis points.

Will Slabaugh - Stephens, Inc.

Analyst

Got it. Thank you for that detail. One more quick follow-up, Gene, to a question – or to a comment, rather, you made a minute ago. It sounds like you believe we're actually seeing an inflection in the health of the consumer here. Do you think that's the case? And is that going to change more materially how you market to them going forward? And do you think that's really going to be an inflection in profitability at your brand here? Eugene I. Lee - Chief Executive Officer & Director: Yeah, that's the point I was trying to make is that we are seeing a little bit healthier of a consumer. We're not seeing a direct impact on traffic, as you think back to discretionary income increasing, but we are seeing for the first time through Crest Data, through our own data, the guest is buying less on deal, and that's allowing us to grow our check average, and improve our overall profitability. We've been in this space for a long time. We've been trying to create value through deals for consumers to entice them to come see us and dine with us. I'm encouraged by what I'm seeing through what the consumer is purchasing on their visit. Some of it is that we're doing a better job giving them what they want through Bold Bites in LongHorn, some of the to-go activity in Olive Garden, we're doing a better job in Olive Garden with our wine tasting program. So I think it's a combination of better execution from our operational teams, but also the consumer today seems to be under a little less pressure and is willing to pay a little bit more for their product. And we're seeing it with our price pointed promotions. Our preference is down on our price pointed promotions compared to where they were even a year ago or two years ago. So people are buying less on deal.

Will Slabaugh - Stephens, Inc.

Analyst

Great. Thank you.

Operator

Operator

Thank you. Joseph Buckley, Bank of America, your line is open, sir.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

Thank you. I had a couple of clarification questions. Brad, I think when you were discussing SG&A, I think you were saying it was actually down 20 basis points year-over-year if you exclude adjustments, and I just wanted to verify that and find out what adjustments were in SG&A. C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Yeah. The G&A portion only was what I was talking about, that's 20 points better, and 100 basis points for the marketing, so that's what you should see on the slides. And I think -- and you asked what were the adjustments. Let me go to the press release there. They were around – for the quarter, we had some strategic action costs principally related to the real estate assistance that we're having there, and also as a part of our real estate move, we had some excess land that we impaired the value of those. And you can see those detailed further in the press release.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

So some of the real estate – I think the impairment is a separate line, if I'm not mistaken, right? C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Yeah.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

So if you still want to say, expiration work, some of that's in the G&A? C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Yes. And that was approximately $0.01 for the quarter.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

Okay. Okay. Just on the tax rate. You gave us tax rates for continuing operations of what you're expecting. Could you remind us why it's so low and what happens next year or the next couple of years on that tax rate? And are your existing REITs a big part of that lower tax rate? C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Well, first off, to this year and the tax rate that we expect, and we have been detailing those both on a GAAP reported basis and on a performance adjusted basis. And on the performance piece, I think, is really where you're going that we're looking at 16%. That is a little bit lower than where we see the tax rate. So at more normalized EBT levels, that's probably in the 20% to 25% range is where we would see. And I know over the years we've tried to communicate the advantages that our business model has, being all company-owned; and our scale gives us a lot of opportunities for tax planning, programs that we can implement, systems that we can build to make sure we capture those credits that makes it easier, non-intrusive to the operators. And so, things around food donation, things about employment credits. That being an all company-owned model, those all accrue to us. So when I do our work here doing long-term planning, I'm putting that, depending on the EBIT level, between a 20% and 25% effective tax rate.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

Okay. And then just one more, if I could, for Gene. And, Gene, congratulations on getting the CEO position with the interim removed. You mentioned scale a couple of times in answers to different questions. Is that coloring the thinking around Specialty Restaurants? I mean that was always kind of the pro and con argument, was how much the profitability of the Specialty Restaurants was sort of feeding off the Darden G&A. So is doing something with the Specialty Restaurants less likely as maybe the new board understands the scale benefits? Eugene I. Lee - Chief Executive Officer & Director: No. I think, again, everything is still on the table and will be carefully evaluated. As we continue to move forward, we're going to have to look at the scale advantage that these restaurants in the Specialty brands do get from Darden. We have to look at the synergies that are created. We also have to look at the growth that the Specialty brands create for the overall Darden business. But, as I said, we are going to focus our strategic energies around capturing the value that's available to us in the real estate. And we will come back and fully analyze what is best for our shareholders, as it relates to what the brand portfolio mix is going forward.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Analyst

Okay. Thank you.

