At this time, all participants are in listen-only mode until the question-and-answer session. [Operator Instructions]. Today's conference is being recorded. If there are any objections, you may disconnect at this time. I'd now like to introduce your host for today's conference, Kevin Kalicak. Thank you. You may begin.

Thank you, Dori and good morning and welcome everyone. With me today is Gene Lee, Darden's CEO; and Jeff Davis, CFO, and Bill White, Treasurer. 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 the risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed earlier today and in its filings with the Securities and Exchange Commission. Today's discussion and presentation may also include certain non-GAAP measurements. A reconciliation of these measurements is in our earnings release. In addition, we are simultaneously broadcasting a presentation during this call. This presentation will be posted under the Investors tab on our Web site at the conclusion of the call. We plan to release fiscal 2016 second quarter earnings on Friday, December 18 before the market opens, followed by a conference call. This morning, following prepared remarks from Gene and Jeff, we will take your questions. Now, I will turn the call over to Gene.

Thank you, Kevin, and good morning everyone. We are pleased with the progress we made during the first quarter, as we significantly outperformed the industry in terms of same restaurant sales and traffic. Total sales grew 5.7% for the quarter, which was driven by strong same restaurant sales growth at 3.4% and positive same restaurant sales at each of our brands, plus the addition of 30 net new restaurants. Earnings per share, on an adjusted basis, increased approximately 113% to $0.68 and first quarter adjusted EBIT margins once again show strong improvement. Olive Garden continues to build on a positive business momentum generated in fiscal 2015, with its fourth consecutive quarter of same restaurant sales growth. During the quarter, guest counts turned positive and outperformed the industry by more than 200 basis points. As we discussed previously, a key element of Olive Garden's culinary strategy is to create menu items that leverage core brand equities. During the quarter, we saw two examples of this strategy. First, the Create Your Own Tour of Italy promotion inspired by one of our most popular core menu items, allowed guests to create their own entrée by choosing from many of their favorite dishes. Additionally, this full price and customized offer, which started in July, outperformed the deep discounted promotion during the same period last year. Second, we introduced the Create Your Own Lunch combination menu platform, which features the choice of unlimited soup or salad, plus the choice of either a mini pasta bowl, a flat bread, or one of our highly anticipated and extremely well received breadstick sandwiches. This platform's strength in Olive Garden's competitive advantage by adding more variety and giving guests the ability to customize their order for great value. The new lunch menu was supported by a successful integrated marketing…

Thank you, Gene, and good morning everyone. I am excited to be a part of this outstanding organization. I look forward to the opportunity to work with many of you in the future. As Gene mentioned, we reported strong same restaurant sales of 3.4%, and as you saw on the release, there was monthly variability and sales performance. We report same restaurant sales on a fiscal calendar basis, and due to our 53rd week last year, its not on a comparable calendar basis. In addition to normal holiday shifts, this may create month-to-month variability in our reported results. However, during the first quarter, the monthly variability was completely offset by quarter end, and as a reminder, the upcoming thanksgiving holiday will be reported in our fiscal second quarter versus fiscal third quarter last year. Reviewing our earnings performance this quarter, adjusted EPS from continuing operations, more than doubled as adjusted EBIT margins expanded 330 basis points versus the prior year. This was partially driven by leveraging positive same restaurant sales. Other significant drivers on margin expansion were 170 basis points improvement in food and beverage expense, and 100 basis point improvement in restaurant expense. More specifically, we had significant year-over-year favorability in dairy costs at Olive Garden. We had six fewer weeks of deep discounted promotions at Olive Garden versus last year. We continued progress towards previously disclosed cost reduction initiatives. A 30 basis point improvement in workers compensation and public liability expense related to historical claims, and more efficient restaurant support, resulting in 30 basis point improvement in G&A versus last year. Moving below operating income, interest expense was considerably lower this year, as we lapped the $1 billion extinguishment of debt last year. Our effective tax rate was 130 basis points higher than last year. We expect the…

Thank you, Jeff. I want to close by reiterating that our intense focus on improving our food, service and our atmosphere continues to drive our positive business momentum, enabling us to capture market share, as our guest reward us by choosing our brands more frequently. We are excited about our progress, but we know we have a lot of work to do. Our restaurant teams and our support center staff at our restaurant support center are focused on the right priorities and the progress we are making is a direct result of their hardwork and commitment to creating memorable guest experiences. So thank you to our 150,000 team members who bring our business to life everyday, and now we will take your questions.

Thank you. [Operator Instructions]. Our first question comes from Joseph Buckley with Bank of America. Your line is open.

On the monthly data, it looked like the check increase moderated both at Olive Garden and LongHorn. Is it coincidental that happened to both brands, or is there some effort to make that happen?

