Rick Cardenas - SVP, Finance, Strategy, and Technology C. Bradford Richmond - CFO Eugene Lee - Interim CEO

Jeff Farmer - Wells Fargo Jeffrey Bernstein - Barclays Howard Penney - Hedgeye Risk Management Brian Bittner - Oppenheimer Matt DiFrisco - Buckingham Research John Glass - Morgan Stanley Joseph Buckley - Bank of America Merrill Lynch Chris O’Cull - KeyBanc Diane Geissler - CLSA Sara Senatore - Sanford Bernstein John Ivankoe - JPMorgan Keith Siegner - UBS Priya Ohri-Gupta - Barclays Capital

Welcome, and thank you for standing by. [Operator Instructions] And I will turn the meeting over to Mr. Rick Cardenas. Thank you. You may begin.

Thank you, operator. Good afternoon. While I have had the privilege of speaking with many of you during the past several weeks, I wanted to take a brief moment to introduce myself. My name is Rick Cardenas, and I’m the SVP of finance, strategy, and technology, and a large part of my role is leading our investor relations outreach. We welcome those of you joining us today by telephone or the internet, and I look forward to working with everyone in the analyst and investment community. With me today is Gene Lee, Darden’s interim CEO, and Brad Richmond, Darden’s CFO. Following prepared remarks from Gene and Brad, we will take your questions. As a reminder, comments made during this call will include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company’s earnings press release, which was distributed earlier today, and in its filings with the Securities and Exchange Commission. Today’s discussion and presentations may also include certain non-GAAP measurements. A reconciliation of these measurements is in our press release. In addition, we have also posted a few slides on our website under the “investors” tab that provide an overview of our first half financial results, a reconciliation of adjustments to second quarter earnings, and our fiscal 2015 outlook. Now, I will turn the call over to Gene.