Operator

Operator

Thank you. Jason West of Credit Suisse, you may ask your question. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah, thanks. I was wondering if you guys would be willing to share the proceeds that you got from the sale-leaseback that you did. And were those units, the 16 properties and then the other 15 properties, were those all fully-owned properties where you own the land or was there a mix of land lease – yeah, land lease and building owned (51:17) properties? Eugene I. Lee - Chief Executive Officer & Director: Those were all fully-owned properties, and we have not received any proceeds. We've got these under contract, but we have not closed on any of them yet. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay, and would you expect any significant tax payments as part of these types of deals, or would they be pretty tax-free? Eugene I. Lee - Chief Executive Officer & Director: No. These deals were all done in a very tax efficient way. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay, great. And then just on the outlook on cash flow, you guys are sitting on a lot of cash on the balance sheet. Can you talk a little bit about what the plan is there, what the long-term run rate you need on the cash balance? And then, any early color on CapEx for next year would be really helpful. I know you're evaluating some Olive Garden remodels. I'm guessing that unit growth will be similar, if you could talk about that, would be helpful. C. Bradford Richmond - Chief Financial Officer & Senior Vice President: This is Brad. And what I would say is we think it's very important to get all this right. And so,…

Operator

Operator

Howard Penney, Hedgeye Risk Management. You may ask your question.

Howard W. Penney - Hedgeye Risk Management LLC

Analyst

Thanks very much for taking my question. First, I just want to say it's a breath of fresh air to hear this company being managed very differently than it's been managed in the past, and a year makes a big difference. You were just actually asked about unit growth, and I was wondering if you could comment on unit growth; and was wondering if, I think, it was – 34 would be – is that right – 34 would be the high watermark for your tenure, Gene, in terms of unit growth, or whether you think you'll accelerate that or decelerate that? I'm just kind of curious in terms of your capital allocation. One of the things that I think was done in the past inappropriately was an aggressive – or unit openings were too high. And then, secondly, just on the shareholder value creation piece and the real estate. Two questions; one, if we look to the Starboard presentation as to what the value of the Olive Garden real estate, is that a good proxy for that? And then, secondly, I think you've been asked a couple times about effectively whether selling $500 million of real estate would be accretive or dilutive to earnings, and the math sort of suggests that it's dilutive, which actually is okay if it is dilutive because it's a part of a broader strategy to create shareholder value. So maybe if you could just confirm that? And then, lastly, when you speak again in terms of the next fiscal year, will you provide longer term targets for where you think this organization, this enterprise, can grow sales and earnings, and maybe where the margins can get to? Thanks very much. Eugene I. Lee - Chief Executive Officer & Director: All right. Good questions, Howard.…

Howard W. Penney - Hedgeye Risk Management LLC

Analyst

Okay. Thank you. I was going to – that's fine. Thanks very much.

Operator

Operator

Keith Siegner of UBS, your line is open.

Keith R. Siegner - UBS Securities LLC

Analyst

Thanks. Just one quick one for me. There's been a lot of talk about maintaining the investment grade credit rating, and I just wanted to follow up a little bit on why so much attention here. We've got pretty low absolute levels of debt compared to a lot of other restaurants in this industry, got strong top line momentum, you've got significant cost saves plan, cash flow from ops should be improving improved nicely. I'm curious as to why the cash or maybe even some of the proceeds from sale-leasebacks would get put into debt. Won't you maintain or even improve your credit ratings just from that core improvement in the business? Help me understand why so much attention on the investment grade credit rating. C. Bradford Richmond - Chief Financial Officer & Senior Vice President: Yeah. Keith, Brad here. You're bringing in all the things that we're thinking about. We have a few others, but we do believe – I believe for some time and continue to believe, even with the extensive discussion about Darden and where we want to be and the things we think we can accomplish, that an investment grade credit profile, as we look at it today, is one of those key elements. To your point, improving base business helps the credit profile a lot, and so we continue to look at that. As we talk about the work we're doing in the real estate process, we want to make sure that as we do that, that it's consistent with that goal that we have. And so the real estate actions that we're talking about are not just for the credit profile. It's one of the requirements that we have on ourself, but we want to, as a part of that, ensure that our credit profile is moving in the direction that we think it should be. We have seen over time that the advantages that come with that, the access to capital at lower cost, is a competitive advantage for us, and we want to retain that with where we see ourself today.