Joe, it's Gene. I think its more coincidental and I think it has more to do with our fiscal calendar not matching up to what I would call, the operating calendar. As we ship, we have got some -- there is some noise in the data.

Okay. And then, secondly, what are the kind of key hurdles or milestones to getting the REIT spinoff done. These reports about the IRS being [indiscernible] to pre-approve transactions? I don't know if that is significant or not, in the scheme of things. Could you talk about that?

Yeah Joe, its Bill White. What we would tell you, is that the latest public statements that the Services made really -- they have talked about a no real position applying to PLR requests filed on or after September 14th. And so that really, in our minds, does not impact our plans. We are working towards spending the entity by the end of the calendar year.

Okay. Maybe one last one, just on the rent expense line, we realized some nice improvement. Can you talk about the cost buckets in that line with the savings and the efficiencies are being realized?

Joe, do you mean restaurant expenses?

Yeah. Did I not say that, that's what I meant to say?

Restaurant expenses, well first of all, we are getting some leverage from our sales growth. As Jeff mentioned in his comments, we had some favorability and historical claims on workers comp. We are also continuing to manage the non-consumer facing costs very aggressively and we continue through the work of PCG to bid a lot of work, and we are using our scale, as we talked about in the past, to bring down these costs. One of the big areas Joe is contract services.

Okay. That's helpful. Thank you.

Our next question comes from Matt DiFrisco with Guggenheim.

Thank you. Can you just talk a little bit more I guess, on the August comp trend and what just sort of -- give I guess, investors a little comfort, that you don't seem too concerned about the volatility within the quarter. You mentioned something about some moving around weeks. I am just curious if you could sort of tell us what might be driving sort of that perception of slowdown on the -- both traffic and the overall comp at a [indiscernible] brands? And then also, just curious I guess -- just as a follow-up to Joe's question, has there been a change in your view then with the IRS or no, there has not been a change since you began to reprocess and there is nothing -- you don't think you will meet resistance is what we should read through? Thanks.

Yeah. Matt, as far as August goes -- again, this goes back to our fiscal calendar versus, what I would call the operating calendar comparison. The last week of August was a really bad fiscal comparison, which hurt the overall month, and as we look at it, we don't see a deceleration as we look at, what we would call, comparable comps, or true comps is what Malcolm refers to them. So we believe that the business is -- on an operating basis, didn't have as much variability as it shows -- as we report through the fiscal calendar. As far as the question on the REIT, we are really confident that our proposed transaction will satisfy all the requirements of applicable law, and we plan on moving forward and having this deal done by the end of the calendar year.

Okay. I guess, just to read through for layman's terms; the later timing of Labor Day, I guess, is that something to say, might have caused the imbalance on fiscal versus actual -- of how you look at it on business quarters? And so, what might have been lost in August? You are feeling good enough that that's evenly balanced and what might have been hurting August, just like July and June, some shift [ph] maybe we are going to see a lift in September?

Well I am not going to comment on the sales in September at this point in time. But it was the combination of the Labor Day pushback. You have heard some retailers talk about that, and also comparing, the fiscal calendar back. We are actually comparing it against the last week of our fiscal calendar, was comparing against a week that wasn't really in the center of August last year, and not towards the end of August. So those combinations really created for a tough fiscal comparison in the last week of August.

Very helpful. Thank you.

Our next question comes from Will Slabaugh with Stephens Inc.

Thanks guys. I had a question around the Olive Garden comps, and you mentioned, one of the reasons that both of the margins in the comps improved, saw some really good uptick on the promotions and then, a little bit less of a deep discounting. So wanted to center around the deep discounting comment that you made. Can you put any numbers around, what the discounting looks like last year, and what that looks like now, and sort of what you want the discounting piece of the business to look like going forward?

Yeah, good question. Last year, in July, we ran three course, which is heavily discounted promotion, it was at $12.99. This year, our promotion was Build Your Own Tour, starting at $12.99 with add ons, so it had more of an effective price range in the $15 to $16 price point. And so that worked really -- really helped us, as far as our overall cost management, it helped our labor costs, it helped our costs, so on and so forth. We are going to -- and we look out into the future. We are going to continue to look for ways to modify the promotional calendar. At the end of August and right now, we are running buy one take one against buy one take one. We are going to run never ending pasta bowl against never ending pasta bowl. So there are times of the year, we think we still have to have a strong value message out there. But as I have mentioned in the past, the three course and the two for 25 constructs are nowhere near as effective as they were, 24, 36 months ago, and we are tying to move away from those constructs from a promotional standpoint.

That's helpful. And just a quick follow-up if I could, on the food cost basket. So 50 basis points, it looks like there was an improvement year-over-year. Wondering, how much of that was directly attributable to better commodities versus simply food waste [ph] or more efficiency, and what are your updates also on sort of food costs and beef in particular, given the spike that you said you saw at LongHorn this quarter?

