Matthew Stroud - VP, IR Clarence Otis - Chairman and CEO Drew Madsen - President and COO Brad Richmond - CFO Gene Lee - President, Darden's Specialty Restaurant Group

Brad Ludington - KeyBanc Capital Markets Jeff Omohundro - Wells Fargo Nicole Miller - Piper Jaffray John glass - Morgan Stanley Jeffrey Bernstein - Barclays Capital Larry Miller - RBC Jonathan Kamp - Robert W. Baird Mitch Speiser - Buckingham Research Howard Penney - Hedgeye Risk Management John Ivankoe - JPMorgan Joe Buckley - Bank of America

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter Earnings Release. (Operator Instructions) I'd now like to turn the conference over to our host, Mr. Matthew Stroud. Please go ahead.

Good morning, everyone. With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and COO; Brad Richmond, Darden's CFO; and Gene Lee, President of Darden's Specialty Restaurant Group. We welcome those of you joining us by telephone or the internet. During the course of this conference call Darden Restaurant's officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives. Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of the date on which such statements are made and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports including all amendments to those reports. These risks and uncertainties include food safety food-borne illness concerns, litigation, unfavorable publicity, federal, state and local regulation of our business including healthcare reform, labor insurance costs, technology failures, health concerns including virus outbreaks, the intensely competitive nature of the restaurant industry, factors impacting our ability to drive sales growth, the impact of the indebtedness we incur in the RARE acquisition, our plans to expand our newer brands like Bahama Breeze and Seasons 52, our lack of suitable new restaurant locations, higher than anticipated cost to open, close, or remodel restaurants, increased advertising and marketing costs, a failure to develop and recruit effective leaders, the price and availability of key food products and utilities, shortages or interruptions in the delivery of food or other products, volatility in the market value of derivatives, general macroeconomic factors including unemployment in interest rates, severe weather conditions, disruptions in the financial markets, a possible impairment in the carrying value of our goodwill or other intangible assets, a failure of our internal controls over financial reporting and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission. A copy of our press release announcing our earnings in the Form 8-K used to furnish the release to the Securities and Exchange Commission and any other financial and statistical information about the period covered in the conference call, including any information required by Regulation G is available under the heading 'Investor Relations' on our website at darden.com. We plan to release fiscal 2011 second quarter earnings and same-restaurant sales for fiscal September, October and November 2010 on Monday, December 20th 2010 after the market close. We released first quarter earnings yesterday afternoon. These results were available on PR Newswire and other wire services. We recognize that most of you have reviewed our first quarter results, and we won't take the time to go through them in detail once again. Now we would spend time on a brand-by-brand operating summary in an effort to provide more time for your questions. Rather, Brad will provide some additional detail about the financial results for the quarter. Drew will briefly review our operating performance in the first quarter followed by Clarence, who will have some additional remarks. After that, Clarence, Drew, Brad and Gene will then respond to your questions. Brad?

