Matthew Stroud - VP, IR Clarence Otis - Chairman and Chief Executive Officer Drew Madsen - President and Chief Operating Officer Brad Richmond - Chief Financial Officer Gene Lee - President, Darden’s Specialty Restaurants

David Palmer - UBS David Tarantino - Robert W. Baird Steve West - Stifel Nicolaus Jeff Omohundro - Wells Fargo Mitch Speiser - Buckingham Research Andrew Barish - Jefferies Matt DiFrisco - Oppenheimer Joe Buckley - Bank of America Jeffrey Bernstein - Barclays Capital Brad Ludington - KeyBank Alvin Conception - Citi John Glass - Morgan Stanley John Ivankoe - JP Morgan Jason West - Deutsche Bank

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter earnings release conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call please press star then 0. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Matthew Stroud. Please go ahead.

Thank you Greg. Good morning. 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 Restaurants’ 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 and 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 incurred in the RARE acquisition, our plans to expand our newer brands like Bahama Breeze and Seasons 52, a 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 and interest rate, 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, 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 Web site at darden.com. By way of information we will hold an analyst and institutional investor meeting in Orlando on January 31st through February 1st 2011. This event will also be Web cast for those unable to attend. And we plan to release fiscal 2011 third quarter earnings and same-restaurant sales for fiscal December 2010, January and February 2011 on Thursday, March 24, 2011 after the market close. We released second quarter earnings yesterday afternoon. These results were available on PR Newswire and other wire services. We recognize that most of you have reviewed our second quarter results so we won't go through them in detail once again in an effort to provide more time for your questions. Rather, Clarence will offer a brief overview, Brad will provide some additional line item detail about the financial results for the quarter, Drew will review the second quarter operating performance of our larger brands followed by Clarence, who will have some closing remarks. After that, Clarence, Drew, Brad and Gene will then respond to your questions. Clarence.

Thank you Matthew. As many of you know, after what has been an extended period of same restaurant sales declines this is the second consecutive quarter of same restaurant sales growth here at Darden. And as the economy recovers even at a pace that is much slower than any of us would like, we’re increasingly confident we can sustain same restaurant sales growth going forward. So we think this is a good time to reiterate how we view success for our business in an environment that supports growth. And quite frankly, we feel good being able to talk about that after what has occurred over the last couple of years. Our long-term target for same restaurant sales growth is 2-4% and that has been the target for some time now. It’s a level, which when combined with the 4-5% new unit growth our brands will generate collectively, enables us to do two very important things - one, grow market share in full service dining and two, grow diluted earnings per share 10% to 15%, which is our long-term target range. The other important variable in all of this of course is costs, especially labor and food costs. And we’re confident that with the level and composition of top line growth I just described we can deliver 10-15% earnings growth even as we see volatility in one cost category or another. And the reasons for our confidence are our very robust support platform and we think just as important, our track record of success in working on a consistent basis across the company to make that platform more and more efficient and more and more effective. This year we’re better able than we have been in a couple of years to show how our approach works and that’s because given our results for the first half of the year we’re on a pace to be at the lower end of our long-term range for same restaurant sales growth for the full year and likely to be at or higher than the top end of our 10-15% long-term target range for EPS growth. So from a big picture perspective we’re delighted. The worst seems to be behind both our economy and our industry and we’re even more delighted with how our company’s year is shaping up and with how we’re positioned here at Darden for the future. And with that, I’ll turn it over to Brad for more details.

