Darden: No Cuts in Advertising

by: Judy Weil

Key quotes from Darden Restaurants FQ209 conference call:

Advertising is still up:

We were able to successfully strengthen our advertising and promotion plans to address the growing consumer need for increased value and affordability.

Both second quarter promotions were supported with new commercials, as well as Olive Garden's unlimited soup, salad, and breadsticks equity building advertising.

The Longhorn Steakhouse team has strengthened their second half marketing plan in several important ways. First, they have optimized the day part mix in their media plan, allowing them to expand advertising support from 46% of their restaurants currently to 60% of their restaurants, while also increasing media weight by 25% without an increase in media spending.

A new advertising campaign is currently in test that we believe communicates in a compelling way the benefits of Longhorn while also clearly differentiating the brand from other steakhouse competitors. If successful, this campaign will begin in March.

In a recession, people hold on to their jobs for dear life, reducing turnover, reducing wage cost pressures:

We’ve noticed turnover reducing in our restaurants, which is a very positive thing because it saves us hiring costs and training costs, we’ve noticed our staffing par is going a little higher than we need to effectively run our restaurants, particularly in managers per restaurant. So we’ve been appropriately reducing the managers per restaurant back to target.

Perhaps in some cases it's fiscally responsible to be buying back company stock:

In our second quarter we saw an unprecedented decline in our stock price.

Q: We saw in this quarter that you continued to buy back stock. Many companies did not. Should we assume that free cash flow kind of in the future continues to go to buying back stock or is conserving cash or debt pay-down more of a priority at any point in the future?

A: I can see us buying up to $200 million but it’s a challenging environment out there, so we’ll keep reassessing it as we go through the rest of this fiscal year.

Food preferences in a recession:

We did see an increase in soup, salad and breadsticks preference at Olive Garden. We think that probably does reflect a value, a desire for value.

Shellfish prices seem like they have come down pretty hard.