Thank you, Matthew, and good morning. Darden's total sales from continuing operations increased 4.2% in the first quarter to $1.81 billion. This strong top-line performance compares to 0.8% total industry sales growth for the industry as measured by Knapp-Track and excluding Darden, indicating meaningful share growth for Darden. Darden's blended same-restaurant sales for the first quarter were up 1.1%. For context, industry same-restaurant sales as measured by Knapp-Track and excluding Darden are estimated to be flat for the quarter. Olive Garden first quarter same-restaurant sales increased 2.7%. Red Lobster first quarter U.S. same-restaurant sales decreased 1.7%. Red Lobster did have a promotional mismatch in the quarter. Last year, Endless Shrimp started in the first quarter. This year, the promotion started in the second week of the second quarter. The change adversely affected Red Lobster's first quarter same-restaurant sales results by approximately 100 basis points. The adverse effect for the month of August was approximately 300 basis points. LongHorn Steakhouse first quarter U.S. same-restaurant sales increased 2.2%. The Capital Grille's first quarter same restaurant sales increased 2.7%. Bahama Breeze first quarter same-restaurant sales decreased 0.1% and Seasons 52 first quarter same-restaurant sales increased 5.8%. Now let's review the margin analysis for the first quarter. Food and beverage expenses were 77 basis points lower than last year on a percentage of sales basis as a result of reduced food costs. We have continued to benefit from lower commodity prices in the first quarter this fiscal year, and we expect that will continue into the second quarter. In the second half of the fiscal year commodity prices are likely to be slightly higher to the prior year with an expected increase of approximately 0.5%. The net is we expect food and beverage costs as a percentage of sales to be approximately 28.5% for the full fiscal year or about 30 basis favorable to the prior year. First quarter restaurant labor expenses were 72 basis points lower than last year on a percentage of sales basis due to productivity gains and continued low employee turnover levels, partially offset by wage rate inflation. Restaurant expenses in the quarter were essentially flat to last year on a percentage of sales basis because of sales leverage offset by higher credit card fees this quarter. Selling, general and administrative expenses went 13 basis points higher as a percentage of sales for the first quarter due to the timing of general manager conferences, and increased incentive pay partially offset by slowed leverage and reduced media expense. Depreciation expenses in the quarter were marginally higher to last year on a percentage of sales basis as a result of the move to our new restaurant support center with its own versus the previous facility that was leased. For the quarter, operating profit as a percentage of sales was a very strong 10.2%, that 128 basis points better than last year and came from the combination of strong new unit sales growth and blended same-restaurant sales growth that, while positive is still below the range that we continue to expect for the full fiscal year. We're excited that we are on track to achieve a comparable operating profit return for the full year, which would see us pushing past historical peak margins. That is a tribute to the progress we've made strengthening our operating platform and business model. The effective tax rate for the first quarter was 28.8% higher than our expected annual effective rate of approximately 27%. We anticipate the second quarter tax rate will approach what we experienced in the first quarter. With the annual expectation though, remaining at 27%. We accelerated our share repurchase in the quarter spending over $95 million buying back 2.4 million shares of our common stock, leaving 5.9 million shares remaining at a current authorization to repurchase shares. We're on track to spend between $300 million and $350 million on share repurchase this fiscal year. When you add it all up, we grew sales over 4% this quarter. And earnings per share were up over 19%. Yesterday, we affirmed that we continued to anticipate reported diluted net earnings per share growth from continuing operations of approximately 14% to 17% in fiscal 2011. This compares to reported diluted net earnings per share from continuing operations of $2.86 in fiscal 2010. Our earnings expectations for the fiscal year are based on blended U.S. same restaurant sales in fiscal 2011 are Red Lobster, Olive Garden and LongHorn Steakhouse of approximately 2% to 3%. The opening of approximately 70 to 75 new restaurants in fiscal 2011 and total sales growth for the year of between 5.5% to 6.5%. Each of these estimates is consistent with the outlook we provided at the beginning of the year. And now, I'll turn it over to Drew for some comments. Drew Madsen Thanks, Brad, and I will start by sharing a few thoughts about the industry and comment briefly on both the strategy and performance of our three large casual dining brands. Industry same restaurant sales during the first quarter were equal to prior year. This represents a 140 basis point improvement versus the fourth quarter of fiscal 2010 and the fourth consecutive quarter of improvement overall. In addition, the underlying industry same restaurant sales dynamics driving this 140 basis point improvement also continued to strengthen. Industry guest counts were down 2.6% versus the prior year, and this represents 60 basis point increase versus the prior quarter. And the best absolute performance since the third quarter of our fiscal 2006. The implied check growth during the first quarter of 2.6% represents a 90 basis point improvement versus the prior quarter and the best absolute performance since the fourth quarter of our fiscal 2008. On most of our larger casual dining competitors continue to run very aggressive discount promotions. Consequently, our view is that industry check growth during the first quarter was partly driven by a reduction in discounting. But more by a combination of other factors including more normalized levels of pricing and menu mix, which we view favorably. And we believe there is improving same restaurant sales performance at casual dining chains that have a higher absolute check which we think is lifting the reported industry check average. As it relates to Darden, our strategy to drive competitively superior results during the first quarter was consistent with the approach that we'd discussed with you since the economic downturn began. We continue to be vary of utilizing deep discounts to combat difficult industry conditions, given our concerns about what this might do to long term brand integrity, long term business model integrity and related growth prospects. Our approach is to build upon the broad appeal of our brands, leverage the cost advantage that comes with our scale, utilize selective value offers across our portfolio where they are profitable in the near term and maintain the integrity of our brands over the long term, and to be consistent and reliable for our guests as it relates to pricing and check average growth. We outperformed the industry by 110 basis points on a blended basis during the first quarter. And industry same-restaurant sales are recovering faster than we anticipated, driven primarily by check growth beyond what we expected. Should that continue, our check growth will not increase as fast as the industry, and our GAAP to Knapp for our full year would be narrower than what we projected at the beginning of the year. That said, as Brad mentioned we still believe that we are on track to deliver blended same-restaurant sales growth of plus 2% to plus 3% for the full fiscal year. Now we want to briefly review the performance at each of our three larger casual dining brands. Red Lobster's same-restaurant sales declined 1.7% in the first quarter, which trailed the industry by 170 basis points. And while it only trailed by 70 basis points after adjusting for the promotional calendar mismatch related to Endless Shrimp, it was still a disappointing start to the new fiscal year at this brand. Our promotional strategy entering fiscal 2011 at Red Lobster was the feature cravable dishes at affordable price points in more promotions this year than we did last year. We started the quarter advertising American Seafood Adventure in June, a promotion we have run successfully in the past, and added a new feature dish plus a starting at $12.99 price point. However, the new entry-priced dish, seafood Jambalaya, was not a compelling enough feature to generate the special visit interest we expected and may have been further hampered by concerns related to the Gulf oil spill. We followed that with a new promotion in July, Crabfest, and a starting at $14.99 price point. However, the $14.99 price point in hindsight was probably a little too conservative, especially compared to more aggressive competitive discounts and did not attract as many price conscious consumers as we anticipated. As is mentioned in our press release, Endless Shrimp started two weeks later this year compared to last year that better aligned with the seasonally low industry period that begins after Labor Day. This resulted in having one last week of Endless Shrimp during August, and one last week during September this year compared to last year and one more week of Endless Shrimp in November, compared to last year. Now to summarize, Red Lobster's softer than expected sales results were primarily due to promotional tactics that were not as effective as they needed to be. We are confident however in our action plans to strengthen the promotional tactics we will feature over the remainder of this fiscal year. Importantly, Red Lobster delivered strong profit growth during the quarter and is making significant progress on the strategic priorities that will enable consistent long term sales growth like their Bar Harbor remodel program and VIP Service initiative. Red Lobster also completed an agency search during the quarter, and Gray advertising, the same agency used by Olive Garden and LongHorn is their new agency of record effective in December. Olive Garden achieved same-restaurant sales during the first quarter of 2.7%, exceeding the Knapp-track industry benchmark by 270 basis points. Olive Garden featured approachable price points and compelling food news during the first quarter. They began the quarter with their heart of the village promotion, featuring two new entrées and a starting at $10.95 price point. This was followed by their artesian Italian promotion which featured two new full price entrées. And then in mid-August, they began their popular Never Ending Pasta Bowl promotion, including two new sauces with an $8.95 price point. Olive Garden also achieved total sales growth of nearly 7% during the first quarter, including the impact of 32 net new restaurants compared to last year, driving continued profitable market share gain. They also began the national rollout of their welcome excellence service initiative, including a new table management system that enables increased guest throughput during peak demand periods. And they remain on track to open 30 to 35 net new restaurants this fiscal year. LongHorn Steakhouse achieved same-restaurant sales growth of 2.2% during the first quarter, exceeding the Knapp-Track industry benchmark by 220 basis points. This is the third consecutive quarter of same-restaurant sales growth and the seventh consecutive quarter that LongHorn Steakhouse has exceeded the industry benchmark. They began the first quarter with their More Than Great Steaks promotion, featuring new combination plates like Cedar Grilled Shrimp and Sirloin plus bacon-wrapped scallops and filet with a starting at $14.99 price point. This was followed by their Grilled Trio promotion, which included fresh grilled chicken, salmon, and the choice of sirloin or of linen yarn. LongHorn also generated total sales growth at nearly 7% during the first quarter, including the impact of twelve net new restaurants versus prior year, driving continued profitable market share gain. As we discussed with you in June, LongHorn will benefit from increased media support compared to prior year beginning this month, beginning in September. And the brand is well positioned to remodel another 90 existing restaurants and open 20 to 25 net new restaurants this year. We are pleased with the increase in momentum at LongHorn and look forward to continued industry outperformance going forward. As we reflect on the quarter, we're very pleased that we are able to outperform the industry by 110 basis points on same-restaurant sales and by 340 basis points on total sales. We increased our operating margins in all three of our large brands and delivered 19% diluted earnings per share growth. As Brad said, we believe this is further evidence of the strength of our brand portfolio, our business model and the appropriateness of our strategy to achieve consistent sales and operating profit growth. Now I'll hand it back to Clarence for some final comments.