Thank you, Rick, and good afternoon everyone. We’re pleased to report improved performance in our business in the second quarter. Brad will provide more financial details in a moment, but at a high level, total sales from continuing operations for the second quarter were $1.56 billion, a 4.9% increase from the second quarter last year. On an adjusted basis, our earnings per share were $0.28, which represents a 133% increase year over year. Olive Garden had same restaurant sales of positive 0.5%, the first positive quarter for the brand since the quarter ended May 2013. Longhorn Steakhouse continued to deliver strong same restaurant sales growth with an increase of 2.6%. We also saw continued gains in our specialty restaurant group, which delivered a 3.2% increase in same restaurant sales on a blended basis. I want to take the time now to do two things: provide an update on our go-forward strategy and discuss key highlights from operating performance in the quarter. Let’s start with an update on our strategy. First, we believe our future success needs to start with our ability to improve same restaurant sales, resulting in increased market share and achieving best-in-class profitability. In order to achieve these goals and win in the marketplace, we are getting back to basics by increasing our focus on the core operational fundamentals of the business. In particular, this means providing an outstanding guest experience rooted in great food, with terrific service, all delivered in an appealing atmosphere. We are working hard to improve excellence in each of these areas to provide an outstanding guest experience and once again achieve industry-leading and sustainable same restaurant sales growth. Winning in the restaurants must be supported by a guest focused support structure across our field leadership and our restaurant support center. As you know, we announced some difficult but necessary decisions last month that made our support structure more efficient, both in terms of cost and decision making. Beyond our organization structure, we are pursuing other significant non-consumer-facing cost savings initiatives. We have recently engaged with Boston Consulting Group to help with the process and are encouraged by the opportunities identified. We expect to see meaningful benefits in fiscal 2016 and will have more detail to share in the quarters ahead. In parallel, with our focus on operations, the board and the management team also have the responsibility to ensure we’re maximizing every element of our business in order to drive shareholder value. Our initial focus will be exploring options for our real estate portfolio, which includes more than 1,200 owned or ground leased properties across the country. We want to be comprehensive and thoughtful in considering the options to ensure we’re maximizing shareholder value while also maintaining the best structure for our ongoing business. There are a number of options. To assist us with this comprehensive analysis, we are engaging advisors with extensive expertise in these types of valuations, including JPMorgan, Moelis & Company, and Skadden & Arps. The board and management team will also continue to evaluate other strategies, including franchising and the composition of our brand portfolio. However, real estate will be the first area of focus. Of course, there are no assurances we’ll ultimately pursue any of these options. While we do not have a set timeline or additional details to disclose now, we plan to provide updates if and when appropriate. Lastly, a clear priority for the board is the selection of our next CEO. The board is actively engaged in the search process. Now let’s turn to some highlights on our performance in the quarter. At Olive Garden, we have now had four straight months of positive same restaurant sales, the first time this has happened since November of 2010. We believe these results are early signs that our brand renaissance plan is beginning to take hold. Key consumer metrics on overall experience, quality of food, taste, value, and attentive service continue to trend in the right direction. Olive Garden’s to-go business continues to experience significant growth, with sales in the quarter up over 15% versus last year. As we have discussed before, this is driven in large part to our online ordering platform, which we launched in July. We experienced an additional increase following the introduction of mobile ordering on November 3, and we now have more than 30,000 online orders coming in every week. This growth is very important as the check average is 30% higher when guests order online. Takeout represents 8.6% of our total sales. Given the increasing trend for convenience, we believe we can drive takeout sales above 12% over time. We have now completed 13 remodels, all with various investment levels and the results so far have been encouraging. Before proceeding with a meaningful capital investment, we will continue to evaluate the performance of these locations over a longer period of time. We believe opportunity exists to optimize the investment level to improve our returns. Therefore, we are deferring additional remodels for the rest of the fiscal year as we continue to evaluate our options. The progress at Olive Garden is really beginning to show, not just in response from our guests, but also in the way our managers and team members have embraced the brand renaissance and are leading the charge in the field. While there is much more we have to do, we definitely feel that we’re moving in the right direction. Longhorn Steakhouse’s same restaurant sales increased 2.6% for the quarter, the seventh consecutive quarter of growth and industry outperformance. The same restaurant sales growth this quarter was driven by check growth, due primarily to the launch of Bold Bites in June. Bold Bites are smaller, individually portioned appetizers designed to satisfy guests seeking more choice on portion and flavor. While our core focus is to continue to offer great steaks, we introduced a new menu this quarter that expanded our variety beyond steak. This menu received positive feedback from both our operators and our guests. At Longhorn, we’re also focused on elevating our guest experience and improving service through more consistent execution of our current standards, and our guest satisfaction scores show that we’re at all-time highs for numerous key attributes, including food taste, server attentiveness, server knowledge, and value for money. The combination of disciplined operational execution and compelling marketing has driven our growth at Longhorn, which we expect to continue on both the top and bottom line. The Capital Grille recorded its 19th consecutive quarter of same restaurant sales growth. The brand continues to outperform the competitive set and its operating profit was higher than last year, despite high beef inflation. In October, the Capital Grille will launch the iPad wine list systemwide. This change enhances the guest experience, captures incremental sales, and provides us with the flexibility to adjust offerings more frequently. The Yard House had same restaurant sales of 3.7%, which was 250 basis points above the industry average. Including the addition of eight new restaurants, total sales growth was 16.2% and total profits increased year over year. The Yard House accomplished a lot during the quarter. The brand launched a one-page all-day menu, along with an independent drink menu that is easier to navigate. These changes had a positive impact on sales and margins. The Yard House also expanded afternoon and late night happy hour beverage offerings to include all spirits, a strategy designed to broaden the appeal of these day parts. The Seasons 52 team is working hard on every area of the guest experience. Their brand returned a positive same-store sales this quarter. However, total profit was down on a year over year basis. This was due in large part to the underperformance in newer nontraditional restaurants such as those in central business districts. We have learned from these restaurants and are encouraged by the results of our most recent openings, which are in suburban locations where the brand continues to be successful. Same restaurant sales at Bahama Breeze were slightly negative, while profits were slightly positive. The team is working through several profitable sales driving strategies for the second half of the year. In Eddie V’s, same restaurant sales exceeded the industry and operating profit was up versus last year. And we are very pleased with the results and progress. Now, Brad will provide us with more detail regarding our financials. Brad? C. Bradford Richmond: Thank you, Gene, and good afternoon everybody. As we reported earlier today, on an adjusted basis, earnings per diluted share from continuing operations for the fiscal second quarter was $0.28, a 133% increase from the adjusted earnings per diluted share in the second quarter last year. On a reported basis, our net loss per diluted share was $0.24. The adjusted results exclude approximately $0.52 per share, of which $0.33 were noncash items. The breakout of the $0.52 includes $0.16 related to asset impairments at eleven restaurants and lease buyouts of two properties, $0.16 of severance and other costs associated with the support expense reduction efforts announced in November, $0.08 of cost associated with the strategic action plan, $0.07 for the impairment and related tax effects of [unintelligible] agriculture investment, $0.05 of debt breakage costs related to the previously planned retirement of $100 million of the company’s debt. Now, page five on our web-based presentation provides the impact of these adjustments on a P&L line item basis. We will continue to operate the impaired restaurants. We will evaluate any potential future closure to optimize the value-creating opportunity as it arises. Now, second quarter sales from continuing operations increased 4.9% to $1.56 billion, from blended same restaurant sales increase of 1.5% and the addition of 52 net new restaurants. Food and beverage expenses were approximately 100 basis points higher than last year. The unfavorable cost increase was driven entirely by higher beef and dairy cost on a year over year basis. The elevated dairy cost fully accounts for the decline in Olive Garden’s quarterly profits. Restaurant labor expenses were approximately 60 basis points lower than last year on a percentage of sales basis due to direct labor hour management, sales leveraging, and lower year over year restaurant manager incentive compensation. Restaurant expenses in the quarter were approximately 20 basis points higher than last year, principally due to higher rent. Excluding the adjustments previously noted in both years, selling, general, and administrative expenses were approximately 140 basis points lower on a percentage of sales basis, due to the impact of the cost reduction initiatives we undertaken in the past year and leveraging of our sales increase. We anticipate the general and administrative portion of these expenses, as a percentage of sales, to be below 5% for the entire fiscal year now. And, in total, in spite of the significant commodity pressures, EBIT margins improved 80 basis points versus last year for the current quarter. We retired $100 million in debt in the second quarter, which brings our total debt reduction to $1 billion for the fiscal year. Our reduced debt levels contributed to lower interest expense of approximately $13 million in the second quarter and we expect a $30 million reduction for the current fiscal year. The annualized reduction we anticipate to be $49 million. Our tax rate for the quarter reflects a 19% rate on our continuing operations before adjustments. Because of the discrete accounting treatment of many of the adjustment items, our total tax rate on the reported quarter loss was 44%. Excluding the adjustments, our annual effective tax rate is expected to be closer to 20%. We estimate our annual effective tax rate on a reported basis will be a credit rate of approximately 5%, driven by the loss attributable to the earnings per share adjustments I previously detailed. During the second quarter, we took delivery of over 8.6 million shares of stock under our previously announced accelerated share repurchase authorization. This contributed $0.01 to second quarter EPS, which is consistent with our previous expectations and is expected to have a positive impact of $0.11 on the fiscal 2015 EPS. The annualized impact of the $500 million accelerated share repurchase is anticipated to be approximately $0.17. Now, turning to our commodity cost outlook, food cost inflation in the second quarter net of our cost savings efforts was approximately 4.3%, driven by beef and dairy inflation. In the fiscal year, our current expectation is that our commodity basket will see net inflation of approximately 3%, which is higher than the 2% to 2.5% we communicated in September. Now, with this, this implies a 2% to 2.5% inflation rate for the second half of our fiscal year. That’s up from our previous expectation of approximately 1% for that same period. Looking at it category by category, for the remainder of fiscal 2015, beef costs are higher on a year over year basis, with 15% of our usage covered. [Seafood] costs are lower on a year over year basis, with 90% of our usage covered. Poultry costs are higher on a year over year basis, with 70% of our usage covered. Wheat costs are higher on a year over year basis, with two-thirds of our usage covered. And dairy costs are higher on a year over year basis, with approximately one-fourth of our usage covered. This is approximately the same total coverage that we had at this point last year, but with less coverage in beef and dairy, because we expect market prices to be lower than what we could have previously contracted for. Now let’s turn to our guidance for the full fiscal year. We expect same restaurant sales growth for Olive Garden to be even to plus 1% to last year, Longhorn Steakhouse to be approximately 2% to 3% above last year, and our specialty restaurants also to be up approximately 2% to 3%. We continue to expect to open approximately 37 net new restaurants for the fiscal year. I should point out that there are some key drivers of the significant EPS growth that we have anticipated in the second half of the year, and they’re detailed on the bottom of page six in our presentation, but I want to highlight that they really include the general business improvement that we’re seeing, including the lap on last year’s severe winter weather, the benefits of our debt reduction, the benefits of the accelerated share repurchase program, and the fact that this year contains an extra, or 53rd, week. We anticipate adjusted diluted net earnings per share from continuing operations to be between $2.25 and $2.30 for fiscal 2015. On an unadjusted basis, or reported basis, we anticipate net diluted earnings per share from continuing operations of $1.30 to $1.35 for the year. Consistent with our commitment to maximize free cash flow, we are also lowering our projected fiscal 2015 capital expenditures. This reduction is from the plan to [unintelligible] evaluating the results and the spending level of the Olive Garden remodel program and more broadly, a greater focus on capital spending. We expect to finish the year a little over $300 million compared to the $325 million to $350 million previously communicated. In the second half of the year, we will continue our share repurchases of up to $200 million, funded with our free cash flow. Before we take your questions, Gene has a few closing comments. Gene?