Thank you Clarence and good morning. Darden’s total sales from continuing operations increased 5.2% in the second quarter to $1.73 billion. This strong top line performance compares to plus 1.7% total sales growth for the industry as measured by Maptrack, indicating meaningful market share growth for us at Darden. On a blended, same restaurant sales basis Darden’s second quarter sales were up 1.4%. For context, industry same restaurant sales as measured by Maptrack and excluding Darden are estimated to be up 1% for the quarter. Olive Garden’s second quarter US same restaurant sales increased 2.0%. Red Lobster second quarter US same restaurant sales decreased 1.6%. I should note that Red Lobster had a promotional mismatch in the quarter concerning Endless Shrimp, which Drew will discuss in more detail in his remarks. Longhorn Steakhouse second quarter same restaurant sales increased 6.8%. The Capital Grill second quarter same restaurant sales increased 5.6%. Bahama Breeze second quarter same restaurant sales increased 3.2%. And Seasons 52 second quarter same restaurant sales increased 3.8%. Now let’s review the margin analysis for the second quarter. Food and beverage expenses were 5 basis points lower than last year on a percentage of sales basis. As a result, our reduced food costs mostly offset by approximately 60 basis points of negative mix changes related to our promotional offering strategy, which Drew will discuss in a moment. In the second half of the fiscal year our commodity costs will be 1 to 1-1/2% higher than last year and on a percentage of sales basis food and beverage costs will be flat to last year for the full fiscal year. We have most of our commodity needs locked in for fiscal 2011, offering us good visibility on our costs for the next two quarters. The commodity we have the least amount of coverage on for the second half of the year is beef, which is approximately 25% covered and represents 14% of our food cost basket. We believe there will be a better opportunity to extend coverage after the holidays on this commodity. We will share more detailed purchasing information at our upcoming analyst and institutional investor meeting next month. Second quarter restaurant labor expense was 122 basis points lower than last year on a percentage of sales basis due to productivity gains and continued low employee turn over levels partially offset by increased benefit expense. Restaurant expenses in the quarter were 24 basis points higher than last year on a percentage of sales basis because of additional pre-opening expenses this quarter from our higher restaurant opening pace and increased credit card usage. Selling, general and administrative expenses were 8 basis points higher as a percentage of sales for the second quarter due to increased media expense partially offset by lower compensation related expense. Depreciation expense in the quarter was marginally higher than last year on a percentage of sales basis as a result of 63 net new restaurants. For the quarter operating profit as a percentage of sales was a seasonally strong 7.3%. That’s 93 basis points better than last year and came from the combination of strong new unit growth and our blended same restaurant sales growth. We’re on track to achieve an operating profit return on sales for the full year that would see us approaching historical peak margins. Now that’s a tribute to the progress we have made strengthening our operating platform and business model and demonstrates our earnings capability as economic improvement supports the resumption of same restaurant sales growth. We continue to experience some movement in the quarterly effective income tax rate. We now expect a 50-basis point increase in the annual effective rate to the mid-27% range. We expect to be above that rate for the third quarter and below it in the fourth. We are raising our capital spending expectations by $25 million to $525-550 million because we are accelerating Longhorn’s remodel pace and we’re filling the pipeline for next year’s new unit openings a little faster than anticipated. During the second quarter we spent $75 million buying back 1.6 million shares of our common stock and we announced yesterday that our board of directors has authorized an additional 25 million shares for repurchase. This amount coupled with the 4.3 million shares remaining from the previous authorization means our total share repurchase authorization is now 29.3 million shares. We’re on track to spend between $300-350 million on share repurchase this fiscal year. When you add it all up it was a very good quarter with sales growing over 5% and earnings per share up nearly 26% and it capped an excellent first half of the year. Yesterday we affirmed that we continue to anticipated reported diluted net earnings per share growth from continuing operations of approximately 14-17% in fiscal 2011, which is consistent with the outlook we provided at the beginning of the year. This compares to a reported diluted net earnings per share from continuing operation of $2.86 in fiscal 2010. Our earnings expectations for the fiscal year recognize that the pace of economic recovery continues to be uncertain and our base on first blended US same restaurant sales in fiscal 2011 for Red Lobster, Olive Garden and Longhorn Steakhouse of approximately plus 2%. The opening of approximately 70-75 net new restaurants in fiscal 2011 and total sales growth in fiscal 2011 of between plus 5 and plus 6%. Now here is Drew with some comments.

