Good morning. Welcome to the Darden Fiscal Year 2023 Fourth Quarter Earnings Call. Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Mr. Kevin Kalicak. Thank you. You may begin.

Thank you, Darryl. Good morning, everyone, and thank you for participating on today’s call. Joining me today are Rick Cardenas, Darden’s President and CEO; and Raj Vennam, CFO. 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 press release which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call which is posted in the Investor Relations section of our website at darden.com. Today’s discussion and presentation include certain non-GAAP measurements and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2024 first quarter earnings on Thursday, September 21, before the market opens, followed by a conference call. During today’s call, any reference to pre-COVID when discussing fourth quarter performance is a comparison to the fourth quarter of fiscal 2019. And any reference to annual pre-COVID performance is a comparison to the trailing 12 months ending February of fiscal 2020. Additionally, all references to industry results today refer to Black Box Intelligence’s casual dining benchmark excluding Darden, specifically Olive Garden, LongHorn Steakhouse and Cheddar’s Scratch Kitchen. During our fourth fiscal quarter, industry same-restaurant sales decreased 0.7% and industry same-restaurant guest counts decreased 7%. And during our full fiscal year 2023, industry same-restaurant sales increased 2.7% and industry same-restaurant guest counts decreased 5.5%. This morning, Rick will share some brief remarks recapping the fiscal year, Raj will provide details on our fourth quarter and full year financial results and share our fiscal 2024 financial outlook and then, Rick will close with some final comments. Now I will turn the call over to Rick.

Thank you, Kevin, and good morning, everyone. We had a solid quarter to conclude what was a very strong year. Despite a tough environment, we significantly outperformed the industry benchmark for same-restaurant sales and traffic and met or exceeded the financial outlook we provided at the outset of the year. For the full fiscal year, we grew sales by 8.9% to $10.5 billion, delivered diluted net earnings per share of $8 and opened 57 new restaurants. We also opened nine new international franchise restaurants in six different countries, which is the most we've ever opened in a fiscal year. The market responded positively to our performance, leading to a total shareholder return of 32.6% for the fiscal year. We have consistently delivered strong long-term shareholder returns. In fact, since Darden was spun off from General Mills 28 years ago, a period which spans multiple business cycles, the company has achieved an annualized TSR of 10% or greater over any 10 fiscal year period. Our restaurant teams continue to execute at a high level by remaining focused on our back-to-basics operating philosophy anchored in food, service and atmosphere. Our brand's ongoing efforts to drive execution through simplification enable our restaurant teams to create great guest experiences as evidenced by a record-level performance we saw from many of our brands on key holidays throughout the year. Nowhere is it more apparent than at Olive Garden, which achieved the highest sales day and sales week in their history during the week of Mother's Day. This focus on being brilliant [4:33] with the basics leads to strong guest satisfaction scores and our internal guest satisfaction metrics remain at or near all-time highs across our brands. At LongHorn Steakhouse, one of their most important metrics is their steaks grilled correctly score which is at an…

Thank you, Rick, and good morning, everyone. Total sales for the fourth quarter were $2.8 billion, 6.4% higher than last year, driven by same-restaurant sales growth of 4% and the addition of 47 net new restaurants. Our same-restaurant sales for the quarter outpaced the industry by 470 basis points and same restaurant guest counts exceeded the industry by 540 basis points. Diluted net earnings per share from continuing operations increased 15.2% from last year to $2.58. We generated $472 million in EBITDA and returned $183 million to shareholders. Total inflation slowed meaningfully this quarter to 4.4%, 270 basis points less than the third quarter, while the rate of pricing decreased from last quarter to 5.9%. Turning to the fourth quarter P&L compared to last year, food and beverage expenses were 30 basis points better driven by pricing above commodities inflation of roughly 3%. Chicken and seafood experienced deflation this quarter, helping offset high-single digit beef and beat inflation. Restaurant labor was 40 basis points better driven by productivity improvements. Restaurant expenses were 30 basis points better than last year, driven by sales leverage. Marketing expense was 1% of sales, consistent with our expectations and 30 basis points higher than last year. This all resulted in restaurant level EBITDA improving 80 basis points to 20.7%. Our general and administrative expenses were 40 basis points higher than last year, driven by the timing of our incentive compensation accrual as well as unfavorable year-over-year mark-to-market expense on our deferred compensation. Due to the way we hedge this expense, this unfavorability is largely offset on the tax line. Our effective tax rate for the quarter was 10.4% and we generated $316 million in earnings from continuing operations, which was 11.4% of sales. Looking at our segments. Olive Garden, LongHorn and our other segment increased…

Thanks, Raj. All of us at Darden continue to work together in pursuit of our higher purpose to nourish and delight everyone we serve. During the year, we served more than 410 million guests. We also promoted nearly 1,300 hourly team members into our manager in training program and promoted 320 managers to General Manager or Managing Partner positions. And we continue to invest in our team members' development with new programs like Fast Fluency, which allows them to learn English for free. And our Next Course scholarship program that awarded post-secondary education scholarships worth $3,000 each to nearly 100 children or dependents of Darden team members. We also remain committed to nourishing and delighting the communities we serve through our ongoing efforts to fight hunger. As part of our Darden Harvest food donation program, our restaurants donated 4.4 million meals to local food banks in fiscal 2023. We also continued our successful partnership with Feeding America with another $2 million donation from the Darden Foundation that helped provide mobile food trucks to 10 different Feeding America food banks, bringing the total to 25 food banks across the country. The addition of Ruth's Chris gives us the opportunity to nourish and delight even more guests, more team members and more communities. As I said earlier, they are an excellent addition to our portfolio. And I want to welcome, Cheryl Henry and the nearly 5,000 team members from Ruth's Chris. We are excited that you are now officially part of the Darden family. I also want to thank our team members in our restaurants and our support center for their outstanding efforts throughout the year. We are fortunate to have the best people in the industry and I am proud of their commitment to caring for our guests and each other. Now, we'll take your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Jon Tower with Citigroup. Please proceed with your questions.