Yeah. For Olive Garden, half of our commodity favorability was dairy and shrimp. The other half was, primarily, menu mix, and we saw some improved waste which we can tie back to the simplification efforts that management has been working on for the last couple of years. Olive Garden, actually in the quarter had its best waste ever in the history of the brand, since we have been tracking. So very pleased with the operational improvements on the cost of sales side. On beef, as I have said in the past, beef year-over-year comparisons have a lot to do with when you contracted last year. We believe that we are going to start to have some positive advantages in LongHorn, as the beef market starts to weak, and especially, we expect to see some significant improvement in the back half of the year. But as we move into 2017, we think that the beef market is going to be a much better market for us.

Okay. Thank you.

Next question comes from Brian Bittner with Oppenheimer and Company.

Hi, great. Thanks. This is Mike Tamas on for Brian. So you have had a couple of quarters of easy comparisons at Olive Garden. Now we are going to be facing much tougher comparison. So can you maybe walk us through how you are thinking about the comps, and specifically traffic at Olive Garden, as you roll over tougher comparisons? Thank you.

Yeah. I think the way we are thinking about it right now, is, how we are performing against the industry. We made great progress in the first quarter, as we -- our guest counts exceed the industry by 200 basis points. But I would caution everyone to say, that the industry did weaken from fourth quarter to first quarter. The industry was 100 basis points -- lost 100 basis points in momentum. So as we look out, I think there is two things that we are considering, what's the strength of the industry, and then what's the strength of the Olive Garden brand. And I believe, that we have strong momentum in Olive Garden right now. I think that we are executing at a very high level. I believe that the consumer is more aware of Olive Garden today than it was a year ago. I think we have done some pretty interesting marketing campaigns, and as we have looked out, we think that although the comparisons are a little bit more difficult -- they are a little bit more difficult on the sales side. We still had some weak guest counts in the back half of last year. So I think that we will continue to outperform the industry, as we move forward.

Great, thanks. And just one quick follow-up, you have talked about paying down debt obviously, and the dividend for your [ph] two combined companies. But any thoughts on maybe doing a share buyback? I mean, by our math, it seems like you will have plenty of capacity left over, either do a dividend raise at pro forma Darden, or doing some buybacks. So any thoughts there please?

We will look at the capital structure after we complete the deal, if we complete the spin-out.

Okay. Thank you.

Our next question comes from Brett Levy with Deutsche Bank.

Good morning gentlemen. If we could spend a little bit of time talking at the Labor situation. Obviously, strong improvements across all the other line items. But can you give a little bit of your thoughts on wage, retention, turnover, and what kind of productivity you are making at the unit level?

We continue to make strong productivity improvements in the direct labor line. I think our overall direct labor performance was really strong in the first quarter. I think, the increases we saw were indirect labor. As last year, we weren't accruing a lot of bonus payouts, because the performance was weak. We had good performance in the first quarter, so the majority of the labor -- there was an increase. I believe, labor was actually slightly less than last year. But it was mostly in the indirect line, as we accrued bonuses for management. Wage pressure continues to be a problem. We will continue to monitor it, as we monitor the different states and the different cities and what they are doing with minimum wage. The job market is improving. We are seeing in certain markets today, becoming a little bit more difficult to hire help. So that will eventually put some pressure on our average wage. But right now, I believe that we are managing this very-very effectively.

Would you be able to give us any sense as to what your wage rate inflation is? Are you seeing any increases in turnover, something you quantify? And also, can you give us little bit more details on where you stand on your commodity basket, not just for the next quarter, but for the full fiscal year?

Sure. I will comment quickly on the wage rate. Wage rate is somewhere between 1% and 2%, and I think that's -- as we -- especially in Olive Garden, as we continue to simplify the operation, we are able to remove ours, and that changes the mix of labor hours. And if its done correctly, allows you through that mix, to keep your wage rate at or below last year, as we take out some of the higher cost production labor in the back of the house. Jeff, you want to talk about the commodities basket?

Yes. As we think about the commodities basket and what we have seen and if we can take a look at what your question is about the full year. What we are seeing right now is, that we still expect our food and beverage costs to see inflation about 1%, 1.5% which was our original guidance for the year. The front part of the year, we are actually seeing a little more of that inflation on the expectation, as it would continue to wane, as we get through the second half of the year.

And lastly, can you quantify what your G&A savings were for the quarter, and what your outlook is for the rest of this year? Thank you.

We will get back to you on those specifics. We will have Kevin get back to you on the specific G&A savings. It was 30 basis points quarter-over-quarter, but there are some savings in there and some offsets to those savings. But overall, we are making great progress with our G&A and we believe our run-rate G&A for the year will be somewhere between 4.6% and 4.8%.