Thanks Brad. I’ll start by sharing a few thoughts about the industry and then comment briefly on the strategy and performance of our three large casual dining brands. We estimate that industry same restaurant sales excluding Darden during the second quarter were up approximately 1%. And this represents a 120 basis point improvement versus the first quarter of fiscal 2011 and the first quarterly same restaurant sales increase for the industry in 19 quarters. The underlying dynamics in industry guest counts and check also continued to improve. Industry same restaurant guest counts excluding Darden of approximately minus 1.4% improved 150 basis points compared to the first quarter and that’s the fifth consecutive quarter of improvement. And industry check growth of approximately 2.4% represents a 30 basis point reduction versus the first quarter and in our view is approaching a more sustainable level. Now many of our large casual dining competitors continue to run very aggressive discount promotion. Consequently, our view is that industry check growth during the second quarter was driven less by a significant reduction in discounting and more by a combination of other factors including more normalized levels of pricing and menu mix, which we view favorably. We also believe industry check growth could be driven in part by a changing guest mix where less affluent guests who tend to have a lower check are reducing their restaurant visits and are changing brand mix where same restaurant sales performance at some casual dining chains with a higher absolute check are rebounding versus a soft year ago period. As it relates to Darden we continue to be wary of utilizing deep discounts to combat difficult industry conditions given our concerns about what this might do to the long-term integrity of our brands and business models. In fact, our second quarter promotion plans at Olive Garden represent a significant reduction in the level of value oriented price point advertising compared to prior year. Longhorn had one less week of value oriented price point advertising this year but benefitted from a more effective promotion and increased media weight. Red Lobster had a number of promotion timing and tactical changes versus last year, which I’ll discuss in just a minute. From an individual brand perspective Red Lobster’s same restaurant sales fell 1.6% in the second quarter, which was clearly below our expectations especially during the first two weeks of September. However, we believe Red Lobster is making the appropriate course corrections to both elevate affordability for their core guests while also increasing profitability. I want to spend a couple of minutes recapping the timing, duration and tactics of Endless Shrimp to help you fully understand the same restaurant sales dynamics and trends at Red Lobster during the second quarter. Last year Red Lobster decided to add a week to their Endless Shrimp promotion and to start it earlier than normal to help address the very difficult business conditions and more elevated consumer need for affordability that they faced at that time. This year they chose to return to a more normalized duration and timing. As a result, this fiscal year Endless Shrimp began two weeks later and was one week shorter in duration. More specifically, the promotion began in the second fiscal week of our second quarter this year compared to the last fiscal week of the first quarter last year. Consequently Red Lobster had one less week of Endless Shrimp support during both August and September this year when the promotion had higher launch rates of television support last year and one additional week of Endless Shrimp support during November when the promotion was winding down and lower weights of television support. Beyond timing and duration the promotion started somewhat slower than we expected in September prompting us to change marketing tactics in October. Similar to last year, the promotion was originally priced at 16.99 in approximately 1/3 of our restaurants and 15.99 in the remaining restaurants. In October we lowered the price to 15.99 in all of our markets and featured that price point in our advertising, something we have not done in the past. WE also developed a new commercial with greater focus on the food and value message. These changes brought about an immediate increase in sales and traffic as evidenced by our October and November same restaurant sales improvement. While this change resulted in slightly higher food costs as a percent of sales, which is part of the promotional mix change that Brad mentioned previously, it also contributed to meaningfully stronger sales and improved profitability versus prior year. In the final two weeks of the fiscal quarter Red Lobster introduced a new surf and turf promotion featuring several new dishes at price points of 14.99, 17.99 and 19.99. We’re pleased with the early performance of this promotion during the last two weeks of the quarter and in combination with the Endless Shrimp improvements discussed previously, we believe it helped Red Lobster deliver same restaurant sales growth of 1.8% in November. Red Lobster also launched a new core menu in November with several new dishes in the $15 range, which we believe will help address affordability concerns among our current core guests. In addition, Red Lobster completed the roll out of their VIP service initiative, which will deliver more personalized service to guests. And early feedback is very positive and guest satisfaction scores continue to increase. The Bar Harbor remodel program at Red Lobster continues to help strengthen brand image and deliver same restaurant sales growth in excess of our value creation hurdle. At the end of our second quarter 118 restaurants have been remodeled including 34 that were completed during the second quarter and we anticipate completing the entire chain by the end of fiscal 2014. So to summarize, Red Lobster same restaurant sales started the quarter slower than anticipated and following some tactical changes to their Endless Shrimp promotion they achieved a recovery in sales and traffic during October and maintained this momentum through November. This resulted in Red Lobster delivering solid operating profit growth for the quarter. Olive Garden achieved same restaurant sales growth during the second quarter of 2%. Olive Garden began the quarter with their popular Never-ending Pasta Bowl promotion featuring two new sauces and an 8.95 price point. This was followed by their Passion for Cheese promotion featuring two new entries, Shrimp Sacchetti and Chicken Sacchetti. And in case you didn’t know, sacchetti are small, purse-shaped pastas stuffed with four Italian cheeses. Both promotions were supported by national Spanish-language advertising similar to last year. However, there were two significant changes to our marketing strategy at Olive Garden during the second quarter. Last year given the more challenging economic environment we added soup, salad and breadsticks secondary lunch advertising with a 6.95 price point during the Never-ending Pasta Bowl promotion. And we also featured our Passion for Cheese promotion last year at a 9.95 price point in our advertising. This year with expectations for an improving economic environment Olive Garden returned to a normalized second quarter marketing plan with less media pressure given the absence of lunch advertising during Never-ending Pasta Bowl and less value messaging primarily due to no price point during the Passion for Cheese promotion. In total, Olive Garden went from 18 weeks of value oriented price point advertising last year to 10 weeks this year. We believe these actions will help us maintain the long-term integrity of the Olive Garden brand and business model while also being fully consistent with achieving profitable same restaurant sales growth in the near term. They also completed the national roll out of their Welcome Excellence Service initiative including a new automated table management system that provides more accurate wait time quotes for quests and enables guest throughput during peak demand periods. Olive Garden achieved total sales growth of nearly 6% during the second quarter including the impact of 33 net new restaurants compared to prior year, driving continued profitable market share gain and they remain on track to open 30-35 net new restaurants this fiscal year. Longhorn Steakhouse achieved same restaurant sales growth of 6.8% during the second quarter. They began the second quarter with a new steakhouse dinner for two promotion featuring a choice of two entrees and either an appetizer or dessert to share for a total of 29.99. This was also Longhorn’s first promotion to benefit from national cable media support, which began in mid-September and ran through October. Historically Longhorn has run spot network and spot cable advertising covering approximately 60% of their restaurants in media efficient markets. During the steakhouse dinner for two promotion all restaurants received cable media support and clearly the combination of a strong promotion and national cable was a success with same restaurant sales growth of 8.3% and 6.5% in September and October respectively. We will continue to leverage national cable advertising on select promotions but not all promotions going forward. Beginning November 1 Longhorn once again ran their stuffed filets promotion with a choice of a new three-cheese of crab-stuffed filet. This promotion while not featured on national cable, was well received by guests during November and will continue to run through the holiday season. The Ranch House remodel program continues to help strengthen brand image and deliver same restaurant sales growth in excess of our value creation hurdle at Longhorn as well. They have remodeled 60 restaurants so far this year and should complete the entire chain during the first quarter of fiscal 2012. Longhorn also generated total sales growth of over 12% during the second quarter including the impact of 17 net new restaurants versus prior year, driving continued profitable market share gain. And they remain on track to open 20-25 net new restaurants this year. We’re pleased with the strong momentum at Longhorn and look forward to continued industry outperformance going forward. So as we reflect on the second quarter we are pleased that we were able to outperform the industry by 350 basis points on total sales and by 40 basis points on same restaurant sales, increase our operating margins at all three of our large brands and deliver 26% diluted EPS growth. 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.