Thanks, Brad. Let me conclude our prepared remarks with a few additional thoughts about the past several months and the progress we have been making across our business. First, I’d like to acknowledge that this is our first earnings call since the election of our new board of directors. Our board has been engaged in the business from day one, and the management team and the board are working well together in order to ensure we have the right strategy to drive long term value creation for our shareholders. This change has brought about a positive energy across the company that extends from our management team, all the way to our restaurants. Our teams are excited about our sharpened focus on restaurant operations, and we’re all motivated to build on the momentum in the business both on the top and bottom line. Second, we are pleased with the early indicators that our strategic initiatives are driving improved operating performance. These initiatives are not a quick fix, but rather a journey designed to strengthen the most important elements of our business: improving the quality of our food and the service we provide to our guests. There’s still a long way to go, and we are committed and excited to continue to drive toward reaching our full potential. We believe the strong foundation we have laid across all of our brands during the past year will help us to continue to improve sales and earnings growth during the back half of this fiscal year and into fiscal 2016. Finally, I want to take a moment to thank our employees for their dedication in providing a great experience for our guests. This has not been an ordinary year for Darden, yet despite all the noise and potential for distractions, our restaurant teams are as focused as I’ve ever seen them. Their efforts are an integral part of our positive results this quarter and our employees should be very proud of the progress we’ve achieved. With that, we’ll open up the floor for questions.

