1. Jiazi Cui Siyang Zhang Qun Yu (Jett) April 15th, 2014

2. Agenda Introduction Macro & Industry Outlook
Company & Business Overview
Financial Analysis
Financial Projection
Valuation
Summary
Recommendation
Q & A

3. Introduction Name: Darden Restaurant, Inc. Ticker: DRI
Upscale, casual, full-service dining restaurant operator
Ticker: DRI
Industry: Restaurants
Sector: Service
Market Cap: $6.39B
Headquarter: Orlando, FL
Employees: 206,578
Market Price: $48.46 (as of 4/14/2014)
Source: finance.yahoo.com

4. Macroeconomics
Source:

5. Macroeconomics
Source:

6. Macroeconomics
Source:

7. Industry Performance Restaurant Industry Sales, in billions 1970 1980
1990
2000
2010
2014
Source: National Restaurant Association

8. Industry Food service market share
A casual dining restaurant is a restaurant that serves moderately-priced food in a casual atmosphere. Except for buffet-style restaurants, casual dining restaurants typically provide table service.
Source: Chain Store Guide’s Database of Chain Restaurant Operators

9. Industry Major Multi-brand restaurant operators:
Dine Equity Inc. (Applebee’s, IHOP)
Bob Evans Farms
CBRL Group Inc. (Cracker Barrel Old Country Store)
Brinker International Inc. (Chili’s, Maggiano)
Others
Source:

10. Company Overview
The world’s largest company-owned and operated full service restaurant company and served over 441 million meals in fiscal 2013.
Owns 2138 restaurants in both Canada and United States.
Red Lobster (678 restaurants)
Olive Garden (822 restaurants)
Longhorn Steakhouse (430 restaurants)
The Capital Grille (49 restaurants)
Bahama Breeze (33 restaurants)
Seasons 52 (31 restaurants)
Eddie V’s Prime Seafood (9 restaurants)
A small amount of franchising activity in other countries.
Source: Darden 10-K

11. Company History Bill Darden, age 19, opened his first restaurant
1938
Bill Darden, age 19, opened his first restaurant
1968
First Red Lobster opened in Lakeland, FL
1970
Red Lobster was acquired by General Mills
1995
Darden Restaurants, Inc. is spun off from General Mills as a public company with Joe Lee named Chairman & CEO
2007
Darden acquires RARE Hospitality and its two brands: LongHorn Steakhouse and The Capital Grille
2013
Darden announces formal area development agreement to develop and operate a minimum of 13 Red Lobster, Olive Garden and LongHorn Steakhouse locations in Malaysia
Source:

12. Management Clarence Otis, CEO, Joined 2004
Andrew H. (Drew) Madsen, President & COO Joined 2004
David C. George, President of Olive Garden, joined 2003
Valerie Insignares, President of LongHorn Stakehouse, Joined 2004
Source: Darden 10-K

13. Sales - FY2013
Sales from continuing operations were $8.55 billion in fiscal 2013
8.6
8.6
Sales
Others
12%
8.4
LongHorn
8.2
14%
Olive Garden
43%
8.0
8.0
7.8
7.6
31%
7.5
Red Lobster
0.0
Source: Darden 10-K

14. Sales - FY2014 (9 months)
Sales from continuing operations were $6.44 billion in first 9 months of fiscal 2014, compared to 6.25 million in first 9 months of fiscal 2013
Q3 sales in FY2014 decreased 1.1%.
Sales decreased 5.6 % for Red Lobster, LongHorn and Olive Garden
83 new restaurants opened so far in fiscal 2014
Severe winter weather
Source: Darden 10-K

15. Porter’s 5 Factors High Low-Medium Medium
Bargaining Power with Suppliers
High
Bargaining Power with Customers
Low-Medium
Threats of Substitutes
Medium
New Entrants Threats
Competitive Rivalry within Industry

16. SWOT Strengths Weaknesses Opportunities Threats
Strong brand recognition
High-traffic store locations
Well-diversified restaurant brands
High-quality service
Economy of scale
Strengths
Weak marketing strategy
Less innovated menu
Debt increase from the acquisition of Yard House
Weaknesses
Strong market demand
Potential international expansions
Opportunities
Highly competitive market
Fluctuate economic condition
Threats

17. Stock Performance

18. Stock Performance

19. Financial Analysis

20. Financial Analysis

21. Financial Analysis

22. Financial Analysis

23. Revenue Projections New restaurant openings
Existing-restaurant Sales Growth
Sales Projections
($$ in mm USD)
FY2011
FY2012
FY2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
Red Lobster
Number of Restaurants
698
704
705
706
707
708
709
710
New Openings 6 1
Average Unit Sale $ $ $ $ $ $
Total Sales from Red Lobster
$ ,609
$ ,664
$ ,695
$ ,726
$ ,757
$ ,788
Olive Garden
754
792
828
843
858
873
888
893 38 36 15 5 $ $ $ $ $ $
Total Sales from Olive Garden
$ ,809
$ ,936
$ ,066
$ ,199
$ ,335
$ ,425
Longhorn
354
386
430
470
510
550
590
600 32 44 40 10
Sales per Restaurant $ $ $ $ $ $
Total Sales from Longhorn
$ ,290
$ ,431
$ ,576
$ ,725
$ ,879
$ ,939
Specialty Restaurant Group 87
110
129
148
170
196
225
259
% New Restaurant Growth
15% $ $ $ $ $ $
% Same-restaurant Growth 3%
Total Sales from SRG $
$ ,021
$ ,208
$ ,435
$ ,697
$ ,012
longer opening hours, more tables, higher traffic
Slow down the expansion of red lobster and olive garden. Longhorn is positioned as a cash cow which provides cash not only for its own expansions but also extra funds for the other brands.

24. Cash Flow Projections COGS/SG&A--proportional to Total Company Sales
Depreciation & Amortization: proportional to PP&E
Interest Expenses: Cost of Debt * Debt Outstanding
Effective tax rate – 25%

25. DCF Evaluation

26. Comparable

27. Comparable Analysis

28. Summary Thirsty for organizational changes
Low organic growth – future potential relies largely on acquisitions or divestures
International market explorations
Debt issues vs. high dividend payout
Fairly priced or slightly underpriced

29. Recommendation
Watch List

30. Questions?