Thank you Drew. Let me close by just saying we’re very pleased of course with our 26% earnings per share growth this quarter and with our sales growth of over 5%. We’re even more pleased with what that says about the state of our business. As I said at the outset, we have worked hard for some time now to develop a more robust and more cost efficient brand support platform and our level of earnings growth as we begin to enjoy same restaurant sales growth is a reflection of the progress we have made. In parallel with that work we have taken steps to strengthen our portfolio of brands. More specifically we have put in place a portfolio that has very strong unit growth prospects and our total sales growth, which reflects meaningful growth in our share of full service dining, speaks to our success on that front as well. In short, we’re delighted that Darden is extremely well positioned. Again, we’ve got great brands, we have an increasingly effective and efficient brand support platform and most importantly, we have exceptionally talented people who are working well together. Those are the reasons we were able to deliver financially once again this quarter and they’re also why we believe that as the economy continues to recover the best is yet to come for our company. And with that we will take your questions. Thank you.

Ladies and gentlemen, if you wish to ask a question please press star then 1 on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question please press star, 1 at this time. And please limit yourself to one question and one follow up so we can get through as many questions as possible today. Your first question comes from the line of David Palmer from UBS. Please go ahead.

Thanks. Just one long winded question here and forgive me. It looks like the first half of fiscal ’11 you had a big earnings half of 24% tax adjusted with just 1.3% same store sales growth. The guidance of course implies something more conservative on earnings but of course more aggressive on same store sales. I can imagine that the lower earnings guidance is partly due to the rising input costs and the fact that you might be trying to reasonably be conservative on EPS but I wonder how much is due to two things, first is your incentives as management, literally your pay incentives, which may mean that delivering much above 15% or much above the high end of your guidance this year may not get you paid a lot more. In other words, reasonably you guys would love to be more of a consistent mid-teens delivery company and that’s where you’re focused especially on the eve of a more inflationary food year in fiscal ’12 you’re going to find ways to reinvest and expense things this year. And then second, there seems to be some realization particularly at Red Lobster that you’ve got to push more food value to the guests. And perhaps a lot of that is what’s driving some of this into the second half. Would love your thoughts. Thanks.

Yeah. I think I’ll invite everyone to comment so I’ll start. This is Clarence and I would say for sure it’s not about pay incentives. And so we have got an incentive structure that really pivots off both sales growth and earnings growth and beyond that it also pivots off relative sales growth and relative earnings growth. So real incentive to make sure that we have competitively superior growth in both of those metrics. And pay goes up a lot north of 15% and so there is certainly an incentive to work there. I think Brad really touched upon it. We have got an economic recovery where the pace continues to be uncertain. We’ve got a consumer environment while stronger than it has been, continues to have some level of fragility to it. We’ve got a winter quarter ahead of us and weather is always a wild card in our business. And so we think it’s prudent given all of that to provide you with the guidance that we have provided you with. I think from an invest in the business perspective we feel comfortable with the level of investment in the business that we started the year with. And so I don’t know that we’re reamping a whole lot up. I think Brad mentioned one of the places where we are and that’s just on the capital expenditure side because we are accelerating the remodels at Longhorn and we are taking advantage of a challenged real estate market to build the pipeline for new units for next year a little faster than we had anticipated.

And as it relates to your question on Red Lobster what we’re doing now is refining some marketing tactics to address affordability needs of their current guests more effectively while at the same time continuing to do what we need to do long term to refresh the brand and attract lapsed users. So continuing to invest in remodels, continuing to leverage wood fire grills, continuing to elevate service in our restaurants but utilizing select price points in advertising more consistently, introducing some more moderately priced but highly satisfying dishes to the menu in the $15 range for example. But we think we can do all of that and drive profitable increased profits in the second half.

Thank you.

Your next question comes from the line of David Tarantino from Robert W. Baird. Please go ahead.

Hi. Good morning. Drew, just a follow up on Red Lobster, a two-part question. First, could you clarify the benefit in November from the extra week of Endless Shrimp promotion first? And then second, perhaps maybe share some of the learning that you’ve had on some of the tactical changes you’ve made in promoting that brand that you just mentioned and talk about your level of confidence that you can reduce the volatility in the same store sales trends going forward with those types of tactics. Thanks.

Okay. As it relates to Endless Shrimp, the benefit in November was probably about a point in same restaurant sales. And the broader question of what we’re learning about Red Lobster is the current guest base, which compared to casual dining is at the margins slightly less affluent and as a result has a more elevated need for affordability. What we have learned is that in promotions at Olive Garden and at Longhorn we were able to use starting at price points, starting at 10.95 or starting at 11.95 effectively. At Red Lobster that didn’t provide sufficient price certainty to guests because they do have some highly cravable, highly satisfying dishes that core guests buy that are in the 20s. So what we learned is we need to be more specific in what the price point is that we’re communicating to give price certainty. And so for instance, that’s why we added 15.99 into the Endless Shrimp commercial this year. The same price it’s been in a majority of the country for the last couple of years but current guests needed a reminder about what it was. And so that’s probably the biggest learning that we have gotten. We don’t need to discount aggressively and cheapen the experience or erode margins. We need to give high quality seafood at affordable prices and then communicate it more consistently than we have in the past. And at the beginning of this year we had starting at price points in our promotions versus absolute price points.