Great. Thanks. I guess I'll start off, I'm curious to -- you had mentioned in your release the idea that the environment has gotten a little bit choppier in the fourth quarter. So I'm curious to see what you would -- if you could articulate what exactly you saw in the backdrop with respect to consumer behavior specifically at your own brands and perhaps industry-wide. And then, I got a follow-up on that, please.

Hey, Jon. This is Rick. I mean as we've talked about the choppiness of Q4, it was really fine dining going up against last year's very strong bounce back from Omicron. And so this quarter, as we alluded to at the end of -- in the third quarter, was this quarter is going be a little bit tougher for fine dining because of how they bounced back. And actually, Raj already alluded to the Q1, will probably be the same kind of toughness because of the bounce back last year. But that said, the consumer seems pretty strong overall. And within the restaurant industry and based on our internal and external data sources, there appears to be only minimal switching between lower priced occasions at this point. Not all that is switching, but some. And overall, we're not seeing anything concerning. What I will say, as you think about mix, we've talked about this before, we're not seeing material changes in our check trends across our core casual brands. There is no negative mix at Cheddar's. And we are watching add-ons and trying to understand if there is some cracks there. But we don't see any real cracks there. And -- but one area we're seeing a little bit of check management is with alcohol sales primarily at our higher end brands. And we think part of this is because of the function of last year, similar to the guest count trends we saw in last year, there was probably a little bit of euphoria in check last year. So that's kind of where we think about the consumer. And we didn't really think the quarter was choppy. We expected that to happen and that's what happened.

Got it. Thanks for the clarification. I appreciate it. I'm just curious on the unit growth outlook as well. It looks like you're expecting slower unit growth openings versus what you had previously thought. Is that just a function of integrating Ruth’s and at the same time CapEx went a little bit higher. So could you explain what's going on there as well?

Yeah. I think it's not necessarily integration of Ruth's. You think about what we're seeing on openings, CapEx was higher and where we wanted to be prudent as Raj said in the last call, we want to be prudent and making sure that we are earning a return that we really want to earn in our restaurants. And we've had some contractor starting to come back in and bid for sites that they stopped bidding for during the pandemic and even after the pandemic which should make bidding more competitive. We're starting to see that. And so we wanted to be prudent and make sure that we have the right returns and we still have great returns in all of our restaurants and that's kind of where it is. It's not really because of risks.

Got it. Thanks. I appreciate the question.

Thank you. Our next questions come from the line of Chris O'Cull with Stifel. Please proceed with your questions.

Hi, great. Good morning, guys. Raj, I had a question about the guidance. I'm just thinking if you exclude the $0.10 to $0.12 earnings accretion expected from Ruth's in the guidance, it looks -- it would seem to imply EPS growth below your longer-term outlook, particularly at the low end. Are you seeing any indications today that the underlying business could be softening I guess, or are you expecting it to soften over the course of this year? I'm just curious if you can give some color as to why the underlying business seems to be growing at a slower rate.

Yeah, Chris. I think, look, we're taking into consideration all the information we have, right. We think -- we build a plan based on all the information we have today. And if you look at what the consensus economic forecast is for the next year, it's flattish GDP and that -- in a -- if you look at last year where GDP was growing, the industry will still had negative traffic, right? So while we outperformed quite a bit and we expect to continue to outperform, we're taking that into consideration as we build a plan. But if you look at the midpoint of our guide, you do get to a decent base business growth and that's kind of how we build a plan and then the guidance range is to incorporate some variability around that and that's how we really think about it.

So you're not seeing any softening today, you are just kind of keeping a more conservative outlook based on what the predictions are for the economy over the next 12 months?

Yeah. Well, I would say that it's not softening today. I mean if you look at the last few weeks, I think we're -- our GAAP to industry sale is fairly similar. But as we talked about, Q1, we do expect some softness in Fine Dining, that's just a function of wrap. But outside of that, no, we're not seeing any trends that would -- any recent trends that would indicate that there is a major change in the underlying environment for us.

Great. Thanks.

Thank you. Our next questions come from the line of Eric Gonzalez with KeyBanc Capital Markets. Please proceed with your questions.

Hey. Sure. Thanks. And Raj, just regarding the comp guidance, the 2.5% to 3.5%. Can you maybe talk about what level of pricing you're embedding within that outlook and how that compares to the -- to where you exited fiscal '23 which I think was around 6%? And then also, do you have an underlying assumption for the industry's growth rate for the year? Thanks.

Yeah, Eric. So the way we think about it is, our comp guidance of 2.5% to 3.5%, we expect to have pricing in the 3.5% to 4%, which would imply a traffic of flat to negative 1.5% for the year for us. That range would imply that. You can extrapolate from that what the implied industry can be. We're not expecting our GAAP to be significantly different going into the year, but we focus a lot more on things we can control. And we look at all the factors we have year-over-year and taking into consideration the macroenvironment and then just build a plan that way. As far as comp -- exiting the pricing, yeah, we exited the quarter with closer to 6% as we said and but we expect that to tick down throughout the year. So start with that, call it, 6%, but by the end of the year, by Q4, we get closer to the 2%. Now, lot of the pricing actions we took last year already impact next year's by about 3%. So the carryover from prior year is probably close to 3% and so that's really where we are.

Got it. And then just maybe as a follow-up to that, as you think about industries traffic remaining challenging and you mentioned GDP being flattish potentially this year, have you noticed any significant uptick in promotional activity thus far? And as the year progresses, how you think your promotional strategy might evolve and what levers could you pull if that's needed?