[Operator instructions.] And our first question comes from Mr. Jeff Farmer with Wells Fargo.

I recognize it’s still very early, but just going back to some of the marketing and advertising savings that [unintelligible] had pointed to several months ago, I’m just curious if the new board has had a chance to look at some of the media efficiencies, the effectiveness of the current game plan. I’m curious if there’s any early updated thinking on potentially what a new marketing strategy would be moving forward.

We continue to look at our marketing strategy and becoming as efficient as we possibly can. When we think about how we spend our marketing dollars, especially in the large brands, we look at Olive Garden, and as our primary message on television, our secondary message on television, and then our third, which is our lunch messaging on television. Then we have digital, and then we have some local messaging after that. Right now, what we’re focused on is optimizing the right mix between promotional, secondary, which is more brand, and then lunch. And we’ve moved to approximately 25% of our spend to be digital, and we believe that we’ve been able to, and we will reduce some of our working media. But our real focus from a savings standpoint right now is to continue to reduce our non-working media. We have also engaged A&M to come in and work with the Olive Garden management team to do a comprehensive review of the go-to-market strategy, how we develop products, how we bring them to life, how we then advertise, and how we spend all our advertising dollars, and what is the right mix. And so this has been a project that we’ve been working on for some time, and we continue to change the media mix each and every quarter to try to optimize it. We have some really good diagnostics that provide great analysis for us, and we think that we’re doing a much better job with that over the last nine months or so.

Next we have Mr. Jeffrey Bernstein with Barclays.

Gene, thinking about the broader industry, perhaps, just wondering if you can talk about your confidence about the most recent uptick, one, in the industry is sustainable and maybe the key drivers you think have led to that. And how do you decipher between the broader improvement in the macro relative to the Olive Garden’s specific initiatives. Just seems like it would be difficult to decipher if your initiatives are actually working versus the macro. And just maybe as a follow up, if you could just prioritize what you think are Olive Garden’s significant initiatives that you think would be the most compelling or effective that have driven the improvement. Eugene Lee : I think I’d start with saying that Olive Garden’s performance against the industry in November actually significantly improved, where we beat the industry both on guest count and on a sales basis. The comment that the overall industry has picked up, that’s not what November Knapp-Track is saying. November Knapp-Track actually was weaker than October. We’re actually seeing some deceleration in casual dining. And so I’m very pleased that Olive Garden performed as well as it did, and moved ahead of the industry in November, with pretty much a straight-up comparison. It wasn’t like the prior months, where we were moving Neverending Pasta Bowl. We slid that back, so that messed a little bit with the comparisons. So when I look at the improvement that I think we’re seeing in Olive Garden, it has more to do with us gaining against the industry versus a situation where we have a rising tide and all boats are being lifted.

And you think, if you prioritized those initiatives that you think Olive Garden’s already put in place, is there a couple that you’d say these are having an immediate impact, and that you think is a driver of that narrowing of the gap, or reversing of that gap? Eugene Lee : Yeah, I’m going to point to two, I think, very important things. Number one was the commitment to put a 999 price point on the menu with everyday value. And so the preference on that item continues to grow. And what that is enabling Dave and the team to do is to pull back on the promotional intensity of their messaging and the pricing of those promotions. And we believe that is a real key to driving long term success. The second piece that I believe is really important in the Olive Garden momentum is to-go. To-go, we defined that as an important opportunity. We put resources behind it. Quickly enabled us to get to online ordering, and we’re seeing that business grow at 15%. And this is driven by a consumer need state of convenience. Consumers want convenience. Olive Garden has great food that travels very, very well, and we believe we’re delivering on that consumer need state extremely well, and that’s why we’re experiencing this kind of growth in takeout. So those two things, everyday value, not having to rely on our promotional activity, be such a deep discount, and then to-go, I think is really driving some positive momentum in the business.