Does that answer your question?

Oh I am sorry. Thank you very much.

Thank you. Our next question comes from Jeffrey Bernstein with Barclays. Your line is open.

Great, thank you. Two questions; just one, I think you made a comment in your prepared remarks, just about the lumpiness quarter-to-quarter. Obviously, we saw that would be -- the earnings effectively double in this first quarter. So I am just wondering, if you could give some [indiscernible]. I think you said the second half margins versus the first half were going to be significantly less of an uptick. Can you just give a little more -- so what's terms of the magnitude of that and how that might translate into earnings? It seems like, just on a quarterly basis, The Street is -- struggled at least in the first quarter, that kind of nailed down the earnings. I am just trying to figure out the outlook for margin on earnings as we move to the four quarters fiscal 2016?

Jeff, we expect to still have margin improvement in Q3 and Q4, it just won't be at the same rate, as it has been, since the last half of 2015. So we made great margin improvements in Q3 and Q4. We obviously had great margin improvement in Q1. We expect that we will see some more significant margin improvement in Q2. But then its going to moderate in the back half of the year. When you look at a two year stack and we have it in the presentation, we expect there still to be margin improvement in the back half of the year. As we have stated, the big part of the earnings per share growth for the year will be in the first half of the year and we expect the second half of the year to moderate. Although, we still expect EPS to grow in the back half of the year.

Got it. And then just a follow-up on earlier question about the cost savings. There was no mention there, but I am assuming its still the $50 million to $55 million in fiscal 2016. Just wondering, whether you achieved more than your pro rata share in the first quarter; because it seemed like -- well at least from an earnings guidance perspective, you raised the full year guidance of earnings without necessarily raising the comps. I am just wondering, whether the course of it is still the same, or whether there has been a shift in terms of when they are being achieved quarter-over-quarter?

So our estimate for the year still remains $50 million to $55 million. As it relates to the savings during the course of the year, as Gene had mentioned earlier, there were some items in G&A that offset some of those savings as a result of more discrete types of items. But we expect the $50 million to $55 million for the entire year.

Got it. And then just lastly Gene, you often talk about the Italian segment, since like you have a pretty good view, kind of the state of the union. I am just wondering, how you think about the segment versus Olive Garden specifically, since like Olive Garden is getting better. But the broader segment -- and do you see the entire segment doing better, or do you think its Olive Garden specific? It seems like the segment has been challenged by kind of the view of just being more celebratory, more heavy, and just not necessarily in line with the consumer trend?

Yeah. I don't really want to comment too much on the segment. This segment -- however does continue to struggle. I just think that we have -- we have worked hard in Olive Garden over the last couple of years, to improve our overall value equation to the consumer. I believe that we have simplified the operation. We have added more value with the 9.99 [indiscernible] which is getting approximately 6% of sales today. We have more effectively communicated the appropriate message to our consumer, and don't underestimate what we are doing from a convenience standpoint, and really capitalizing on to really go; which I believe is exposing new guests to the Olive Garden experience, and its an experience that they really enjoy using Olive Garden for. When I think about those four things, I think that Olive Garden is executing at a high level, and it’s a culmination of a couple of year's worth of work.

Great. Thank you.

Our next question comes from Jason West with Credit Suisse.

Thanks. Just going back to the real estate transaction. Can you guys talk about why you made some of the refinements in some of the store counts and things like that? And then secondly, given the chatter out there around the IRS and their no-rule position, do you think you can move forward with this without an IRS sign-off, just using a private counsel? Thanks.

Yeah Jason, this is Bill. The refinements we made, there were just a handful of restaurants that we did exclude from the individual sale leasebacks as well as the Four Corners REIT spin, just to ensure full compliance with the covenant. And then the question about pressing forward, yeah, what we would refer you to, is some of the Form 10 filings that we have made around details of our plans. We don't really have any specifics to say about going on -- just opinion or anything otherwise. What we can say, is that we are going to be fully compliant with all the laws in place, and that we are pressing forward with the spin-off of Four Corners.

And just one quick one, I mean, would you be able to say, given the timing you guys have proposed of November-December; what would that imply in terms of the IRS ruling, timing, to get that done on that schedule?

I think we believe, that we are going to be in full compliance. What we can say about the IRS is that, the laws haven't changed with the revenue procedure bullets and that they have issued. So it suggests that there is not that retroactive application of any new laws they would contemplate, would not take place. So we are expecting to be able to complete our transaction by calendar year end.

Thank you.

Our next question comes from Andy Barish with Jefferies.

Hey, good morning guys. Just bouncing back on the strong Olive Garden To Go growth. Can you give us a little color maybe on how that impacts the overall quarter in terms of same store sales, with mix and traffic?