We are very pleased that we were able to deliver 4% sales growth and 19% earnings per share growth this quarter and that would continue to increase our market share. And that share gain is being driven by both stronger than industry same-restaurant sales and stronger than industry new restaurant sales growth. From a same-restaurant sales perspective, we understand that the magnitude of our positive GAAP to the industry is going to vary from quarter to quarter. But we are confident we'll continue to outperform, and we're confident because we believe we are well positioned. We've got great brands, we have an increasingly effective and efficient brand support platform, we have got exceptionally talented people who are working well together. And finally, though it's not as robust as any of us would like, we have tailwind in the form of a recovering economy and a recovering industry. Now with these strengths, we were able to deliver strong results this quarter, and these strengths are why we believe that as the economy continuous to recover, for Darden the best is yet to come. And with that we will take your questions.

(Operator Instructions) Our first question will come from David Palmer with UBS.

(Stephen Carlson) here for Dave. We've now seen two quarters where your GAAP to the industry has below what we believe many would have thought, and this has largely been due to Red Lobster. Why do think this is, and what learnings have you taken from the sales shortfall at Red Lobster?

I think as we think about it, we look at our entire portfolio. We manage the portfolio and pull different levers at different plans and we talked about that really at the start of the last fiscal year. And so we are really working the different promotions trying to make them complementary across the brands. And so for us the critical numbers are, one, what the entire portfolio does compared to the industry, and two, the earnings that we get out of that. I would say from an entire portfolio perspective, on a sequential basis the GAAP to the industry increased. We think that's a good thing. We also think that we'll continue to outperform the industry. And a lot of the industry increase this quarter came from a higher check average than we anticipated. We feel pretty comfortable with our pricing and our check average growth. And to the extent the industry check average continues to be at elevated levels like they were in the first quarter that probably means a little bit of a shrink in our GAAP to the industry. But we talked at the beginning of the year about our blended comp being 2% to 3%, and we think that that's where we are lined up. We think we are pretty much on track to do that.