Hey, Eric, this is Rick. We look at what the competitor is doing. And you're seeing some promotional activity in competitors. We've got one major competitor that launched a little bit more TV or jumped back on to TV. But that said, our strategy remains the same on the marketing side. We're going to continue to be -- to have advertising Olive Garden because it's a big competitive advantage for Olive Garden, but we're going to continue to use our filters, first, elevating brand equity by bringing the brand's competitive advantages to life, it's simple to execute and it's not at a deep discount. So as we talked about in the last call, we're going to stick to our strategy of core guest count growth. We'll react accordingly if something really changes. But when we increase our marketing spend, if we do, we expect it to earn a return. So we don't necessarily expect us to go back into the deep discount craze and that's our strategy and we're going to try to stick to it.

Great. Thanks.

Thank you. Our next questions come from the line of Brian Bittner with Oppenheimer. Please proceed with your questions.

Thanks. Good morning. I'd like to just go back to the 2024 EPS guidance, and kind of as a follow-up because as Chris suggested, yes, when you strip out Ruth's, you do have this lower implied core business earnings growth relative to your long-term framework. But the same-store sales guidance is slightly above this framework. So I just want to dig in there a little bit more. Is it being driven by underpricing inflation? I know you said kind of pricing at 3.5% to 4% but inflation is 3% to 4%. So, doesn't seem like you're planning on underpricing inflation that much. Just again trying to understand those dynamics a little better given the comp guidance is above your long-term framework.

Yeah, Brian. I think the way we look at it is, if you look at our framework or actually even excluding Ruth's -- the middle of the guidance for Ruth's is at $0.11 accretion. If you take that out, we're still in that -- a TSR that's north of 10% at the middle of -- at the middle of the guidance range. Now, one of the things I want to point out is, we haven't been able to buy back shares for almost three months now, because of trading blackout. And so that has an impact on EPS for next year. But even with that, like as we said, we still get to that double-digit TSR when you incorporate the dividend yield and the EPS growth.

Okay. And the follow up, just as it relates to the total cost inflation outlook 3% to 4%, obviously realized commodities are up 2.5% within that total framework of 3% to 4%. Can you just touch on some of the other assumptions that's pressuring the inflation to be above the commodity outlook?

Yeah, Brian. It's really labor. I expect the hourly wage inflation to be in that call it mid-single digits. And then their salary to be also closer to that. And some of that is a function of how we choose to pay our people. We are -- our merit increases have been above the industry and we think that's prudent. We want to continue to do that. And that's the type of investment we make to help us sustain the types of performance that we've been able to deliver. You look at a 400 basis point, 500 basis point gap to the industry that doesn't happen, magically. They are lot of things that go into that. And we are very thoughtful about how we make those decisions.

Thanks, Raj.

Thank you. Our next questions come from the line of David Palmer with Evercore. Please proceed with your questions.

Thanks. I wanted to ask you about your assumptions on same-store sales through the year. And in particular, if you have any thoughts about -- often a concern about multi-year trend slowing over this next fiscal year and how you're thinking about that potential in your guidance.

Yeah. The way we're thinking about -- in terms of how we build the plan is that we expect retentions levels to be fairly similar to moderate a little bit relative to pre-COVID from where we were this fiscal year. So not a significant drop-off, but a little bit. But then, I think from a same-restaurant sales perspective, it's going to be driven by the pricing differences. The fact that we're going to start off with the higher price and then the price moderates down to -- the rate of pricing goes down to 2% by -- closer to 2% by Q4. That will have an impact on same-restaurant sales. As we think about guest counts, as I mentioned, the retention, we expect it to be fairly consistent quarter-to-quarter relative to last year.

And with regard to advertising, what sort of assumptions are embedded into your earnings guidance for advertising spend?

We basically are assuming somewhere in that 10 basis points to 20 basis points more than what we spent last year in total marketing. So that's kind of not that different from what we did in fiscal '23.

Got it. Thank you.

Thank you. Our next questions come from the line of Andrew Charles with TD Cowen. Please proceed with your questions.

Great. Thank you. Given the slow macro forecast for 2024, I'm curious how that impacts your thinking around Never Ending Pasta at Olive Garden. The one value oriented promotion that fits your provincial framework. I guess the question is, are you open to changing the timing of promotion or perhaps in running it at two different times during the year to keep pace in the potentially slowing macro backdrop?

Hey, Andrew. For competitive reasons, we're definitely not going to talk about plan details. We do believe the Never Ending Pasta Bowl is a really strong promotion for us, especially with the changes we made last year. And so we'll look at any PB and if there's things that we can do with it. But definitely not going to talk about if we're going to do it twice.

Okay. And then, Raj, please help us what's embedded within 2024 guidance for G&A?

Yeah. I think -- so, especially with Ruth's coming in, you should -- we ended the fiscal year with closer to $390 million. I'd say at this point, our best estimate is probably still maintaining closer to that 3.7% of total sales, which would get you closer to the call it $430 million for the year. Obviously, plus or minus 10 there. But that would be the number we would -- that is embedded in our guidance. Yeah.

Helpful. Thank you.

Hey. By the way, as we talk about G&A, I just want to clarify one other thing. We do expect the cadence to be a little different. So, Q1 is probably going to be the highest level, call it closer to $115 million and then kind of tick down $5 million a quarter throughout the -- for the next few quarters. It's how we think about it just from a cadence standpoint. So there are some things that -- sudden specific variables that are influencing Q1 to be higher.

Thank you. Our next questions come from the line of Chris Carril with RBC Capital Markets. Please proceed with your questions.