Keith R. Siegner - UBS Securities LLC

Analyst

Thank you.

Operator

Operator

Question is from David Palmer of RBC.

David S. Palmer - RBC Capital Markets LLC

Analyst

Thanks. Congrats, Gene. Wanted to revisit Olive Garden. Aside from the economic factors, are there trends that are perhaps less obvious to us that are – and of course we're looking at traffic numbers – that speak to the brand health at Olive Garden, which presumably is making you more bullish as you look forward? Eugene I. Lee - Chief Executive Officer & Director: Thanks, David. A couple things that aren't visible. We think that one of the biggest moves that we've made to improve the operations at Olive Garden is to align our organizational structure with less layers. We are communicating, Dave and his team are much closer to the front line today. Communication has improved dramatically. We are seeing instantaneous movement in the focus areas of the operations teams. And that, to me, is one positive sign. The fact that we have this $9.99 price point on the menu every day, that defines everyday value, that was missing in Olive Garden. And we're seeing a clientele develop in that menu category that we actually weren't anticipating. And the customization of that product is something that the Millennials are really attracted to, and so we think that's a platform that we can continue to beef up. To-go is an exciting piece of the business, and I'm really excited about to-go, and we have got a product and a platform in Olive Garden that is meeting a huge need for the consumer, which is convenience. We've gone from this approach where we're trying to drive people into our restaurants and people today are less likely to, over time, want to come every single day to the restaurant, but they want to use your product. And we've been able to meet the consumer with this to-go program where the consumer wants to be met. And we originally thought this was, we could move takeout from 8% of sales to maybe 12% of sales. We're starting to think that this is a huge opportunity. And 20% of our sales could come from takeout in the future in Olive Garden. And the satisfaction level of the consumer that's using this product is really, really, really high. We are over delivering on takeout, and some of that is just that our product travels so well. But the last thing that I'd bring you back to is that Olive Garden will serve more guests this year than we've ever served in the history of the brand. And So some of that is coming from our new restaurant development over the years, but we continue to gain market share in all of casual dining and for me, that tells me the relevance of this brand. And the last thing I would leave you with on Olive Garden is, we are over-indexing with Millennials, and Millennials are really attracted to this brand, and we need to find ways to allow them to use the Olive Garden brand the way they see fit.

David S. Palmer - RBC Capital Markets LLC

Analyst

Thank you.

Operator

Operator

Priya Ohri-Gupta, your line is open.

Priya Joy Ohri-Gupta - Barclays Capital, Inc.

Analyst

Great, thank you. First off, congratulations, Gene, and thank you so much for all the comments on supporting the IG rating. Brad, I was hoping that we could dig in just a little bit into your comment around using some of the proceeds from your real estate transactions to pay down debt. It looks like your balance sheet doesn't show much in the way of short-term borrowing, so you would likely need to have to go after some of your long-term debt. Is that a fair assessment? And should we expect that sort of over the next quarter or two quarters? Thanks. C. Bradford Richmond - Chief Financial Officer & Senior Vice President: I think – when I look at the real estate and where we are in the process, it's hard to be definitive as to exactly what's going to come out of that. And so I'm trying to be cautious to talk about the investment-grade credit profile, which is high on our list of things that we want to accomplish. And we haven't really talked about the size of what the real estate deal will be. We'll do it to the point where it makes sense, and there's different forms that it could take. And so as we have more clarity with that information, I can probably answer your question a lot better other than knowing the priorities that we have in terms of increasing value to our shareholders and improving our credit metrics, as we do all this work, those are two of our guiding principles.

Priya Joy Ohri-Gupta - Barclays Capital, Inc.

Analyst

Fair enough. Thank you.