Yeah, its Gene. I think -- when we look at To Go sale, it is definitely having a big impact with the overall quarter for Olive Garden. We believe -- any cannibalization its creating from our diamond businesses, we are able to fill that with the extra demand that we have for the business. So To Go is representing about 9.5% of our sales today. We have seen a 40% increase in the large party To Go sales, which we think is a huge opportunity. And I would remind everyone on the call that, for our large party takeout To Go, we are not attributing any guests for us, and it really equates to approximately 50 basis points in guest traffic that we are not accounting for. Its all part of the strategy now to -- as the way we look at it is, its both -- what can we do in restaurant and what can we do from a takeout standpoint. We are testing delivery. We think that that is a large party delivery. We do think that's another avenue for us to really leverage, to meet the consumer's demand for this convenience. We just have a great brand in Olive Garden, because our food travels so well. It’s a great brand to take advantage of what the consumer wants today, and I think that says so much about its flexibility and so much about the strength of the brand that it can pivot from being an in-restaurant experience to a takeout experience and do really well. And then back to what I said earlier, I think it attracts a little bit of a different consumer.

Thank you.

Our next question comes from Keith Siegner with UBS.

Thank you very much. Just a couple of questions on August Digital [ph] and just a follow-up on that last one. Can you talk about where the orders for To Go are coming now? Is this still a large component via phone? Is it via web? Do you have plans to launch enhanced mobile? Could this make the To Go growth -- could this continue for a while, as you roll some of those things?

Most of the To Go orders today are still coming through the phone. We are incentivizing people to move over to the web. We are up approximately 20% online, and we continue to work to develop technology, to make it easier for our guests to access our web site, where we have introduced mobile, the adoption rate continues to rise. We know that when a consumer orders online, that their order is going -- the check average is going to be approximately 20% higher. So we are trying to incent more and more people to use that way of ordering, and hopefully over time, we can continue to get that to migrate closer to 50%, and even hopefully past that. And so we have got some technological things that I don't want to really get into a lot of detail for competitive reasons today, but we want to continue to enable our guests to be able to access Olive Garden from a takeout standpoint very easily.

Okay. And then another area I want to focus on was the in-store tech; it sounds like the roll-out of the table top tablets is going very well. You highlighted all the benefits. I was just wondering. It seems like there is a little bit of debate, let's say, in the industry about full service and loyalty programs. Can that work, could it not work? Some are trying and some are not. How do you think about the potential for loyalty, integrating into table top tablets? Is this something you are considering? Thanks.

Yes. We are considering the best way to implement a loyalty program, and we think that we are in a unique position, because of our seven brands, and with that, we think we can offer something that others can't offer. I don't want to get into a whole lot of details from a competitive standpoint, but it is something that the team is working on. And I would say that -- that's Rick Cardenas' top priority as the Chief Strategy Officer for Darden right now. He is developing an effective loyalty program across all our brands.

All right. Thank you very much.

Our next question comes from Chris O'Cull with KeyBanc. Your line is open.

Thanks. Good morning guys. Gene, the company looks to be on-track to have high single digit EBIT margin this year. Where do you think the long term margin should be for Darden, excluding the impact of future real estate transactions I guess?

Chris, you were braking up. I couldn't hear the question.

Let me try that again. It looks like the company is on track to have high single digit EBIT margin this year. Where do you think the long term margin should be for the company, excluding the impact of future real estate transactions?

I don't want to put a number out there, that I think that we are trying to get to. I think the competitive environment dictates that. I think the commodity environment will continue to have impact on it. What I do believe is that we can still grow our margins through a few levers. Obviously, being able to leverage same restaurant sales is the most important piece we can do. I think there is still work that can be done with our menus, that we can yield a better -- whether it’s a food cost percentage or a gross margin dollar at the food line. Chris, you know how I think about that and how I think about revenue management. I think that's important. I think there is work that can still be done there. I think there is sill more efficiency in labor, which could be offset by some headwinds with wage rates. But overall, I do think there is additional costs that can come out of the system. And so, I am not going to put a number out there, where we think we can get to. But I do think that there is still a lot of margin enhancement that can be accomplished over the next few years, with the primary focus being on leveraging same restaurant sales growth.

You said beef inflation, are you pleased with the margin performance at LongHorn?

When I look at the LongHorn history over the last 18 years, and I look at where beef prices are, compared to its history. I think the operating margins are okay, and I do think that they will improve dramatically as beef comes down. The real challenge, when I look at the LongHorn business and what I have charged Todd with is, is we have got to raise the average unit volumes, and we are at approximately 3.1 today, and I believe that -- even as well as the brand has performed over the last couple of years, we need to get those top line sales closer to 3.4 million, 3.5 million, and then the operating margins will be right line to where we want it to be.