Hi. Good morning. So, just returning to the same restaurant sales growth guidance for '24, can you provide any more detail on how you're thinking about your largest brands, Olive Garden and LongHorn and how they fit into this? We've been pretty clear so far on fine dining and how you expect comparisons to impact that segment in the very near term. But just curious if you could provide any additional thoughts in your largest brands and how they factor into the comp guide.

Yeah. I would say the way we're thinking about it is our core casual brands are probably closer to the -- I guess, let's just go through the big brands. Olive Garden is probably -- would be in the middle of the range is our expectation going in. And then LongHorn would be outside of that range to the upside primarily because of stake inflation and the pricing there is probably a little bit higher, would need to be. And then Fine Dining to be a little bit south of that. And that's really how we're thinking about it.

Okay. Great. That's really helpful. And then, you mentioned productivity improvements helped to drive the improvement and labor in the 4Q. So how are you thinking about productivity improvements from here maybe in the context of Ruth's and then ex-Ruth's and just how much of a tailwind that could be in '24? Thanks.

Yeah, Chris. As we've said before, over the last years, our brands have done a great job improving productivity. We would expect to continue to have some productivity improvements over time, but not to the extent that we had during COVID. As we continue to look at improving training, having turnover come down, that should help productivity little bit. We're not going to have to discuss Ruth's right now. We've only owned them for eight days. So we'll have to just get through the -- getting through integration is going to actually probably be a productivity downer for them for a little bit. So let's let us get Ruth's under our belt for a little bit longer than eight days before we talk about the details there. But as I said, labor productivity, we should expect it to tick better as the year progresses as we continue to improve on our turnover and as we continue to improve our training.

Great. Thanks so much.

Thank you. Our next questions come from the line of David Tarantino with Baird. Please proceed with your questions (ph).

Hi. Good morning. Rick, I wanted to ask your thoughts on the current macroenvironment. And I guess your comments that the consumer seems pretty strong right now, don't actually line up with what the industry is seeing in terms of traffic. I mean, traffic down 7%. We haven't seen those types of numbers since maybe '08 and '09. So I'm just kind of wondering what your thoughts on traffic? And I know Darden's been outperforming, but I think even your traffic was slightly negative in the quarter. So, I guess what's your thoughts on what's weighing on the traffic and the overall environment?

Yeah, David. Thanks for the question. I did say earlier that we have not seen an impact in the consumer as much as maybe our competitors have. And I think there's a couple of reasons for that. There is a tension between what people want and what they can afford. And even in a slowing economy, consumers really continue to seek value. And it's not always about low prices, it's about execution, it's about what the experience to get in the restaurant or wherever they are. They're making spending tradeoffs. And as I said before, food away-from-home is really difficult to give up if you're executing. And so what we think about it is, what it means to our brands. What it means to what we do every day. And we believe that operators that can deliver on their brand promise and the value that appeals to guests, despite economic challenges, is what's going to get you to win. And that's what we've been doing. So whatever has been happening to the consumer and the economy and the restaurant space, we're going to control what we can control and what we can control is the experience that our consumers get in the restaurants every day and the value we provide. And we continue to hope that we're going to buck the trend of guest counts that the industry has. And we would expect to have a gap to the industry.

Great. Maybe just one follow-up on that. I mean, do you think pricing for the industry has become one of the issues as it relates to traffic? I know, you've priced a little less than the industry. But, I think, do you think that consumers are becoming more price-sensitive in today's economy?

I think there might be some price sensitivity in consumers overall, whether it's in the restaurants or what have you. But you think about GDP trends, so over the last four quarters, GDP has continued to tick down and that would mean that traffic would take down everywhere. Whether it's at a restaurant or it's in a retail establishment, wherever it is, as GDP continues to tick down, you would expect traffic to tick down. Yes. The industry saw a little bit more of a hit to that. And I do believe part of that was because of the bounce-back from Omicron last year in Q4. I don't think we were the only ones that benefited from that. I think others did. And so let's see how this all plays out. We've given you our guidance for the year, which does assume negative traffic. And actually assumes less negative traffic than the industry. So that should tell you we think there is a little bit of softness there. But we're going to continue to perform and do the things that we do every day to bring guests into our restaurant.

Great. Thank you.

Thanks.

Thank you. Our next questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Great. Thank you. First one was just on cash usage in the share repurchase as part of your long-term algorithm. I guess the midpoint going up by like $200 million. And you bumped the dividend by close to 10% and the CapEx is going up a little bit more than perhaps what you previously thought. I just wondering what's going in the other direction. And I think about in the context of M&A. I mean, I know you have returned to the market with the Ruth's acquisition. I'm wondering whether you're seeing potential for more, maybe the valuation challenges that you've previously noted have been easing. Any thoughts there would be great. And then I have one follow-up.

Yeah. Let me talk about the cash and then I'll turn it over to Rick for the M&A commentary. So as far as cash usage, if you look at our business, we generate somewhere around $1.7 billion to $1.8 billion, our guidance would imply in terms of cash -- operating cash flow. So between the dividend and the CapEx and with the share repurchase, we still would be building cash maybe at an -- if you take all the midpoints of all of those ranges we would still build a cash balance of call it may be close to $100 million. So we're really not tapping into any borrowings sort of that to meet these commitments we have embedded in here. As far as the long term framework share repurchase range, that is really to reflect the change in our share price from five years ago because we haven't updated the framework for five years. So all that change as much as it feels like it's double, that's basically reflecting that our share price has doubled during that timeframe. And so now, with that, I'll just turn it to Rick.