I would say just one quick add is we certainly learned the importance of television advertising and we did make a slight shift at Red Lobster into digital from television and we learned that that is probably premature.

Yeah and I should have mentioned that. So the first week of September this year Red Lobster had no television advertising support and that was comparing to the first week of September last year, which was the second week of Endless Shrimp at elevated launch levels of advertising support. And that mismatch is something that we probably wouldn’t do again in the future.

Helpful. Thank you.

Your next question comes from the line of Steve West from Stifel Nicolaus. Please go ahead.

Hey. Good morning guys. Could you maybe talk about your same store sales trends that you’re seeing at the specialty restaurant concept stores like Cap Grill and Bahama Breeze? You’re trying to connect to I think a more affluent consumer coming out. Is really that what you’re seeing at the specialty concepts or is it more an easy comp story? And as a follow up to that could you maybe discuss as you’re looking into 2011 and healthcare reform talking about putting menu counts on the menus, how you guys are maybe thinking about trying to avoid some sticker shock with the consumer? Thanks.

Yeah. I will kick off on the specialty restaurant group and then Gene will add the real observations and Drew will handle the second question. I’d say for sure we have seen a greater bounce back in the more affluent customer. And so we see that at our mass market brands, we certainly see it at our specialty restaurant brands as well. But they also have other pieces to their business that are bouncing back nicely as well.

Yeah. Good morning. This is Gene. We’re experiencing balanced growth across all aspects of the business. We’re seeing strong growth across lunch and dinner, weekday, weekend and private dining is real strong. So we’re seeing I think it’s a combination of both luxury consumers is back in the marketplace and we’re continuing to see strength in business travel and entertainment, which continues to grow and get more robust.

As it relates to menu disclosure, we’ve got a handful of restaurants that already disclose calories today and we have not seen meaningful menu mix changes there. But it’s a small group of restaurants. We have been testing menu disclosure in a bigger group of restaurants to see if consumer behavior changes or not and what the implications of those potential changes might be. As I said, we’re only about halfway through the test but so far we haven’t seen any meaningful shifts in behavior, shifts in menu preference with any meaningful check or margin implications yet.

Your next question comes from the line of Jeff Omohundro from Wells Fargo. Please go ahead.

Thank you. Another question on Red Lobster, it seems like both with Crabfest and now Endless Shrimp there has been something of a mismatch between the pricing strategy and what consumers seem to be willing to pay for these promos. I’m wondering is this a function of perhaps too positive a view on your part about the pace of recovery? Or do you need to further refine the consumer testing before launching promos like this? Thanks.

No. I would say we certainly see improvement and we expected improvement as we look backward to the more difficult times that we all experienced in 2008 and 2009. We started to emphasize value a lot more than we had in the past and our goal is to get back to more balance in our promotional calendar, in our message to consumers in our advertising. And we’re starting to try to pull back a little bit and that pull back is going to take more time at Red Lobster and it’s going to take a high level of skill. And so those are the two parts of it.

And that skill part is where it gets a little tricky but what I would say we’ve learned is to effectively address the need for affordability we need to do a couple of things. We have to have cravable new dishes combined with price point certainty and those two things have to work together. And earlier in the year we either didn’t have cravable new dishes so in American Seafood Adventure where we were featuring the seafood jambalaya we didn’t have a cravable new dish. In Crabfest a starting at 12.99 price point we’ve learned didn’t give the absolute price certainty that the core guests wanted. It starts at 12.99 but are most of the dishes going to be in the $20 range for instance? And what we learned with Endless Shrimp when we changed the marketing tactics is that communicating a specific price point, 15.99 with some new flavor preparations gave people the certainty they need and it drove meaningful improvement in October and November. It’s not unlike what we learned last January when we introduced seafood dinner for two at 29.99, basically a specific price of $15 for specific new dishes. So the combination of cravable dishes and price point certainty executed with good commercials and so forth works.

And I would say Drew talked about Red Lobster’s current promotion, which is a surf and turf promotion. We’re very specific about the price points there. So three different price points, 14.99, 17.99 and 19.99 versus a starting at and only mentioning the bottom one. So we don’t think it means that we have got to have a low price across every promotion but certainty about what the price is is very important.

Very good. Thanks.

Your next question comes from the line of Mitch Speiser from Buckingham Research. Please go ahead.

Thanks very much. On your revised comps guidance of 2%, that still implies about 2.8% comps in the back half of fiscal ’11. Can you discuss particularly off of more difficult comparisons where you see that uptick? And maybe if you can address you did mention to us in this quarter there were 10 weeks of value oriented promos versus 18 weeks last year. In the back half of fiscal ’11 can you give us a sense of where that relative value will be. And in general where do you expect this comps uptick on a one-year and two-year basis to come from? Thanks.

Yeah. I don’t think we want to get very specific but I would tell you that tough is a relative word. So last year the overall environment was pretty difficult and this year it’s better in the first half of this year than it was in the first half of last year. We expect it to be better still in the second half of this year and when you compare the second half of this year to the second half of last year it’s a much better environment. And so while on the map the numbers may be as you said, when we talk about the environment in which we operate it is a much better environment. And we think that we should expect to do much better in that environment than we did in the tougher environment. And I think we’ve shown that just through the first half.