Next we have Mr. Howard Penney with Hedgeye Risk Management.

My question is on the Olive Garden, and in the first quarter, you specifically called out how well the Olive Garden was doing in the press release. And then in the second quarter, you didn’t, and you didn’t mention the renaissance plan as well. And now the remodels don’t sound like they’re going too well and/or they might be too expensive. So without a remodel program, can you talk to the extent to which you can actually improve the Olive Garden and the renaissance plan without improving the asset base? Eugene Lee : Let me clarify a couple of thoughts around the remodel plan, and then I’ll get back to the essence of your question. We are very pleased with the initial results of the remodels. What we’re having difficulty reading is what level of investment is necessary to create the highest return on that invested capital. We know the key to remodeling an Olive Garden is for the team to figure out how to add between 20 and 28 seats in each of the buildings. That’s an important part. And so that’s kind of a given in a remodel package. From there, how do we best utilize the dollars that we have available and what’s the right investment level? And that’s why we’re pausing, because we don’t have a long enough time at this point in time to read the different investments that we have out there. But I do believe going forward as we move into ’16, we will have to refresh some of these older buildings. On the overall confidence on the business, I believe that the four pillars that we’ve been talking about are key. The first is around menu. We have to continue to deliver everyday value, choice and variety, and convenience. And I think we’re doing a very good job on all three of those things, but there’s still work to be done. We know that we have to simplify the menu to increase our speed of service, improve our quality. So although we’ve made some very good first steps, work to be done. We know from an operations standpoint, we can improve our service. And if we can improve our service, we know we can improve the frequency of our guests. Third is communication. We have to improve how we communicate with our guests, with the voice in which we communicate. So we’ve got to improve our television advertising, we think there’s some things that we can do from a digital standpoint. And one of our big upsides with our very large database is to refine our customer relationship management and really work to develop the appropriate loyalty program that will make people choose Olive Garden over other competitors. The fourth piece of the pillar has been about the remodel and the touchpoints, and there are a lot of other things that we can do inside these restaurants to improve the overall atmosphere that don’t mean changing the sticks and bricks. But there are things like uniforms, plate ware, flatware, music, things like that, that can really improve the overall atmosphere, that we’re working on, we’re implementing those changes. And we believe that if we combine all those together, that we’ll have a business that has a compelling value proposition that will continue to grow over time.

Our next question is from Mr. Brian Bittner with Oppenheimer & Company.

I have two questions. The first question is on the earnings outlook. Can you just walk us through what exactly drove the increase in the midpoint of the guide? I know it was a small increase, but it still, I think, highlights the confidence you guys have in the rest of the year. So are you more comfortable with just the cadence of comps, or is it being driven by what you’re doing on the G&A line? If you could just first walk us through those dynamics, I’d appreciate it.