Operator

Operator

Paul Westra of Stifel, you may ask your question. Paul L. Westra - Stifel, Nicolaus & Co., Inc.: Great. Thanks and good morning. Just a follow-up question on your menu pricing strategy going forward and how that might compare to your best guess of the commodity basket and labor inflation as you look out next fiscal year. And specifically, I was wondering if you could give some guidance again on whether we should be expecting about a 2% or so menu pricing going forward, how you maybe arrived at that, which does appear to be below the industry's number which is closer to 3%. Eugene I. Lee - Chief Executive Officer & Director: Morning, Paul. We're planning on trying to price Olive Garden slightly below the industry and to continue to grow our value leadership position. We'll give more guidance or more expectations in our June call on what the commodity basket will look like next year. However, I will say for Olive Garden, we will obviously have less pressure in dairy, which had a big impact on the P&L throughout the majority of the year, but our expectation for next year and into the future is to price Olive Garden slightly below the industry in order to regain and continue to be the value leader in casual dining. Paul L. Westra - Stifel, Nicolaus & Co., Inc.: And it sounds like you are doing less discounting year-over-year. As you do the calculation, would that year-over-year less discounting, would that be captured completely in menu-mix number or on the pricing that you just bought? Eugene I. Lee - Chief Executive Officer & Director: Yes. When you look at our press release, we break that out. So you look at February, for example, we had 1.8% in pricing, and 2.8% in menu-mix, with 0.6% of that menu mix just being attributed to the bulk takeout orders that we're selling. Paul L. Westra - Stifel, Nicolaus & Co., Inc.: Right. But philosophically, would – maybe end the question with, would you expect your ability to price and compare that to your underlying, I guess, food and labor, I mean, we shouldn't expect a big deviation between those two numbers? Eugene I. Lee - Chief Executive Officer & Director: No, I think there's going to be balance. I think we're going to continue to look at what we can do from a cost save standpoint, what we can do from an efficiency standpoint. Long term, when Olive Garden is at its best, it is the clear-cut value leader in all of casual dining. We lost that position over time over the last few years as we took more price than we should have been taking. And now, we are very conscious of maintaining that value leadership, and we will continue to look for other ways, other than just pricing, to offset inflation. Paul L. Westra - Stifel, Nicolaus & Co., Inc.: Fair enough. Thank you.

Operator

Operator

Thank you, sir. Steve Anderson, Miller Tabak, your line is open. Stephen Anderson - Miller Tabak + Co. LLC: Yes, thank you. As we look at your takeout strategy, and by the way, it's very impressive given the strength of the 20% (01:10:26) plus gain there. But, are you concerned about the margins? Particularly given that the takeout sales traditionally have delivered lower margins, so that you don't really see the beverage or alcohol sales. What are your thoughts on that? Do you think it's more important that you get the actual absolute value on the top line gain? Eugene I. Lee - Chief Executive Officer & Director: When I look at the margins on the takeout business, especially as we move people to the bulk ordering, the margins are actually better. Because when you're doing bulk ordering, you're having less packaging. It's actually much easier to prepare, if we're just selling you a big sheet of lasagna and a big bowl of salad. And so we think the margins on that part of the business are better. As we start to work more towards catering, we think we will have good margins in that. The check average on the online ordering is up 30%, vis-à-vis someone calling over the telephone or ordering in line. So we believe that our margins are protected at this point on to-go. They're not enhanced, obviously, because you lose the alcoholic beverage, so on and so forth. But we do have teams working on, how do we create a more comprehensive to-go experience. And can we – are we able to sell some beverages along with that experience, how else can we enhance that to ensure that we maybe actually increase. This is a different guest occasion, and we've got a team that's working on it and thinking about it differently than how we run our in store operations. This is a huge opportunity. It is a need state that the consumer needs to be filled, and Olive Garden is meeting the consumer where they want to be. And we can do that because of the product that we serve Stephen Anderson - Miller Tabak + Co. LLC: Thank you.

Operator

Operator

And at this time, we have no one else in the queue. Eugene I. Lee - Chief Executive Officer & Director: Okay, so thank you all for your attention and great questions. I want to remind you that we expect to release our fourth quarter results on Tuesday, June 23, before the market opens, followed by a conference call. We look forward to speaking with all of you again, and have a great weekend.

Operator

Operator

This will conclude today's conference call. Thank you for your participation. All parties may disconnect at this time.