And Mitch, this is Brad here. I mean if you take Clarence’s point and just look at where we have been in the most recent two months of October and November, really it’s just a continuation of our current level of performance. As he said, an environment that’s better than it was last year and probably some modest improvement as we move through the rest of our fiscal year.

Your next question comes from the line of Andrew Barish from Jefferies. Please go ahead.

Hey guys. I’m still trying to figure out the move in food costs. You talked about promo shifts but with less value here in the quarter other than the shift at Red Lobster and Endless Shrimp I’m not quite getting why that would have a negative impact on food costs. Is there something else going on there?

When we talk about that we’re also looking at the entire promotional shifts there. So one, we did feature at Longhorn they had a price pointed feature on there that was well received but also had a little bit of higher food cost. Guests, if you give them an array of products and they typically find the better items on there. So that put upward cost pressure for us as well as what Drew talked about on the Endless Shrimp, particularly changing the price point for the latter part of that promotion were the really two big drivers of that. And in particular the percent of guests ordering Longhorn Steakhouse dinner for two this year was much higher than the percent of guests ordering their price pointed promotion last year in part because it was a more compelling promotion and in part because more people knew about it because of the network/cable.

And I would just remind us that we’re talking about food costs as a percent of sales. So the percent of guests ordering was higher but there were a heck of a lot more guests. And so at the end of the day operating profit is significantly higher and that’s the whole goal here.

I think that shows up in our restaurant labor line where you see the productivity gains there when we do have meaningful same restaurant sales, how our business model can convert then to meaningful earnings growth. So obviously we pay attention to each line item on our P&L but we’re more about optimizing the total than any particular line.

Thank you.

Your next question comes from the line of Matt DiFrisco from Oppenheimer. Please go ahead.

Thank you. My question is a little bit of a follow up onto Mitch’s with respect to sort of the degree of optimism and to the future. And looking even at what I guess we’re classifying as a rebound in October and November, your November traffic trends, what metrics a lot of us look at on a two-year basis, declined in November even though it sounds as though this is a tolerable pace or and I think the reference was continuation of current trends. I guess if we look at that two-year trend stabilizing out throughout to the back half of fiscal ’11 you wouldn’t be able to get to guidance so it doesn’t look like that trend has moved too much on a two-year basis. So I’m just wondering is there something as far as a promotional calendar, more advertising dollars or something more aggressive that gives you confidence? Or is it even just the current underlying trend that you did allude to a strong holiday season and the strongest one that you’ve seen in several years. Does that mean then we should have some confidence in this back half improvement as it’s tangibly happening? And then just a follow up question - looking at your text, you mention in the two brands Red Lobster and Longhorn SG&A working against those brands’ margins. One brand surpassed expectations, one brand fell on the same store sales versus expectations I presume. I’m just curious what are the drivers there in those G&A levels? Is that the advertising dollars that I’m trying to get at?

Well, before the SG&A just three broad things that we’re thinking about as it relates to same restaurant sales trends. One is continued industry improvement as Clarence mentioned. Second is Longhorn is going to benefit more from advertising in the second half than they did in the first half. And third, Olive Garden is not going to have the same type of year over year promotional mismatch in the second half that they did in the second quarter. And then on Red Lobster we think we’re getting smarter each quarter about how to deliver affordability profitably as well.

Okay.

And I guess specifically when you look at SG&A obviously with Longhorn going to a national cable buy hade a meaningful impact on their marketing as a percent of their sales. So that was the big driver for them in their SG&A just because that’s not what they had last year. And I think that was on Red Lobster I believe. And you have for them a little bit of sales deleveraging that’s going on. Drew talked some about their investments in digital for us that didn’t work as well as we anticipated. So that was some investment level for that particular brand.

Okay. Thank you.

Your next question comes from the line of Joe Buckley from Bank of America. Please go ahead.

Thank you. First a follow up on the food cost question, you mentioned either promotional issues I guess at Red Lobster and Longhorn but the text of the three brands kind of indicates food cost has been favorable for those two brands and unfavorable for Olive Garden. I guess I’m curious what happened at Olive Garden on the food cost side.

I think again on a year over year basis there they have experienced much higher wheat costs than the prior year. We in the first quarter had a very similar trend where they had higher year over year cost of sales as well. So that trend has basically continued for them, no meaningful change.

Okay. And then a question on the remodels at both Red Lobster and Longhorn - could you be a little bit more specific about the costs and the sales lifts for each brand?

There is really no update for them. The cost levels have stayed pretty much the same that we had anticipated. I mean looking this up real quickly here but the sales lift continues to be strong for both of the brands. I’d say right now when you also have the national advertising that we have done for Longhorn you’re blending a lot of items together. the synergy effect of that becomes pretty meaningful in terms of its impact on driving a strong top line sales result.

Okay. Do you have any numbers around those costs or the sales lift?

Sorry. The costs are the same.

Go ahead Matt.

Hey Joe, it’s Matthew. The remodel costs are essentially what we’ve been talking about all along here. At Red Lobster we’re spending close to half a million dollars per remodel. Now about 150,000 of that remodel is related to deferred maintenance. So I don’t know that you want to put that into the calculation. The remainder is the true remodel costs for the restaurant. And again we’re seeing 4-5% lift in sales at Red Lobster so we’re very pleased with the results there and what we’re seeing with remodels. Longhorn it’s a little less investment, I think it’s about $350,000 is what we’re spending at Longhorn. On the remodels there is some deferred in there as well and we’re seeing about 3-4% sales lift at Longhorn. So good performance there, good returns at both of those brands when we look at the remodels on a return on investment basis.