I'll just add something to that. If you look at -- think about the cash flow or EBITDA, pre-COVID, our EBITDA was about $1.2 billion and today with based on Raj is saying it's $1.7 billion, $1.8 billion. So that gives us a lot more cash to do those things and increase our share buyback and M&A. And so if you think -- but we've talked about M&A often. M&A adds to our scale which is our biggest advantage. And we continue to talk to our Board, management continues to talk to the Board about our best uses of capital and M&A is one of those. And so but we just got done with the Ruth's deal. So let us do a little bit there. It doesn't mean that we wouldn't be back in the market down the road. But we've got plenty of cash, we've got plenty of debt capacity. Raj said, we're at basically two times adjusted debt-to-adjusted EBITDAR and that's at the low end of our range. So we have plenty of capacity to do more things.

Yeah. And then just a clarification, just wondering if you're going to provide pro-forma restated maybe Darden results for the quarters of fiscal '23 as if you owned Ruth's the entire year. I know it's tough for us to model with a different quarter and year-ends and with Ruth's operating a 50-50 company franchise model, just trying to get some color as to whether or not you'll provide any help from a modeling perspective or any pro-forma type results to give us better insight into the growth rate going forward. Thank you.

Really the fiscal calendars when you look at the quarters, we're only a month half. We don't plan on restating the history. I think -- and I also want to think about how material it is to the overall Darden P&L.

Thank you. Our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your questions.

Great. Thank you. First a clarification, which is you talked about the cadence of pricing over the course of the year, is it fair to assume that you're thinking the cadence input inflation will follow suit in the sense of kind of rolling off over the course of the year or is there a reason to believe that maybe the math -- the gap between pricing and inflation might look different and therefore the implications from margins might be different over the course of the year. So that's the first question and then I'll have another one Ruth's, please.

Hey Sara. Great question. As we think about inflation, we don't expect the cadence to be significantly different. I think we have a little bit more in the first quarter, but not a huge difference. We're talking about 50 basis points to 60 basis points may be different from quarter-to-quarter. So that 3% to 4% range is what we provided for the overall. You can expect first quarter to be closer to 4% and then the other quarters might be close -- a little bit less than that. But then, there's really not a meaningful difference between quarters. So that would imply that year-over-year, there is a little bit of delta in pricing versus inflation, because we are starting with a higher price as we get out of Q4 -- where we exited the Q4 levels. So, I know you also said you had a second question. So I'll wait for that.

Yeah. Thank you. And then actually, just to clarify on that one and then I'll ask the question, which is, is the implication that by the fourth quarter, you'll be needing to find more productivity gains or something else if you have less price but sort of level loaded inflation over the course of the year.

Yeah. I think we do expect the gap to reverse by the time we get to the back half. In fact, the way we look at -- when we look at our quarterly earnings that are embedded in our guidance, the cadence, while it's more balanced than last year, we do see Q2 providing the highest-growth while Q4 providing the lowest from an earnings standpoint and Q1, Q3 more in line with the annual growth that we provided.

Okay. Thank you very much. And then just a question. I know Rick you said, you've only had Ruth's for eight days. But presumably, there's a lot of diligence that went ahead of that. So I know you mentioned $20 million roughly by the end of fiscal 2025 primarily coming through supply chain and G&A. If I look at the restaurant-level margins for Ruth's versus like your Fine Dining, is that -- is supply chain and cost of goods is that the primary difference as I think about the potential to bridge that gap.

Well, we've said in the past that most of our G&A -- most of our synergies come from G&A and supply chain. So, when we have in the past that it's about half-and-half whenever we done acquisitions before. So yes, Ruth's should get in the long term benefits from cost-of-sales. Now that said, we may reinvest some of those cost-of-sales and our other brands will get some of the benefits too. So it won't all flow to Ruth's. I will say that there aren't many brands in the industry that we could acquire that actually improve our EBITDA margin at the restaurant-level and Ruth's does. So, across Darden. Now they might not be as high depending on how you look at it as Capital Grille, they might be higher, a little bit lower depending on your definition of restaurant margin. But they're pretty close. And so and because Capital Grille is higher than Darden's average margin, Ruth's helps Darden's margin. So that's a pretty good deal for us.

I see. Thank you both so much. Very helpful.

Sure.

Thank you. Our next questions come from the line of Jeff Farmer with Gordon Haskett. Please proceed with your questions.

Thank you. Just following up on modeling post-Ruth acquisition, you shared some information on G&A, but anything you can share as it relates to how we should be thinking about both interest expense and G&A moving forward?

Yeah, Jeff. I'd say, interest expense is likely going to be I think for a year-over-year, we're probably looking at a total of $50 million of which $40 million is related to Ruth's acquisition. And then the other is just the lease interest and other short-term interest rate exposure we have. So that's the thing on the interest. And the G&A, I would just really take into consideration the Darden's G&A and then lay it on Ruth's from what you have. There'll be some purchase accounting that we're working through. So we'll have some updates on that. But that will be more of a geography, more so than a huge impact. We've embedded some incremental step-up in our valuation and in our P&L and that's incorporated in our guidance, but we're not ready to share those details yet.

Okay. And just one more. One of your named competitive advantages over the last several years has been this extensive data and insights. But can you share maybe one or two examples of how you were able to leverage that data in '23 and potentially some untapped opportunities as you move forward in terms of harnessing and really analyzing that data moving forward?

Yeah, Jeff. This is Rick. You think about what we're starting to do with data, we are starting to use a lot of AI and machine-learning to help guest count forecast and help our restaurants forecast our business better. And that would move all the way down through the company, right. So if you forecast your traffic better, you order better, you receive better, you schedule better, that's one of the big things that we've looked at is using machine-learning and AI. But we got to remember, one of the things that we do every year as we use data to help look at what our guests patterns are, what we think about guests and how do we market to our guests. We also improve operations execution with the data that we have. But I would say, if you're asking for one big thing -- and is analytics through pricing too. So, we've got a great analytics team here that does help with our pricing. They look at restaurants, they look at categories, look at items, they look at elasticity. And we can do all that in-house because of our scale.

All right. Thank you.