And as it relates more specifically to Red Lobster, I guess I'd have you take a step back and reflect on where the brand was to where it has come and what our priorities are to-date. If you look back several years, heading into last fiscal year, Red Lobster had outperformed the industry four consecutive years on same-restaurant sales, and they had done that by improving the fundamentals, the consistency, the experience and the quality of the experience. So guest satisfaction going up, the introduction of Today's Fresh Fish, Wood-Fire Grilling, improved culinary expertise, all of those things. When the industry really slowed down last summer, and competitive discounting really elevated, the strategy we had needed to be adjusted. And that's why in the second half of last year, when we started with the Seafood Dinner For Two, we began adjusting our promotional tactics to recognize that while the industry is improving, consumers remain cautious. Red Lobster has a higher than average check, and we need to focus a little bit more on providing price assurance as it relates to affordability. Those tactics worked very well for us in the third quarter last year. The specific tactics we chose did not work as strongly as we would have liked in the first quarter this year. We think we've got a good understanding of why they didn't for American Seafood Adventure and Crabfest. I would build in that learning into the tactics that we are going to use going forward. I think that's primarily the reason.

And I think just one last comment. It is an environment, given the overall macro situation we find ourselves in where we are much more tactical as everyone else is than we would be in a more normalized environment. And so some things are going to work as expected, some not quite as well, some better. And so you've seen a little bit more of that sort of period to period volatility move for example in the fourth quarter. Our tactics at all of Darden didn't work as well as we would have hoped. In the first quarter, they were spot on. And we think we are pretty good at it, which is why we think we've continued to take share on a same-restaurant basis, and to amplify that share gain with the new restaurant growth that we've got.

And the next question comes from Brad Ludington with KeyBanc Capital Markets. Brad Ludington - KeyBanc Capital Markets: I want to start off with a brief housecleaning question. If you do the breakdown in sales that you gave by brand in the release, it comes out a little higher than your total sales number on the income statement. Is there some gift card breakage or something that's not included in those numbers you gave by brand?

If you're looking at same-restaurant sales, there are a number of restaurants that aren't in that base yet, because we wait until they are sixteen months past their opening. So that would comprise any real difference. There are no meaningful adjustments at all to breakage rates or anything like that. Brad Ludington - KeyBanc Capital Markets: I was looking at total sales coming out higher than what's there. Eighteen or 6.7 comes out to 18 and it's hard to reconcile.

I think it has probably to do with some rounding of these numbers. Brad Ludington - KeyBanc Capital Markets: And then I just wanted to ask, being concerned that a lot of people have right now is commodities into 2011. It's good to hear that you are looking as for percentage commodity inflation in the second half of your fiscal year. Seems like you think you have it under control pretty well. Is there any color you can give on contracts on commodities? It seemed like most of them ended by the end of calendar 2010 left in your talk and maybe a few got extended a little bit?

We've extended some modestly from where we were if we just look through the end of the calendar year, we're 90% or more forward contracted on those prices. As you look to the new calendar year, we have a number of items that we've contracted forward. I would say we are probably on a collective basis around 40% or so mark there. We do look at some of what is going on with grain prices and some of that. It's not really being sustainable at those high levels. And so we haven't taken further protection on those. But we like the positions we have right now. And we believe that time will work to our advantage on many of those commodity prices that we're looking at today in the stock market. Brad Ludington - KeyBanc Capital Markets: I'm sorry, was that 40% through fiscal '11 or calendar '11?

No, that was for the last half of our fiscal year.

And our next question comes from Jeff Omohundro with Wells Fargo Jeff Omohundro - Wells Fargo: Another question on Red Lobster. I just wanted to dig into it a bit more. The crab fest promo, I would have thought there had been some pretty good pent up demand around that. It's been a while since you've run a crab. I was just surprised to hear that that didn't apparently meet expectations given the prod lineup. Even with that price point, I'm just wondering, is it really the price of shrimps that you need to drive more. Or could part of it be, I suppose there is no way to quantify, but maybe you can talk to lingering effects of the gulf oil spill impacting Red Lobster?

Well, I can speak more specifically certainly to the crab fest promotion. And just to step back one more time, when we put together our promotions, we particularly a new promotion like crab fest that we haven't done for quite some time, we go through a fairly rigorous innovation funnel if you will in terms of evaluating everything from the conceptual appeal of the promotion. So does crab fest as a promotion have appeal to the dishes in that promotion? Testing it in restaurant to make sure guest satisfaction and menu mix are as expected. And then advertising it on television and multiple markets to see if it drives traffic. We did all of that on crab fest. And on balance, we're very pleased with the results we saw in the test. We also thought we saw some opportunities to enhance the results that we got in the test. We adjusted the product line up modestly. And we increased the price from $12.99 in the test to $14.99. Because the test results were so strong and I think in hind sight that's why I said the $14.99 price point might have been just a little bit high. We did a seafood dinner for two offer than had basically $15 per person price. That's what gave us confidence because that promotion was very successful. But it just shows you that every concept in every set of products in every price point is unique. And that is our reflection looking back on it. And that's why I say we've got good insight we believe into but the opportunity was there. To your question about the gulf oil spill, certainly that was a big topic, particularly earlier in the summer. Particularly June and July, and as closely as we've looked at it, it is just a very difficult thing analytically to separate from everything else, all the other moving pieces that are out there. So it's too difficult for us to separate it and quantify it, although now, it's on everyone's mind, particularly in the summer. Jeff Omohundro - Wells Fargo: And as a follow up on Olive Garden, wonder if you could just give us an update on the service and throughput initial progress that you are making at that brand?