Thank you.

Your next question comes from the line of Jeffrey Bernstein from Barclays Capital. Please go ahead.

Great. Thank you very much. Two questions - just one kind of looking at the guidance for the full year with comps now looking at the lower end of your prior range and a lot of people struggling I guess to question whether or not you’ll hit that. But yet it seems like you reiterate the comfort around the earnings numbers. I’m just wondering whether you could talk about the cost saving outlook perhaps being more favorable to maybe mitigate that lower end of the comps. I don’t know if what are the large incremental costs saved in fiscal ’11? I’m assuming it’s not necessarily the commodities side of things. And then separately just on the share repurchase authorization, it seems like a significant boost. I don’t know how we should read into that or whether it’s just you guys like to have flexibility, whether we should assume a meaningful acceleration in repurchase from the 300 to 350 million that you’re doing in fiscal ’11, kind of what the thought is for fiscal ’12 with north of 20% of the company potentially repurchased. Thank you.

Yeah. On the margin piece there, talking about the first part of your question, is we talked about a modest increase and how we looked at the commodity costs going forward. But we’re also seeing meaningful improvements on other lines of our P&L and particularly restaurant labor. So as we look to the rest of the year in terms of trying to look at our earnings expectations we talk about our margins continuing to improve. In fact by the time we get to the end of the year we will be approaching record level margin for us. And so that’s how we look at that. On the share repurchase yes, I mean our current path for this year we reiterated was at $300-350 million of share repurchase. We do have the additional authorization to as you mentioned, remain to have that flexibility to repurchase as we see it. But I’d step back and say we’ve been through some pretty tough times here. We have a large cash flow from our business. It’s more sustainable I think than many folks have thought and so it allows us to continue to repurchase shares, return capital to our investors. And so we would look from where we are now all things being equal that share repurchases should continue to grow as well as our dividends as we move into a period of improving economic conditions and our ability to grow the same restaurant sales and generate even more cash flows than we have in the current period.

And this is Clarence. I would just say as we look at that level of share repurchase authorization that’s out there we would expect three to four years to use that. So it will be some acceleration from where we are today. So to where we are within that range will depend on some future decisions about the mix between share repurchase and dividends and that is yet to be determined. But we want to make sure that we keep good balance there and we’ll be back to you as those decisions get finalized.

Your next question comes from the line of Brad Ludington from KeyBank. Please go ahead.

Thank you. I wanted to ask on Red Lobster. It’s encouraging to hear that the new promotions are showing improved traffic in same store sales. But if you look at the seafood dinner for two last January you were up a 5% comp that month. Are you expecting to have a rougher time going up against that comp in that popular of a promotion?

I don’t think we want to comment on what our promotion is going to be in January. But obviously we have got increasing confidence about what it’s going to take to deliver affordability and increase same restaurant sales profitably. And that’s reflected in the tactics we’re going to put into the market in the third quarter.

Okay. Thanks. And then I’m sorry if I missed this. Just to follow upon the increased CapEx for some of the Longhorn remodels, did you quantify how many more remodels you expect to do this year?

About 20 more this year and we’ll complete all of the remaining restaurants within the first quarter of our new fiscal year.

Thank you.

Your next question comes from the line of Alvin Conception from Citi. Please go ahead.

All right. Thanks. Just a quick question back on Red Lobster - can you talk about what kind of traction any menu items in the $15 range that was launched in mid-November, what kind of traction is that having? And also where does your overall check at Red Lobster pan out relative with competitors?

Well, it’s a little too early for us to comment on preference of new items. It’s the third week in November that we introduced the menu but things like New England lobster rolls under $15, parmesan crusted tilapia, pecan crusted jumbo shrimp - they all tested well and they all earned their way onto the menu meaning they were going to get at least menu average preference. So we’ll know more at the end of January/early February at our meeting after two or three months in the market.

And then the overall average check at Red Lobster, where does it stand now versus the competitors?

It’s in the $18-19 range. So it’s above the average in casual dining.

Okay. Great. Thank you.

Your next question comes from the line of John Glass from Morgan Stanely. Please go ahead.

Thanks. Darden’s calling card as a stock for years is your gap to industry sales and you had always had a 200-300 basis point lead. And I know you have described the reasons why that lead is not present today. But is there something in your mind that is more permanent and structural that is occurring where you don’t expect to regain that sales lead? For example, just the math of having higher average unit volumes at two of your core concepts or do you think once you get past this period of kind of a mixed shift going on you do regain that gap?

Yeah. I would tell you as we think about it John, our goal, our long-term target range is 2-4%. And sort of where we are within that range is going to depend on the macro environment and obviously when the environment gets as challenged as it has been over the last couple of years and we see the kind of softness that we haven’t seen in generations, it’ll fall well below that. But 2-4% is about what we think. As we think about that range on a normalized basis we would expect pricing to be 2-1/2 points of that and sort of balance with the traffic. We think about the industry having total growth of 4% and that’s total growth. And so at 2-4% comp growth we would expect that we’re probably ahead of the industry with an industry that’s growing 1-2% in units. I think the important thing is on top of that 2-4% comp growth range we think our brand portfolio today is capable of 5% new restaurant growth over the next five years. And so we are looking at a top line that would be 7-9% in an industry where total sales growth in our view will be about 4%. So we see growing market share and we define success as exactly what I described, 2-4% with that 5% on top of it. With that kind of top line again, we think 10-15% earnings growth on a consistent basis is quite achievable even as costs bounce around. Obviously today I know there is elevated concern about costs but we’re actually below normalized levels. And so we’re getting more out of that bottom of that range than we think we would get in a normalized environment not only because food costs are relatively low on a historical basis but also because labor costs are as well.