Thank you. Our next question is coming from the line of Danilo Gargiulo with Bernstein. Please proceed with your questions.

Good morning. I'm wondering what is the integration timeline that you are embedding in your EPS accretion expectations. And how is the previous acquisition of Cheddar's impacting the timeline that you are expecting and what will it take for this integration to accelerate? And I'm talking even beyond the 2024 timeline that you set today.

Hey, Danilo, we're still working through the steps, but our expectation is a lot of the stuff happens over the next 12 months to 15 months. And so that's why some of those synergies come later because we're not trying to -- we're trying to be prudent. We're going to be thoughtful. We got to design this right, make -- do this right because we want to set it up for success long term. We're and we want to make sure we minimize the disruption to operators. And so everything we're doing, we have a great team working on it. That's actually being very thoughtfully phasing in these parts of integration and how we integrate different parts of the business. And we've learned a lot from our Cheddar's acquisition. Obviously, Cheddar's was more complicated with essentially three different businesses being brought under one roof. With Ruth's, it's not -- it shouldn't be as complicated, but a lot of the learnings we have from our prior acquisitions are incorporated into -- are actually taking into consideration as we plan for this.

Thank you. And what set of factors would prompt you to drive higher unit growth versus the data 50%? I know you mentioned more competitive bidding is actually starting to happen. But have there been any internal discussions on potentially international expansion given your recent quarter and also the recent acquisition of Ruth?

Hey, Danilo. If you think about our pipeline for this year, most of the pipeline, you have to have already started construction by the time the year -- almost by the time the year started to get them open because it takes a little longer to open a restaurant or build a restaurant today than it did before COVID. So if it's not started by the end of Q1, it probably doesn't open this year. Maybe even if it doesn't start until -- by July, it's hard to open this year. So that's why we've got our kind of guide of about 50 gross openings. When we talk about international, that doesn't incorporate -- that's not incorporated in our unit count because we are committed to staying a company-owned model only in the U.S., not that we wouldn't have franchise in the U.S., but will be only franchise outside the U.S. and Canada. So all of our restaurants outside the U.S., the ones that we opened last year were all franchised. And anything that we open going forward is likely to be franchised as well.

Perfect. Thank you.

Yeah.

Thank you. Our next questions come from the line of Brian Harbour with Morgan Stanley. Please proceed with your question.

Yeah. Thank you. Good morning. I had a question just about fine dining sales. Is that really just kind of about the lapping dynamic or could you provide any comments on kind of some of the different customer sets, whether it's business type of customers versus like a more aspirational customer, if you're seeing anything different there?

Yeah, Brian. I'd say, first of all, as we said in the prepared remarks, we actually saw a fairly consistent retention related to pre-COVID for the last three quarters at fine dining. What we're seeing is we are seeing a little bit of pullback on the alcohol sales. And we still think that's also a function of wrapping on a significant increase a year ago. Now as we just generally speaking, what we're seeing with the demographics is consumers below 35 or above pre-COVID, but they're below last year. And then whereas 55-plus is still below pre-COVID, but they're similar to last year. So there's a different dynamic year-over-year where you're seeing the younger demographic pull back a little bit year-over-year. And then -- and similarly, on the income side, we're seeing that lower income is above pre-COVID but still below last -- but below last year, whereas higher income flattish to last year or similar to last year, but they are still below pre covert. So those are some of the insights I can share on fine dining.

Okay. And then maybe just on kind of the labor line. Did you comment on what labor inflation was in the most recent quarter, it sounds like it was like mid-single-digit range. And is there any kind of like slowing in that pace assumed through the course of this year or is it going to be pretty steady or how do you kind of expect that to play out?

Yeah. Our labor did -- overall labor inflation ticked down about 100 basis points from Q3 to Q4. We were at 6% in Q4. That included wage inflation close to 7%. And -- so that's also a tick down from prior quarter, a meaningful step down. And that actually was a little bit better than we thought for the quarter. Now as we look to the future, as we said, so we ended the year with 6.9% total labor inflation and we said we expect that to step down by about 100 basis points as we go to next year. That’s why we talked about that mid-single-digit inflation.

Thank you.

Thank you. Our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.

Thank you. Raj, I'm just curious if there's any update to share on how you think continued margin gains longer term. I know you've spoken a bit more to the long-term total shareholder return algorithm of late. But just curious if anything new on long-term margin considerations and of 10 bps to 30 bps annually is kind of the right way to think about it still?

Yes, Dennis. We do think that 10 to 30 is the way to think about it from where we are starting this fiscal year. So that's how we restated our framework. And the only change we made is to the share repurchase because we still believe that that 10 to 30 is a good target for us to have for the foreseeable future.

Thank you. And then just on the to-go sales across the portfolio to some extent. Sort of where you sit now? And if any kind of latest thoughts on what that could look like, either growth there, sales mix opportunities as we look to '24? Thank you very much.

Well, so our to-go sales are actually pretty consistent with where we were in Q3. So I think we’re still running at Olive Garden close to 25%, LongHorn on 14 and Cheddar at 12%, which is not that dissimilar to what we had a quarter ago. And we’re doing that without third-party delivery. And we continue to see that we’re able to kind of still get overall sales growth and outperformance versus the industry, while not tapping into these other channels and actually, we’re managing the experience better. We feel like we have continued to execute on that. As we’ve said before, this is higher than we would have expected a couple of years ago. But we’re very happy with it. And our teams are focused on executing at the highest level possible to make sure that we can sustain and grow from here.

Great. Thank you, Raj.

Thank you. Our next questions come from the line of John Ivankoe with JPMorgan. Please proceed with your questions.