We provided some supplemental information with our website, and we detail some of these key drivers for us. Many of those are in place. So the debt paydown has reduced interest impact. I think I said $30 million in my prepared comments for the year, I should have said $38 million. But you can see that that adds roughly $0.18 in EPS. You can look at the share repurchase program that we’ve done. That’s about $0.09 for us. Then with the 53rd week it’s $0.05. So the remaining $0.22 to $0.27 is really driven by the business improvement, which is the same restaurant sales performance that we’ve talked about, many of these cost initiatives. We ended the second quarter at the high end of what we had expected. We finished the first half of the year with a 26% increase in adjusted EPS to last year. Our guidance suggests a 34% to 38% increase in the back half of the year, and obviously that step up is driven by the larger impact from the debt paydown and share repurchase, and obviously all the 53rd week. But the core business itself is supported by the comp range that we’ve been talking about for Olive Garden at flat to 1%, as well as the 2% to 3% for both the Longhorn and specialty restaurants. So that’s really what we’ve baked into that. I think a key assumption to point out is the impact of adverse weather mainly in the third quarter, first part of fourth quarter. And last year was a very severe impact to us, the geographical area hit us where we had the biggest concentration of restaurants and hit us more on the weekends. So we’re obviously hoping that’s not the case this year. Our guidance is built on what we call a normalized or rolling five-year average, and so we do expect some improvement from that, but we just don’t know. It’s hard to predict that one, and we’ll hope for the best weather, and if we can be on the good side of that, we’ll have more earnings. If it turns out to be similar to last year, that will put downward pressure on us. But we believe, when you look in totality, all the moving parts, if you will, in building the estimate, that the range that we’ve suggested gives us ample room to land somewhere in between there. Brian Bittner : When I look at the guidance for Olive Garden comps, it does imply about 1% to 2% in the second half, but obviously what jumps out, I think, to everyone, is the fact that you’re facing comparisons there, weather-driven comparisons at Olive Garden this quarter, that are almost 500 basis points easier. And the industry obviously does face much easier comparisons as well. And again, I know you’re impacted by weather, but how should we think about the cadence of these sales if weather is normalized? Can we think about two-year trends here holding? Is that too ambitious? Or under normalized weather, how can we think about that going forward over these next two quarters of really easy comparisons? Bradford Richmond : The best way I would define that is with the guidance of flat to 1% for the year, they need to be at about plus 0.5% to plus 1.5%. They’re stepping out of the second quarter being up 0.5%, and so maintaining that run rate is what we have in there, and then a little bit of lift from the weather. If we make further progress in that business than what we’re anticipating, we know how our business model reacts, and there’s strong flow through on the incremental sales. So to the degree, to your point, if weather and other things work better, I’m confident that our model will deliver high end of this range, and if the weather’s really good, or we make further progress, potentially above it. But I don’t think, where we are today, that that’s the best communication we can say, that it’s anything above or below that range. It’s our best knowledge of all those pieces today.

Our next question comes from Matt DiFrisco with Buckingham Research.

I just wanted to switch gears a little bit on the assessment of the real estate portfolio and the stores of the Olive Garden brand. You guys were growing through the beginning of the recession, so if I look back sort of from - the Olive Garden brand has expanded almost 200 stores from 2007 to now. Are we completely done with the process of assessing potential closures of the stores? I know with the new board and everything, there doesn’t seem to be a lot of process going on as far as looking at the portfolio and the stores. Are there stores that might be underperforming that could be either relocated or closed down and benefit neighboring stores? I’m just wondering, has there been a study as far as the saturation and the quality of the stores, if there’s a benefit from closures. Bradford Richmond : We have a fairly robust and ongoing evaluation of our restaurant portfolio, and in particular with Olive Garden, it has expanded, as you mentioned, over time, but we look at that pretty carefully, and I know that Olive Garden hasn’t performed as well as we would like for it to have performed recently. But what I would caution on is it started from very high absolute levels of performance and it’s really lost momentum, is how I think of that business. So actually, the performance is quite strong, and the restaurants we have are providing sufficient cash flow for that investment. But every year, we look at that portfolio. There’s two to three roughly in that brand that are relocated, are rebuilt, to sort of that same trade area. And so I would not expect any significant changes from that. We did a full review with some of the actions we’ve taken this quarter to look at our overall portfolio, and I think honestly just addressed how strong that brand is and how strong those individual restaurants are performing. But we think there’s a lot of upside for those restaurants and we like where they’re positioned. Eugene Lee : I would just add that Olive Garden restaurants doing $3.5 million with the margin structure are still very, very productive. On the lower end, $3.5. We built a lot of restaurants in the last couple of years in green space. These restaurants, at $3.5 million, a million dollars below the system average, are still highly productive. Matt DiFrisco : With respect to gasoline prices, I guess the general consensus opinion is that it’s a net positive for restaurants. Have you seen any beginning signs of regional weakness at all? Or is it too early to see, as far as those states that might be more energy influenced with jobs and the aspirational spender? Or has it so far been somewhat of a net positive in incremental dollars and more driving and more consumer dispersion that’s been benefitting the restaurant space? Eugene Lee : I think that’s a very good question. We have seen no weakness to date in what I would call the oil-dominant markets. We have seen, as I said earlier, Knapp-Track weaken starting with the switch in Halloween. That was a real weak comparison year over year, and then we haven’t seen it get back in November to where it was in October. So we’re on the lookout for signs, especially probably in Texas would be the place that we would get the first signal, that the current energy situation is having an effect on employment and attitude. But we haven’t seen it yet.

Our next question comes from Mr. John Glass with Morgan Stanley.