Great. And then one last question; Bill, what gives you confidence that six LongHorns will represents a sufficiently meaningful active business in the eyes of the IRS?

Yeah. We are not going to comment on the specifics around that. We think we have got a substantial business purpose, and a big component of that is the taxable REIT subsidiary that you're loading to the six LongHorn franchise restaurants. So we think it all holds together very well. It’s a compelling story for both Four Corners and Darden for a very promising future growth story.

Okay. Great. Thanks guys.

Our next question comes from Peter Saleh with BTIG.

Great. Thanks and congrats on the quarter. I just wanted to ask about the advertising budget and the plan for the rest of the year. Can you just give us an update on where you stand today in terms of the percentage of sales on the advertising budget, what you're thinking for the rest of the year? And if there has been any changes in the media mix and/or the focus from an advertising perspective on either lunch or the To Go business?

There is a lot in that question. Let me start off by saying that, we continually move the media mix every single quarter, to try to see which lever is working. So when you think about Olive Garden, you think about media mix. We have got promotional television, we have got brand television, we have got lunch television. We even got a little bit of a takeout now. And so, when we think about that, and so when we think about that, we are constantly moving how much we have in promotional, how much we have in brand, how much we have in lunch, to see which vehicle is driving the most guest comp. And so, we will continue to monitor that. We would expect our advertising spending throughout the rest of the year, to be slightly below last year, basically the same. And what we are doing there, is we are able to -- the big thing is, we are able to cover the inflation. That's what I have charged the team with is, how do we cover the 7% to 8% media inflation, and not raise our overall costs. We expect our all-in advertising to be really approximately -- a little bit less than 4.5% for Olive Garden, and we will leverage it down with the other brands from there. LongHorn is going to finish the year at around 3.5%.

Great. Thank you very much.

Our next question comes from Diane Geissler with CLSA.

Good morning.

Good morning.

Wanted to ask about the remodeling program, which is something you put on hold, while you were doing a little bit more investigative work. It sounds like you are ramping that a little bit more aggressively this year with the 25 units. Can you talk about kind of your comfort level in terms of what you think you will see in terms of your uptick? And then, in terms of the total portfolio, I think we were always thinking, it was about 250 to 300 restaurants that need to be refreshed. Can you talk about the sale leaseback -- will that impact the number of units that you potentially will remodel, just how that might impact your plans on that front?

Yeah. The sale leaseback will have no impact on our refreshing our restaurants. We continue to be pleased with the initial 19 restaurants. We have got a good read on approximately 10 of those restaurants, and we are seeing approximately a 7% lift in those restaurants. We have got a couple of things going on right now, as I mentioned in the last call, we have this Olive Garden -- older colony [ph] Olive Garden of the future under development where, we are going to try to build an Olive Garden, that would be extremely -- obviously very competitive in 2025. And so, we believe through this process, as we redesign the Olive Garden of the future, not just similar to what was done back in the late 90s with the Tuscan farmhouse. We believe its going to become some inspiration in that process, that will help us with future remodels; and so, we are going to move forward and do another 25 this year. We have got restaurants out there that we think, it can significantly benefit from this capital investment. Dave is in the team of being very strategic in which restaurants they are refreshing. In those restaurants, there is some deferred maintenance that needs to be taken care of. And so we need to get in there and do those, before we get the inspiration from [indiscernible] Olive Garden in the future.

Okay. I think part of the previous plan was that you would do it on a geographic basis, so that the consumer would see the new plan at sort of all of the local restaurants? Sounds as if it will be more kind of picking shoes in terms of what marketplace you go into? Is there a way we should be thinking about, in terms of -- like the number of units, total that need to be remodeled and how that might be staged over time and then how do you deal with sort of consumer confusion, as the restaurants look vastly different than what they have looked previously?

I think the plan still is to do this by market, and each market has different needs and it depends on how many Revitalias we have in certain markets versus farmhouses. So I think that, there is a lot of efficiencies by doing the refreshes market-by-market, we can put one team in there to manage the process. So I would look for it to still be done on a market-to-market basis. As we look forward, we haven't really determined what the pace will be. We want to get some more -- continue to get learnings from this, and I think Olive Garden of the future, down and up in operating, and we get the inspiration from that. I think we will be in a better position to lay out exactly how we are going to move forward, refreshing these Revitalia restaurants.

Okay, great. Appreciate the additional detail.

Our next question comes from Sara Senatore with Bernstein.

Thank you very much. One question and then a follow-up if I may. You talked about beef favorability in 2016, and certainly 2017. One of the things I think we have noticed is that, the whole steak category has been quite strong, and it seems to be correlated with how much inflation we have seen in beef prices, just because the relative value versus grocery stores has gotten so much better. Maybe, can you give a little bit of historical perspective, is that the case, and I guess if so, as you look out to beef disinflation or deflation, would you expect to see potentially moderating topline, but better margins?