Okay. And just to take one more run at this next few months of more challenging comparisons at your two major brands, particularly at Red Lobster, I know you have the confidence that you’re seeing more difficult comparisons doesn’t necessarily mean softer sales for you so two-year trends may not be that important. Are you actually seeing that come through though in December since this is the first month in which you’re going to be faced with those more challenging? I’m not asking for the number I’m just saying are you even as we stand here in the third week of December, you’re still confident that rolling over those more difficult comparisons, you can do so and produce positive sales?

We are, I mean which is why we’ve provided the outlook we have provided. I mean I would just say on December on a combined basis on a comp basis we’re in positive territory. And as we I think tried to emphasize throughout the call, good things happen in positive comp territory. And we’ll take a lot of other concerns around costs and other things as long as we’re in positive comp territory.

Extremely helpful. Thank you.

Your next question comes from the line of John Ivankoe from JP Morgan. Please go ahead. (Unidentified Analyst): Hi. Thanks. This is (unintelligible) - I’m on for John. A couple of questions - Brad, you mentioned some of the benefit to labor in the quarter came from efficiencies through productivity gains. Just wondering if you could talk a little more in detail where these gains are coming from and how long you think you could continue to see these benefits? And then secondly this is particularly a visibility into Red Lobster. It seems that shrimp costs we’re still seeing sustained increases year over year and obviously you do have one of the strongest and most developed supply chains in the industry and contracts through fiscal ’11. But I was wondering if you have any take on commodities in fiscal ’12 and how much confidence that you have that you can offset potential material increases in that year?

This is Brad and I’ll take the second part of your question first on shrimp. I mean first off what you see in the spot market is not necessarily what we pay. What I would say is that you’ll notice our inventory values are up at the end of our fiscal second quarter. And so we have really good coverage on shrimp and many other products through the end of the fiscal year. I think to get more into your question we’ll save that part until we meet in January. We’ll have some of our supply chain management folks there that can do the question more justice there. But we do feel that that’s a competitive advantage for us as we move forward. If I go back to your restaurant labor question, I mean what I would say is the productivity gains are pretty broad based across the different brands and different parts of the P&L there. I think that’s attributable to the work that our operators do on day in and day out of using our tools and managing to the traffics that they’re seeing. So you heard us talk in the past about investments we make to increase our support platform. That includes the tools that they use to estimate guest counts and to schedule their labor so that we can be as efficient there as we would like. I would also say that we continued to benefit from the low turn over that is present for us. We continued to exceed or be better than the industry turn over. We think that’s a lot of investment that we make about ensuring that we have a high employee engagement. I think there is a lot of side benefits that come with that of the continuity of staff. And so we’re investing less in new employee acquiring costs and training costs and the soft benefits of consumers coming in and seeing some of their favorite servers time and time again.

Time for one more question please.

Okay. That question comes from the line of Jason West from Deutsche Bank. Please go ahead.

Yeah. Thanks guys. Just a question on the commodity side again - I just want to clarify you said you think the costs have a good solid outlook or our margin will be flat in the second half or was that for the full fiscal year? And you mentioned I think commodity inflation back half of 1, 1-1/2 and I just want to clarify that that was versus the prior guidance of up about 50 basis points?

Yes. Exactly correct. So we’re looking at a full year food and beverage cost that’s going to be approximately flat. And in the back half of the year we have seen our expectations largely get locked in going from a 50 basis year over year increase to the range of 1 to 1-1/2% increase over the prior year.

And just to follow up on that, your thoughts around pricing with that moving up a little bit I know you’re trying to maintain the affordability message at Red Lobster but broadly, do you think you have some room at each brand to continue to move up pricing? And should we see that moving up more so in the back half of the year than what we see in the numbers so far this year?

Again, we don’t want to comment on any forward actions like pricing but I would say that we believe all the brands are strong and can take an appropriate amount of pricing. But we have got other levers to pull to help manage the cost equation and we have alluded to these before. Given the size of the enterprise and our focus on a more effective operating platform, we didn’t talk about them today but the things that we’re doing to improve sustainability, supply chain transformation facilities, maintenance, all those things are making our support platform immediately more cost effective this year and next year.

I guess specifically what I would add in though is that for the remainder of this fiscal year these costs haven’t caused us to change our pricing outlook and to Drew’s point, as we think about next fiscal year we’ll share that with you at a later date.

Okay. Thank you.

We’d like to thank everybody for joining us on the call today. We realize there are still several of you that were in the queue for questions. We are here in Orlando. Today we’ll be able to take your questions if you want to give us a call, we are available. We’d like to thank you again. We wish everybody a safe and happy holiday season and we look forward to seeing several of you here in Orlando in January for our analyst and institutional investor day. Thanks again.

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