Gene, first just sort of a broader picture question. Your new board was a big proponent, or there was a proposal for cutting a significant amount of costs in the business, and it sounds like you’ve employed some consultants. So what’s the timeframe where we might think we’d get a more definitive answer, whether it’s advertising or it’s more overhead, or whether it’s going to be some of the other things that are proposed, what’s the timeframe to review that and get a more definitive answer? Eugene Lee : Right now, we have BCG in working on our indirect spend, which we define indirect spend as it’s all spending that is not managed by purchasing. And our initial findings are very encouraging. We also have other cost savings initiatives going on, and we believe they’ll have meaningful impact. I believe that we will have an update as we get into next quarter’s call and start talking about fiscal 2016. We’ll be able to, I really think, reveal a range that we think is possible for the company. I believe today it’s just a little too early for me to put a number out there. If I put a number out there, I’m not sure it would be too high or too low. And so we just need a little more time to do our due diligence. Again, we’ve hired BCG, we’ve got Alvarez and Marsal in here working on the marketing side, on Olive Garden, and we have multiple other cost initiatives. My commitment is that we are going to cut our costs moving forward, in all areas of the organization. And so that’s where we’re at right now, and it’s just too early for me to give you a number. John Glass : And I wanted to just take one thing you mentioned, about the takeout business. It sounds like it grew 15%. I’m not sure if that was this quarter or over a longer period of time. But that’s 8% or 9% of sales, and it’s growing 15% of sales, it’s over a point of comp, I think. Is that the right way to think about it, that the takeout business has been the predominant driver of sales recently? Or am I mixing numbers up? Eugene Lee : No, you’re absolutely correct. It’s a predominant driver of sales, and the way I think about it is, some of that business, there’s some trading there. And so we have some people that we’re trading out of an in-restaurant experience to the to-go experience, but to maintain our growth, we’re creating capacity and we’re filling that capacity in the restaurants. So it’s not like this is totally a negative trade for us. So your math is correct, and it’s a big part of our strategy, is we’ve identified convenience as a need state that we can meet for the consumer, because of the type of food that we serve. It’s so well-served for takeout.

Our next question comes from Mr. Joseph Buckley with Bank of America.

I’d like to ask the EPS revision question a little differently. You’ve written off a lot of things this quarter. How much of that narrowing up of the range by $0.03 is, presumably that’s appreciation on some of these things written off that has disappeared. Bradford Richmond : That’s actually very little impact to the current year. I think more the raising of the range is the performance in the second quarter. We were at the high end of what we had previously expected, and we’re further into the year, so we can refine our estimates a little bit. But the big impacts we talked about in November, when we announced the actions that we took then around reduction in force, and those have really been, in the current fiscal year, used also [unintelligible] this commodity inflation, which has gone up quite a bit from what we were previously thinking in the back half of the year. But we do see that rate of inflation coming down on a sequential basis, and so we would expect the actions we take in November and the other items here to make a meaningful impact to our 2016 earnings expectations. Joseph Buckley : And then you mentioned hiring several consultants and banking firms, A&M, BCG, JPMorgan. Are those costs going to be lumped in additional strategic costs? Are there more adjustments coming? And what do you think you’re going to spend on the real estate studies, the marketing studies, and the cost study? Bradford Richmond : So, the cost for what BCG is doing will be netted against the benefit we derive. That’s not really a callout item. The same with A&M. Now, obviously, something in the real estate area, that we do a transaction there, those costs will really be netted against that benefit at that particular time. And so if something’s driving a benefit in the current year, the cost to implement that has to be offset against each other.

And our next question comes from Mr. Chris O’Cull of KeyBanc. Chris O’Cull: Gene, you talked about some of the changes in strategic priorities, but would you help us with sequencing? Is the board working with management on developing an overall corporate strategy or a multiyear plan? Or is it waiting to complete the CEO search? And would it implement some of the changes to the real estate ownership before hiring a CEO? Just trying to understand the sequencing here. Eugene Lee : The management and the board are working together to really look at what all the alternatives are. And so as we think about it, real estate is the biggest opportunity and it’s really not consumer-facing. I like to say that our guests don’t walk into a restaurant and say, is this owned, or leased? And so it really doesn’t interfere with our focus of creating great dining experiences. And so we believe we have a good strategy in place to grow shareholder value, and it’s really starting at the focus on the core operational fundamentals of the business. Now, we’re working closely with the board to look at all areas of improvement, and we believe starting with the real estate portfolio is the most important. So I see it as two paths. Operationally, we need to improve the overall day-to-day operations, and that’s inclusive of a lot of things. That’s inclusive of growing sales, managing costs, so on and so forth. On the other strategic side, trying to maximize shareholder value, we’ve prioritized real estate as the key priority. And as we move forward, we’ll take another look at some of the other alternatives that could be available to us. But prioritization is really important. How much the organization can handle at one time, I think, is a real key consideration. And so as I said in my prepared remarks, the board is very engaged. We think we have a plan that can be executed over the next six months, and that’s where we’re at at this point in time. I think we’ll come back after we move along in the real estate process and understand how that’s going to play out, and at that time, we’ll take a look at some other strategic alternatives to drive shareholder value. But most importantly, real great shareholder value is going to be created through improvement in our overall operations. We must drive profitable same restaurant sales. And so we’re extremely focused organically on that right now. Chris O’Cull : And I appreciate that, and my question really wasn’t related to some of these tactical changes, even the sale of some real estate. What I’m trying to understand, though, is Darden, in the future, going to be focused on managing brands that are more mature, that are great cash generators? Is it going to be focused on unit growth? Is it going to be focused on a combination of this? What’s Darden Inc. going to look like in three years? Is the board working through that process? Eugene Lee : You’re talking about a real comprehensive, longer-term strategy, and I do think that the board and the new CEO will have to work through that and will have to, after they make their decision, will have the right forum in which to inform the public of the long range plan.