Sara, I am not sure I am going to subscribe to -- as the beef markets come back, we are going to have some top line pressure. I do think we are going to have some margin improvement with that. I think overall, the steakhouse category from a value standpoint has done a better job than the bar and grill and some of the other full service dinner houses, with the overall value equation. I think its something that over time Olive Garden had struggled with the price point for an entrée without protein, versus a protein centric entrée that a steakhouse restaurant is selling; and that was one of the real reasons we went back to [indiscernible] at $9.99. We felt we had to have something that competed effectively against the steakhouse category. And so, when I think about steakhouse, I think that there is a consumer out there that's a little financially healthier, that is opting into the steakhouse experience, because of the quality and the value that you're getting in that experience. I think that's what's driving that category right now. I think we have done a better job in the steakhouse category with culinary invention and creating overall value to the consumer.

And so, in that context, you mentioned needing to get volumes higher. But to your point, the category has actually been -- LongHorn in particular, and the category generally has done a good job. What else can be done than -- to grow volumes, given that the environment actually seems pretty salutary at this point for steakhouses? So can you just talk a little bit about, when you look at it -- the value proposition could be better still, is it the brand messaging isn't perfect yet, the focus on getting volumes higher. Clearly the right one, but given that the performance actually has been very good, I am just trying to figure out, what are the levers that you have to pull?

When we think about LongHorn, the issue is a little bit more geographic than overall brand. We have -- well LongHorn has a dominant market position and has a lot of legacy, we have had strong average unit volumes, we have had a little bit more growth in those markets. What's weighing on LongHorn today, is some of the newer development that has happened over the last couple of years. And longhorn has a history of taking a little bit longer to breaking in new markets and for the consumer to really understand the value equation of that brand. And so, the big challenge for LongHorn right now, is effectively competing in marketplaces, where there is a third or fourth steakhouse in the market. And our ramp up time is taking longer than we would like. But in our heritage market, where we have got a strong foothold, we have -- our average unit volumes are where they need to be and the margins for that business are where they need to be. So LongHorn is more about really the geographic challenges we have, as we have been growing the brand.

Great, understood. And if I may, just one quick follow-up for Jeff; we talked about moderating margin expansion, you and I have talked about some real supply chain expertise, now that you have been there a bit longer. Are there any particular areas you could talk about, what the opportunities look like to you?

I would like to just go back to the fact that, one of the opportunities we have is to leverage our scale. And as we think about how we continue to look to our supplier base, to go out and continue looking at our contracts and using that scale to bring better costs to our overall organization.

Thank you.

Our next question comes from Andrew Strelzik with BMO Capital Markets.

Hi, good morning everyone. I am wondering how you are thinking about kind of the multiyear growth profile of the business going forward? And given the stabilization and operational improvements that you have seen, are you getting more comfortable with potentially talking about longer term metrics and targets going forward? And if not, why not?

I think that's a really good question. We are really focused right now on two things, improving the execution of our brands, and then secondarily, completing the REIT spin. I think once we get the REIT spin behind us, we will look at where we are as a company, and determine -- and look at where we are as a company, but also look at the overall operating environment, and determine what our longer term sales and EPS targets are, as we move forward for the organization. We believe -- as we look at this today, we have made tremendous progress in the last year; and once we look at our opportunity today, we believe that, there is a chance for us to increase new restaurant growth into 2017 and 2018, and from there, be able to really determine what our long term EPS targets would be. We need to fully understand what the capital structure is going to be, and how we are going to use our cash flow to drive shareholder value.

Got it. Thank you very much.

Our next question comes from Howard Penney with Hedgeye Risk Management.

Hi. Thank you very much. I have two questions, the first one is on the Olive Garden assets. The phrase or the word refresh has a different connotation to it than remodel. It’s kind of a softer term if you will, and maybe express a little less urgency. And I was wondering if the momentum that you're seeing in the business. If I am reading that correctly, the momentum you're seeing in the business, less of a need to remodel the stores, as much as you did sort of the last two or three years? Thanks very much.

Howard no, I don't think its changing the sense of urgency. I think where we are at, is we want to make sure if we are going to invest this capital to refresh, remodel, whatever we want to call it. We want to make sure it is, first and foremost, it is the appropriate amount. Second, it’s going to have the desired outcome that we wanted to have. And from there, we have to pace it and we have to ensure that we continue to improve and evolve with current learnings on how to make these investments more valuable to us. What we want to guard against, is designing a look and a feel and rolling it out, taking two or three years to do that, and you get to the end of year three and realize what you were rolling out, really isn't where you need to be today. And so our proponent of -- more of this evolving rolling refresh over time, and using your current knowledge to make those dollars work as hard as they possibly can, at the time you're making the investment. I think it will just be wrong to lock in on a certain look and feel and just roll it out to 300 restaurants and try to go as fast as you possibly can. I want to get into the system, where we are rolling in an X number of refreshes every single year.