I mean that another program that we tested pretty comprehensively in the second half of last year. And it's hard, it's about giving guests better service by giving them a more accurate wait quote time, and based on that, also understanding where we have opportunities to turn tables faster and increase guest throughput. So there is a guest satisfaction and a guest count opportunity that we demonstrated last year. And it's enabled by a new table management system. We've rolled that out to roughly 150 restaurants at Olive Garden at the end of the first quarter. We hope to be in position to have it fully in place before the holidays across the Olive Garden system. And then going forward, not this year, but in future years, we will look at the applicability of that system at our other brands as well.

And our next question comes form the line of Nicole Miller with Piper Jaffray Nicole Miller - Piper Jaffray: I was just wondering if we could get some color on Capital Grille comp trends, just how things progressed throughout the quarter. And what is the price versus traffic component? And then also, as you look to accelerate the specialty restaurant side of the portfolio, that's kind of higher end position concepts, how do you view the supply and demand in that higher end space versus traditional casual dining?

As far as trends for Capital Grille, as the environment showed some improvement in the first part of the calendar year we reduced some of the incentives we used last year. And that's why our sequential trend was down a little bit. Also, we saw some weakness around Memorial and July 4 holiday. But overall we continued to experience growth during the week as business travel and entertainment continues to grow. As far as traffic and average check, we're still seeing pressure in average check. Primarily being driven by reduction add-on sales and reduction alcoholic beverage. The third question was around supply and demand for upscale restaurants. Well obviously, we see and experiencing less on the demand side compared to where we were two or three years ago. Not a lot of new high end restaurants being built out there, which is providing us an opportunity from a development standpoint. We're well along the way with adding additional Seasons 52 and Capital Grille. And we believe the environment right now is a good time for us to grow both of these brands.

The next question comes from the John glass with Morgan Stanley. John glass - Morgan Stanley: I wanted to back to your suggestion that you've seen greater or sustained level of discountings in the industry. And yet the check is rising faster than the you'd expected in the industry. And therefore you may not keep with that check increase. But assuming that it disconnects, I guess you suggested some high end restaurants are the ones that driving the check up but on a waited basis those don't seem to be that important in the overall map track. If you could just kind of clarify that. And then if the check is rising and consumers are willing to pa more for whatever reason, why won't you participate in that benefit? And then I have one follow up after that.

Well in terms of the dynamics, we see on check there is some art and there is some science in terms of trying to separate what's driving that. Now, the check increase of 2.6% was meaningfully higher than the prior quarter. And conceptually, that could be driving by discounting as you said, pricing, menu mix, or within the Knapp-Track grouping, by brand mix as well. And when we look at the levels of discounting at the biggest chains out there, first quarter this year versus the first quarter last year, for the most part it's pretty comparable. Looking it out, would be Chili's, Fridays, Outback, our brands. Chili's started their promotion this year, their 2 for $20 a little later than they did last year. But on balance the aggressive discounting is pretty similar, and as a result what we think is driving the increase isn't a dramatic change in deeper discounting, but its core menu pricing and menu mix which I said we view favorably. And we think it's important to take consistent levels of pricing, so you can, over the long period maintain your business model integrity and not shock your guests with big price increases that maybe have been artificially delayed for a year or two. So we view any check increase related to modest and appropriate pricing as positive, and we will continue to do that. On the other hand, we know it's a very value-sensitive environment still, and we are not going to be overly aggressive as it relates to the items we feature in the restaurant promotionally on our collateral material to more aggressively increase check beyond that. As it relates to your question on the brands, the brands that have a higher check and maybe have a improving trend in same-restaurant sales and as a result lifting the Knapp-Track average, they are referring to brands like Capital Grille. We're more referring to systems like Outback, Steakhouse, Ruby Tuesday that sort of thing.

Got you. And then just a follow-up. So your comps year-to-date or first quarter of 1.1%, you're sticking with it 2 to 3 but you are lobbying the easiest comparison to the year right now. So what's the justification for not lowering that range or at least tightening it to say 2 instead of 2 to 3?

Well, we think a couple of things; one is we do think the industry environment will continue to improve through our fiscal year. And so, we talked about that actually at the beginning of the fiscal year, that we thought that that would be the case. We met a lot of skepticism, but in fact it has. And so the industry was down I think about 1 point if I remember in the fourth quarter, flat this quarter. We think it will continue to improve through the year. We expect our business to continue to improve through the years the economy recovers. The slope of that recovery is not going to be as steep as any of us would like, but as we plan the year we expected it to be a slow slog, but nevertheless an improvement. And we expect to participate in that improvement.

And our next question will come from the line of Jeffrey Bernstein. Jeffrey Bernstein - Barclays Capital: Actually this is a follow-up, a separate question on labor. Just first on the comp side. The sequential comp trends, it looks like it all gets decelerated on a one and two year basis, I think even adjusting for the Red Lobster promotional shift. Obviously seems to be a little contrary to people getting excited about the Knapp-Track trends improving. I was wondering whether you can talk specifically about the sequential deceleration, and whether you can give any color on how September has begun, obviously with Red Lobster seeing the benefit, but more broadly just the various current sequential trends, and then had a follow-up on labor. Thanks.