Hi. Thank you. I know you have actually famously done at a brand level customer segmentation work. You used to talk about that in Analyst Day as many years ago. So I guess using that data or using your current, can you explain how you think about the upcoming repayment of student loans, something that you've been asked about today, it's coming, I think, in September, obviously, the press itself has kind of gotten smart that that's something that's coming and actually might be fairly significant change for at least some cohort of the population. Can you think of -- is there any impact to Darden specifically, have you thought through that? And what might potential responses be?

Hey, John. Yeah. We think through that all the time. And we do still do those consumer segmentation studies, and we still do market structure studies. We don't necessarily talk about them externally because we don't want everybody else to see them. But thinking about the student loan impact, yes, they'll start being repaid in, I guess, September around there, but it shouldn't be a material headwind. It will be a headwind. Any time you take money out of consumers' pockets, it's a headwind, but it shouldn't be material because student loan payments are a very small component and it's probably already baked into the economic forecast for GDP growth that we use for our plan.

And just in terms of like that specific cohort, I mean, whether it's 25 to 44, what have you. I mean I know Olive Garden historically is kind of skewed older. But is there anything that you can kind of help us with us just saying, hey, you have some big percentage of the customer base that's just not going to be affected by all. Is there a little bit more information you can kind of give us as you triangulate it? Thank you.

Sure. I think Raj talked about our consumer demographics a little bit ago. We're still above pre-COVID on our consumers in the 35 age range or below 35, which is probably the ones that are in their student loan repayment period. And the 55 plus or below pre-COVID last year. So there's probably still some room for some of those 55 plus to come back, and I'm doubting that they're paying student loans back unless they're paying it for their kids. And if you think about our population, we still have a high percentage of our of our consumers that are above $100,000. So hopefully, a student loan repayment wouldn’t impact them too much.

Okay. That’s helpful. Thank you.

Sure.

Thank you. Our next questions come from the line of Andrew Strelzik with BMO. Please proceed with your questions.

Hey. Good morning. Thanks for taking the question. Two for me. The first one is on the commodity side. I'm curious if you feel like your visibility into the food cost outlook is improving or the duration to which you have visibility is improving just as the rate of inflation is moderating here? And then the second question is on the unit growth side. You talked about the bidding side and some favorability potentially there. I'm just curious in terms of permitting supply chain equipment. Are there green shoots on that side? Or how are you seeing that evolve. Thanks.

Hey, Andrew. This is Raj. So on the commodity side, we do have better visibility today than we did a year ago. We actually have, for the first time, I think, in four years, probably have coverage that is actually pretty similar to the way we used to before COVID. I think we have – as we talked about for the first half, we have a total coverage of 65% of our basket covered and call it closer to that 25% to 30% in the back half color, which is, again, pretty much back to the levels we used to have pre-COVID. So we definitely feel like we have a lot more visibility today than we did before. And then as far as the development side, we are starting to see some signs of improvement. Rick talked earlier about some of the bids coming in better or multiple bids coming in. There’s still some delays in permitting and utility connections with local agencies and stuff like that. But all that said, we do see some green shoots. We think that we believe that the inflation on the action side has peaked it’s still elevated, but it’s not going – continuing to go up. And in fact, I think we – the last few bids we’ve had last few construction starts we’ve had – they were in line with our budget or better. So just make – starting to see some positive signs there.

Great. Thank you very much.

Thank you. Our next questions come from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.

Hi. Thanks. Good morning. I just wanted to circle back on the strength at LongHorn -- it seems like the brand took another step up at least through the lens of average weekly sales volumes, which I think are now up in the mid-30s versus pre-COVID levels. I know the brain has gained a lot of share through the pandemic, but anything incremental worth highlighting that you think is driving this incremental uptick?

Yeah, Brian. LongHorn has been executing well for the last few years. And I keep -- I want to comment Todd and his team, they've been on this journey in quality, simplicity and culture. That's what Todd talks about every day, investing in quality and portions that continue to pay off. They had almost 7.1% same-restaurant sales growth in the quarter. That was driven by some pricing. They've had more inflation, but they also have had record weekly sales and Mother's Day, and yes, they're 34% above pre-COVID levels in sales versus Q4. And traffic is positive over pre-COVID. So I can't tell you it's any silver bullet and we've talked about that in the past that there aren't silver bullets here. It's about having great execution, investing in your team, investing in your product to drive profitable same-restaurant sales growth. And that's what they've been doing.

All right. And then I also just wanted to circle back on the Roots acquisition and your customer segmentation work. Could you elaborate a little bit on the overlap or maybe more interestingly, the key differences between Roots customer base versus your other fine dining brands or any other differences you think are worth highlighting regarding the brand?

Yeah, Brian. Let me talk about differences and why we believe that there’s not a whole – a lot of overlap between the Ruth’s customer and a capital growth customer. But I will preface this by saying, we’ve only owned them for 8 days. And before we closed the deal, we were not allowed to see their consumer data, right? We were still competitors, and we couldn’t see their consumer data other than looking at third-party data that we would have. So we want to start looking at their data to understand it a little bit better. But one of the primary reasons is geography. If you look at – they have 150-ish restaurants, including the franchise system, and they have restaurants in markets that Capital Grille doesn’t have restaurants in. And even in restaurants to capital, even in markets that Capital Grille has restaurants in, they’re not necessarily close to each other in a lot of those markets. So there isn’t as much overlap as you would expect. And that’s a good thing for us, good thing for Ruth Chris, and it’s a good thing for Capital Grille. And – but then I would add that if you think about ADBs and Capital Grille, we’ve had this kind of scenario for many years. Where ADBs guests may go to Capital Grille, but they go for different occasions. And we want to learn a little bit about that at routes on the occasion differences. And then finally, I think Capital Grille is a little bit more, going back to geography, a little bit more mix in urban than Roots, an urban core versus Ruth Chris, where Ruth Chris, for example, if you have a restaurant in Birmingham, we don’t have – or in Destin, Florida. There’s the Ruth Chris. We don’t have Capital Grille there. So there’s reasons that there isn’t as much overlap as you would have thought.