Thank you. And then just hanging on to that last question about longer term target. I assume Gene, as you took over the role as CEO, you made a presentation to the board as to a three to five year plan, as to where you saw the business. And I was wondering in that plan, if you presented long term targets and growth in profitability and revenues and if you could share what those targets were? Thank you.

Well yes Howard, I did present a longer range plan and potential for the company. But at this point in time, the pending spin and where we are at. Not at the point, where we want to give out our long range targets and I will commit to the investment community, that we will get those out in the next three to six to nine months, on what we think this business can achieve. But I want to get through this spin and understand where we are post spin, and determine what the opportunity for Darden is moving forward.

Thank you.

Our next question comes from Priya Ohri-Gupta with Barclays. Your line is open.

Hi, good morning. Can you hear me?

Yes Priya.

Yes? Okay, great. Thank you so much for taking the question. This is actually Diana Chu [ph] on for Priya. I was wondering if you could give us an update on the consent solicitation for the 35 and 37 and speak to where you are in that process? Thank you.

Yes Diana, this is Bill White. Yes the update we would tell you is, we did not get consent for the modest increase we were seeking for the covenant basket size. But as we have said previously, that was not a condition to pursuing the real estate transactions, where we are marching forward on. So really with some pretty minor modifications in those plans, we are fully covenant compliant. We simply don't have the extra room we were hoping to accommodate for future transactions, whether they be the -- roughly 80 or so properties, the simple properties left behind or others from future acquisitions. 20 years is a long time, but we are perfectly comfortable moving forward with our consent.

I see. Great. Thank you so much.

Our next question comes from John Ivankoe with JP Morgan.

Hi, thank you so much. If the question was on labor, Gene, I think you touched on it a couple of different way of saying, you think you perhaps have an opportunity, just be more efficient at the store level. But you are acknowledging the reality that, wage rates are increasing in various parts in the United States, I guess anywhere from moderately to very significantly. So just asking about your experience, having lived through hot labor markets and changing labor markets before in the past. Does it make sense for Darden to lead by example or just lead from an employee perspective and start to change the way that employees are compensated or what their incentive structures may be? And especially as we think about maybe some significant cost of goods sold or leased, perhaps into 2016, reinvest even more in labor than maybe some of your peers are, to differentiate the business through that extent?

I want to say, we believe that our employment proposition today is really strong. We compete for talent every single day. And when you look at where the average Darden employee is today, it’s approximately $15 an hour, which is double the federal minimum wage. We think that through a few avenues. Our employment proposition is just incredibly strong. We have a great opportunity for employees -- all employees that grow into management. Last year, we promoted 1,000 ROIT [ph] team members into management. We have programs that allow our team members to move up to the restaurants. Our team members to go cross-brand, if they think -- after they become proficient, and maybe in a casual environment, they can move to a more polished or even a fine dining environment. And so, as we look at this today, we keep coming back to -- there are so many things that we do for Darden team members, and it’s a compelling proposition. Our turnover rates are 20% lower than our competition. We continuously win best employment practices for the majority of our brands. We think that our employees are really in a good position, and we are going to do what we need to do, to ensure that we have the best talent at all levels in our organization, and that will be -- we will be at the forefront of that. And we believe today, we are getting the best talent.

Understood. Thank you.

Our final question comes from Todd Duvick with Wells Fargo.

Good morning. Michael Walsh filling in for Todd. Appreciate you getting us in. Just another couple quick bondholder questions. I think in the past, you have noted that you like to maintain an investment grade profile and we got a number of months here before the REIT transaction takes place, at which time, you'd look at your capital structure. But do you foresee, within that capital structure, still maintaining investment grade profile, and with that, is there any type of credit metrics that you use, whether its at least adjust the leverage target that you would manage to?

Yes Michael, this is Bill; just to address the last part of your question first, I think you hit the nail on my head. The least adjusted -- really at least adjusted debt to EBITDA is probably one of the more key metrics we focus on and we'd be targeting in the range of 2.5 times or less, and certainly the agencies are quite comfortable that where we are moving in that direction is -- if not neutral, a positive to the credit profile. So maintaining, preserving, and solidifying the investment grade credit profile is a priority.

Got you. Thank you very much. Appreciate it.

At this time, I am showing no additional questions.

All right. So I think we are done. Thank you for your questions. I want to remind you that we expect to release our second quarter results on Friday, December 18, before the market opens with a conference call to follow. Thank you all and have a great day.

Thank you for joining today's conference. That does conclude the call at this time. All participants may disconnect.