Well, we have to go back and look at our promotional calendar for August. I mean, months are not things that we pay a lot of attention to because there's a lot of noise. In the actual calendar Labor Day came pretty late this year. It may have come earlier last year. I don't know how is that and the start of back-to-school effects. We think that the quarter last year, if I recall, got better from June to August and that's not what we saw this year if I recall.

And the biggest change for us was in the shrimp being delayed in August, which had a material impact on Red Lobster and whatever material impact on the blended comp for Darden as well. Jeffrey Bernstein - Barclays Capital: Does that bode well for September? Is there any thoughts on the first 21 days of September?

As I said, there's also one last week, then the shrimp advertising in September this year compared to last year as well because we delayed the whole promotion two weeks. We'll be picking up a week late at the end in November. Jeffrey Bernstein - Barclays Capital: And then just separately in terms of the labor side of things, it looks like it turns favorable at each brand in 1Q based on kind of your qualitative commentary in the press release. And that's if they haven't been unfavorable at each brand over each of the last four quarters. I know you mentioned I guess productivity gains and lower turnover. Obviously this will help the positive comps, but is it sustainable at these levels or presumably even greater, if comp trends improve? I know you didn't give much color in terms of the labor outlook for the rest of this year.

What I would say on the restaurant labors is you're exactly on point there with the leveraging that comes with same-restaurant sales growth. That's typical of their business models and how we look at and manage labor. So that is the key driver. Fundamentally, under that is the targets that we made on improving productivity through many of our investments that we've made, close adherence to some processes. And the continued benefit of the low turnover in the industry. So less time has to go into training and attracting new employees. And in terms of looking further out for the year, I will say it will be highly depended on same restaurants sales progress as I mentioned in beginning it is a big driver. But last year, we would expect to continue to see improvement with same restaurants sales progress.

Our next will come from Larry Miller with RBC. Larry Miller - RBC: I actually have two follow-ups. And, Clarence, I think you said that you expected industry traffic to improve and a lot of us have very limited visibility on just about any kind of sales and metrics. Can you give me some help, what are you looking at that gave you some confidence that industry traffic is going to continue to improve here?

We actually work with econometrics shop to really try to get a feel starting with just the macro. So we've got economists that start with the same sort of variable that you start with GDP growth, all of those things. We've been working with this group, Market Outlook for many, many years. And so we got some factors that we think correlate the economy to consumer spending, and then to dining out in particular. And so we do see GDP growth as opposed to decline. We don't think it's going to be tremendously exciting growth, 1.5%, 2% but that does drive stronger sales than we've seen over the past eighteen months. As we look at all the factors that are correlated to that. And so that is essentially how we start. And then we look to see, does what happens in fact validate those assumptions. The first quarter is about what we thought it would be, may be a little bit stronger because of check as opposed to traffic. Traffic is about where we thought, check is a little higher. Larry Miller - RBC: On that comment that you're seeing improvements in higher check average concepts; Red Lobster is clearly on of those. And I was just curious, Drew, if you had any thoughts about, is it actually too high or why you're not seeing that better trend? Is it a customer issue, or is it just more lower end customer than some of the ones you've mentioned? And may be in context, in your answer, can you talk about how the full price or higher item priced menu items are selling relative to some promotional items?

Yes, well, Red Lobster has, as you indicated, higher than average check and their customer base is a little lower on income directionally than some of our other brands. And as a result, we've decided that we need to emphasize affordability more, not deep discounts, but affordability. And when we've done that effectively, as we did last year with the Seafood Dinner for Two, we drive profitable same-restaurant sales growth and we drive improving guest satisfaction. We didn't do it as effectively with the tactics in the first quarter as we would have liked or as effectively as the testing we did leading up to the quarter would have indicated. It should have worked. And as Clarence said, some tactics worked better than others, and we're building the learning from that into what we do going forward. But it's less a base business question or it's less a brand question. It's more a promotional effectiveness question during the first quarter.

And our next question comes from Jonathan Kamp with Baird. Jonathan Kamp - Robert W. Baird: It's Jonathan Kamp calling in for David. My question is related to the margin outlook for fiscal 2011. I know you've touched a little bit on some of the line items, labor and a few others. But given the strong margin performance that you saw in Q1, I'm wondering if there is any specific updates previously you expected roughly 70 basis points to 100 basis points of overall operating margin expansion for the year? And I'm wondering if that for you has changed at all.

When we look at the margin performance in the first quarter, that's been very strong. We would at this point look at an annual number that's very similar to what we achieved in the first quarter. Now it's going to vary some of the seasonality of our business. But we see, as I mentioned earlier, the improvement at the food and beverage line continuing maybe not at as high level that we've seen right now. We've talked some about the ability to leverage same-restaurant sales growth and the positive impact that can have on restaurant labor. So we see those as a two biggest opportunities for us to continue to have healthy margin improvements over the prior year. I think on some of the other expenses, there are different activities going on, but that will be in the range of where they were last year, maybe some slight improvements or maybe a little bit above depending on the opportunities we see to invest and grow the business or to capture some of the opportunities out there. But the business model that we have, the support platforms that supports the 1,800-plus restaurants out there is very strong, continues to get stronger and enables us to really leverage the same-restaurant sales growth as well as the meaningful new unit growth that we have as we move forward here. So nothing has really changed from the beginning of the year in terms of the overall picture, little pluses and minuses, but still pretty darn solid.