All right. That’s great. I’ll pass it along. Thank you.

Thank you. Our next questions come from the line of Jake Bartlett with Truist Securities. Please proceed with your questions.

Great. Thanks for taking the question. Mine was on labor productivity. You mentioned that you expect some labor productivity improvements in '24, but not a whole lot. I guess my question is around turnover. I would have thought that just the improving labor environment, staffing is kind of, I think, back to pre-COVID levels, but turnover going down, so productivity should be going way up. In terms of -- at your brands, have you already benefited? I mean, I guess, maybe was your turnover not so bad before that's why you're not going to get much of an incremental benefit. If you could just talk about how the labor dynamics and what that could or couldn't do to labor productivity.

Yeah, Jake. Yes, you would expect that as turnover goes down, productivity gets better, and we've started to see that already this year. So our turnover is improving and our productivity is getting better. So it's not like we're going from the highest turnover we've ever had to the lower turnover next year. We've actually started gradually moving to it. And one of the places that gets you the biggest productivity loss is the turnover in the first 90 days. And that's had a very big improvement for us. So you don't -- you have less productivity loss if you have less 90-day turnover. And so we've seen an improvement in turnover. We're still above pre-COVID levels, but we're a lot closer to our pre-COVID levels than we were just last month and the last month before that, the month before that. And we'll continue to improve I don't know if we'll ever get back to pre-COVID level turnovers. But if we do, then that should give us even more productivity enhancements.

Great. And then I have a follow-up on unit growth and you gave guidance for 2024. A couple of years ago, you had mentioned your expectations kind of moved towards the higher end of the range. So closer to 3% from the 2% to 3% range. Is that still valid kind of going forward, and it's going to be lower in '24, but longer term, should we think of the higher end of the range is the right point or are we kind of getting back into maybe the middle of the range longer term?

Yeah, Jake. Our goal is still to get towards the higher end of the range. It might take us a little bit more time to get there than we originally thought. COVID has slowed a lot of stuff down in development. The permitting that Raj talked about, equipment that Raj talked about, those things are getting better than all the way back. It would be great if we could get permits as fast as we used to get them. It would be great if we can get utilities turn down as fast as we used to get them. That's just not come back anywhere near where we need it to be. And as we think about construction costs, getting back to a more normal level, Raj mentioned that we've had the last few contracts that we've bid out have come in better than what we expected. And that's a good sign for us. So that will help us get back to that higher end of our framework. And I would also remember, we don't talk about this very much, but that framework includes M&A. And while we would like to get to the high end of the framework just with organic growth, M&A is prime work. And the thing is when we shared that framework earlier today, the five year delta, the five year impact to the framework, had no M&A in it. And we were still within our -- within probably the mid-range of our unit growth. So M&A is part of that. It is part of our capital allocation. So -- but we would still like to get to the high end without M&A.

Great. Thank you so much.

Thank you. Our next questions come from the line of John Park with Wells Fargo. Please proceed with your questions.

Hey. Good morning. I guess as we think about the segment profitability into '24, are there any segments that you guys see as outliers either in terms of improvement or pressure that you are expecting?

Well, I think it's fair to affect that, that as we talked about, fine dining is going to have a tough ramp in the first quarter. So -- but as far as we think about year-over-year, we expect all our segments to get a little bit better. That's kind of how we plan the year, and that's what we push our teams to do.

Got it. And then kind of just on the pricing side, so I guess in the beef inflation that you're seeing, is it fair to assume the LongHorn and find I think pricing is above that range and Olive Garden [indiscernible] is below?

Yeah. That’s a fair assumption.

Okay. Thank you.

Thank you. Our last question will come from the line of Gregory Francfort with Guggenheim. Please proceed with your questions.

Hey. Thank you. I just have two quick follow-up on labor. The first is, I guess, within that 5% labor inflation that you're expecting, how much of that's going to be statutory this year? And how much of it maybe still market pressure. And then maybe a correlated question is, as you guys are going out there at a higher new work is you're talking about turnover, the wage that it costs to hire somebody new today -- have you seen a break in that or a material break in that wage? I'm just curious as I think about how much easier it's not for you guys to hire people. Thanks.

Hey, Greg. So just let me start by clarifying. We did not say it's 5%. We said mid-single digits, and I want to make sure that it's not treated as a 5%. I think our plan actually assumes a little bit north of that, but our guidance range embeds something closer to that 6% for wage inflation. So I just want to clarify that. And then as far as the regulatory piece, the minimum wage impact, that's about just under 2%, I think, for the full year, maybe 1.5% to 2% is what we have there. And then beyond that, it's just the normal merit increases and other stuff. Now as far as the comment -- the question around wages and, clearly, the environment has gotten a lot better, we are doing a lot fewer out-of-cycle adjustments than we were doing even six months ago. So from that perspective, there is clearly a lot of, I would say, for lack of a better term, positive science in hiring environment, in the starting wages, all those things getting a lot better than where a couple of quarters ago.

And if I can just add one thing to that. If you think about our turnover coming down, that means we don’t have as many people we’re hiring as we were before. So we didn’t have to hire as many people now than we did before. And so the wage, even if the wage break didn’t happen, it’s still not as big a deal for us, but the wage break is starting to happen. But the fact that we don’t have to hire as many people helps us as well.

Awesome. Thank you, guys for the perspective. Appreciate it.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Kevin Kalicak for closing remarks.

Thanks. That concludes our call for today. I’d like to remind you that we plan to release our first quarter results on Thursday, September 21, before the market opens with a conference call to follow. Thanks again for participating in today’s call, and have a great day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.