We've talked for quite a while about really what we call transformative sort of cost initiatives that we've been pursuing, so further automating our supply chains, centralizing our facilities management really driving sustainability so we reduce our order and clean supply and energy usage in our restaurants. And we've talked about the fact that each of those fully implemented has pretty significant annual cost savings and that we are achieving those. And so we are moving toward that big number and we are getting incremental year-over-year improvements from each of those this year. We got some last year. We expect more next year. And so that certainly is helping across a lot of different line items. Jonathan Kamp - Robert W. Baird: Just, Brad, to dig in a little bit further on the cost and sales ratio, I think you said 28.5% might be a good target for the full year on that ratio. I'm wondering does that still include expectations for roughly 2% pricing for the year. And if it does, how that might look throughout the year as we go on in the coming quarters given that Q1 was slightly below that level?

I'd say the pricing will be probably right at 2%, maybe slightly below that if we look at the different brands there, but pretty close to that. As we're seeing, there could be some mixed change as promotions develop and all that. But I think the pricing obviously is impactful in all the line item analysis. And we look at the pricing that we have in there just below 2%, and the cost pressures that we're looking at are placing pressures on commodities, as well as the items that Clarence just mentioned that helped mitigate some of those costs. We're making good progress on capturing some of those gains this year. 28.5% seems to be a pretty good number for us to be expecting.

And our next question comes from Mitch Speiser with Buckingham Research. Mitch Speiser - Buckingham Research: Regarding the food cost outlook, 0.5% is the guidance for the second half of the fiscal year. And I believe what you said is that reflects commodities coming down from current levels. Could you give us a sense of what percent would your non-contracted food basket have to come down from current levels to meet that 0.5% back half forecast?

We're seeing in the back half of the year that there actually will be inflation in our commodity basket of about 0.5%. Mitch Speiser - Buckingham Research: I think I got that, and it does reflect though commodities coming off recent levels I believe. So you're making I guess a forecast that the current levels of some of your non-contracted food costs are not sustainable and coming off. So I just want to get a sense of how much do you think off of these levels on a year-over-year basis these non-contracted foods have to come down in order for your 0.5% inflation forecast to be met.

What we're saying is the non-contracted items will be coming up from where we are today of about 0.5% or so and not coming down.

And I think if you're trying to tag it to the spot market, that's not really relevant to us and we'd have to go through every cost item, because some of these we don't expect to come down from current market levels. Some of them we expect to go up, and some in the wholesale market that we play in are going to be flat and some others will come down slightly, but we'd have to walk through item by item. Mitch Speiser - Buckingham Research: And maybe just to get it right, you are expecting some of items that you look at today, you're not contracting them today, because you think they are going to come down, and then you probably will be aggressive and lock in.

Yes, we will opportunistically lock in some of those prices. We're not doing at the levels they're at today. We do think that they will mitigate some as we move through our fiscal year.

That's just the annual rhythm of the market. There are seasons where you shouldn't lock in. Or in other seasons where you should. So beef is one of those seasons where we're starting to get closer to where you probably should lock in, but we would have never done that in the summer months. Mitch Speiser - Buckingham Research: Industry traffic is still running negative. I believe Knapp-Track for your fiscal first quarter was down about 2.5%. Is it your call that traffic will swing positive in fiscal '11 at some point or are the comps improvement primarily driven by this average ticket trend that you're seeing?

I think our assumption for the industry for the year is that traffic will be negative. I mean we think sales will be negative. We thought minus 1% for the year. But for sure, traffic would be negative, which is why again we don't think we're forecasting a real robust recovery, but it will improve. I mean it will be better than it was prior year.

And our next question will come from Howard Penney with Hedgeye Risk Management. Howard Penney - Hedgeye Risk Management: Clarence, what you just said, I'm a little confused as to how you view the industry improving, as we've got GDP growth going from five to three to one round numbers. The ABC Comfort Index was down 3.59, and the University of Michigan confidence number is now down 10 points from the end of July. So how again do you get to an acceleration in sales when you have all the economic metrics decelerating?

The numbers that we really care about are the GDP numbers and the growth in discretionary and personal income, and those numbers are better than they were. I mean if you look a year ago, our industry showed negative I think on sales a minus 8% roughly. To go from that to flat reflects an environment that simply is better. It's been getting better sequentially for the last several quarters and we expect that to continue. I think a lot of it has to do with the job market, while not adding jobs is not shedding jobs, which is what we were doing a year ago. And so we think the sequential improvement that we've seen will continue. Howard Penney - Hedgeye Risk Management: And if I can just follow up on Red Lobster, everything that you've spoken to today on the call or what you've done in the last couple of years spoke to an improvement in the contracts and the execution within the story, yet it is not participating in what you've clarified today as sort of a higher check gains doing better. But the change that you suggested would put Red Lobster in that category as well. Is there something about maybe the asset base hasn't improved enough or maybe your core consumer that goes there and you haven't broadened out the consumer that you're bringing in? I'm confused.

As we think about it again and look back over the last couple of years, you had an environment where despite its much higher than industry average check, Red Lobster was gaining share. Most of the people that had check that was comparable to Red Lobster were seeing some fairly significant share declines. And now they've stabilized. I guess that's how we think about it. And that stabilization is good for them. But Red Lobster has been a share winner. And so there are not as many guests to recover I guess as some of the other chains.

And I would add that what it's taken for them to stabilize from a promotional strategy standpoint is far more aggressive than what we are doing at Red Lobster. And while it may be leading to a same-restaurant sales stabilization, it's less clear what it's doing to operating margins and profit.

And then, just to go back to the prior question because I dug out the numbers. But first quarter last year, industry down 7.8%, down 6% in the second quarter, 4.2% in the third, 1.4% in the fourth, flat now. And we expect that sequential progression to continue. Actually we expect the progression to decelerate, but still continue.

Our next question is John Ivankoe with JPMorgan. John Ivankoe - JPMorgan: Just a couple of quick ones. It seems like there are some opportunities still with acquisition synergies and other initiatives that you've identified previously to save on cost. And you're doing a better job of managing labor. But the turnaround is slower than even your projections, I mean which don't sound you are very robust for the industry overall. Are you willing and do you have the opportunity to cut other costs in the business and we might be up for a prolonged consumer weakness to protect the overall economics of the business?

I would say yes, John. We've talked about the three items that have been on the table from a transformative cost perspective. There are other things that can placed on the table. Obviously there is opportunity cost to pursue in those because in many cases it touches a lot of people throughout your organization and it gets in the way of having them deploy to build sales. But to the extent that we didn't think the sales building opportunity was there, we'd incur that cost.

And I would add, as Clarence mentioned earlier, the three major transformational projects we're working on are progressing on or ahead of the pace that we've communicated in the past. And the level of incremental savings this year compared to last year from those three projects is meaningful. John Ivankoe - JPMorgan: Just quickly, given current interest rates especially for a company like Darden being I guess at all time lows, do you have any opportunity to refinance the balance sheet, or does it now make sense to even extend the balance sheet beyond or the debt on the balance sheet beyond current levels?

We continued to look at that and have made some hedging of some of our future anticipations. And when you get the Q, you can see more of those. But we see it as a very favorable interest rate environment. So we are locking some of those up. But what I would say is the strong cash flows from our business and our ability to reinvest that into the remodels and new unit growth. We are still generating excess cash. So we're returning that in the form the increased dividend and meaningful share buyback in this quarter and anticipate that continuing throughout the fiscal year. So yes, it's a good time to be borrowing, but we also have strong cash flow. So we don't have a need to do that, but we are managing it as prudently as we can in terms of our debt balances.

Our next question is going to come from Joe Buckley with Bank of America. Joe Buckley - Bank of America: Just a clarification question on the food basket. I know several have been asked already. But can you sort of clarify that you are saying inflation for the food basket in the second half will be up half a point and not food course as a percent of sales. And may be in the context of that answer, can you talk about seafood and beef, specifically just what you have locked and for how long?

It is half a point in our food basket as opposed to percent of sales, that's right.

And Clarence kind of mentioned earlier about the seasonality in beef. So we are entering that period where we have the least amount contracted forward. So if we look into the new calendar year, we know we are in that 20% give or take a little bit of range because this isn't the time that you would seasonally do that, but we are approaching that. I think you mentioned on seafood, particularly the shrimp, lobster, crab the big items, we're two thirds or more for price protected on those items. So a big part of it is done. The piece that we are still waiting to move on would be the beef component though. Joseph Buckley - Bank of America: On the Olive Garden table management system that you are in the process of rolling out, can you just remind us, sort of what's involved there? Is their any new technology or is it scheduling or is it just the way you are covering servicing the tables with the staff?

I would say it touches a pretty broad area, but it starts with the lobby experience and trying to make that better. By really getting away from what today exists of pen and paper with a greeter that is fairly pressured to give a quote time. So the first step is to provide more accurate quote time. And so that makes the lobby experience better into the guests. You are getting a better time, they don't potentially get an artificially long time. So that you are not faced with frustration of not meeting the expectation there.

But that is a technology solution. It's automated.

It's automated so that is a much more fail-proof system. Increases consistency and accuracy throughout the whole system. It also gets us into managing the dining room better. So we know where there are open tables, and how to better manage those. It also ensures that all the checks are run up. So there are some advantages there. And importantly gives a new point to help project guest counts, because now we can measure how many guest are waiting to get into the restaurant that you typically can't capture in our old system. So we can better anticipate demand, better staff the dining for the guest when they are ready to come versus when we are ready to serve them. So it really touches a broad array of item for us in terms of managing the overall guest experience to make it better, managing our P&L. And the results for Olive Garden have been a pretty meaningful. So we are pleased with that, and as we talked about we'll move that to the Olive Garden system and then opportunistically, we'll moved it into other brands as well.

But is the technology solutions so both the hardware and software.

We would like to thank everybody for joining us on the call today. We recognize there were several of you still on queue. We are here in Orlando to answer questions, please give us a call. We look forward to speaking with you in three months in December. Thank you very much.

Ladies and Gentlemen, that concludes our conference for today. Replay will be available after 10:30 running through October 22, at midnight. And the access to AT&T executive playback service, by dialing 1800-475-6701 and entering the access code 170692. International participants may dial 1320-3653-844. That does conclude our conference today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.