Our next question comes from Ms. Diane Geissler with CLSA.

I just wanted to ask a followon question to that very topic, on the decision about remodels versus the reorg [state]. I appreciate that real estate is not a customer facing strategy, but to the extent that you’re delaying remodeling of your portfolio, I’m assuming, because you want to determine if you want to sell and lease back, or do some other kind of financial structuring, weren’t the early indications on the remodeled units that the lift [did] change those sales with something like 600 basis points? Eugene Lee : Yeah, I think there are two distinct different issues. Finding a way to utilize our real estate to increase shareholder value is one. The decision to hold and slow down the remodels is really around this idea that we have, out of the 13 out there, we have five or six different investment levels. And the results, as you mentioned, have been very positive, but the performance between investment level A and investment level C is not that different. And that’s causing us to pause and to say, what is the right investment level that we need to make and get the appropriate return on that investment to drive and refresh the Olive Garden business? And so I see this more as just being prudent, slowing down, and making sure that we’re making the right investment. Half of these 13 restaurants have been done for less than 60 days. The initial read is very, very difficult. What we’re trying to do here is really just be prudent and make sure that we measure twice and cut once. And that’s all we’re doing.

I would just emphasize the point that Gene is making, and it’s around capital discipline. This was a significant capital investment, and so we want to have a thorough evaluation. I think the key that we’re trying to determine right now is the durability of these results, and separating between the investment levels, so that we optimize the return that we can get on this investment. And then to the first part of your question, real estate opportunities that we may pursue are totally independent of the remodel choices that we have. And today, we operate a number of leased restaurants, and so we don’t anticipate doing anything that would hamper our flexibility to operate these restaurants. So I would separate those two items as different decision points. Diane Geissler : So sale and lease [unintelligible] some restaurants wouldn’t prevent you remodeling down the road? Bradford Richmond : Not anything that we’re aware of.

Our next question comes from Ms. Sara Senatore with Sanford Bernstein.

Can I ask a question about a different piece of the business, that you’ve also talked about from a strategic perspective, and that’s the SRG? I think initially, I was under the impression that might be the easiest thing to do, which is to [unintelligible] that off into a separate company. But now it sounds like you’re more focused on the real estate or refranchising. So can you talk about whether SRG, if that’s still something that’s on the docket? And how do you think about prioritizing that versus some of the other things? Eugene Lee : Everything is still on the table, and being analyzed. We believe, after working with the board and discussing what the options are, that addressing the real estate opportunity is the right decision. As we decide what the right brand portfolio is, what brands are in the Darden portfolio, if there is a spin, is something that the board wants to evaluate. However, I do think it’s important for them to gain a better understanding of how all these businesses work before those types of decisions are made. And so everything is still absolutely on the table. There were hard choices that had to be made, and we thought that the real estate, at this point in time, was probably the least disruptive and the opportunity that hopefully could give us a chance to increase shareholder value. Sara Senatore : And if I just may ask about the real estate, is there any portion of the business that could not tolerate a sale lease back, where margins are slim enough that it really wouldn’t make sense to then burden them with rent expense? Is there sort of a percentage of the store base where you just couldn’t do that? Bradford Richmond : None that we’re aware of. When you look at the strength of our individual restaurants’ financial performance, nothing comes to our attention at this point.

Our next question comes from Mr. John Ivankoe with JPMorgan.

I wanted to get back to the previous question about potential cost opportunities in 2016, and I think, Gene, you described it as the controllables are those costs that were not controlled by the purchasing department. And presumably, that means labor, and the cost per labor hour typically goes up - I guess it always goes up really in any economy. And so understanding that labor cost per hour is going to go up, how big of a restructuring might be possible on your labor line? And are you confident at this point that that can be done with not only no customer disruption, but actually customer benefit? Eugene Lee : I think you’re referring to labor at the restaurant level, and the way I would talk about labor at the restaurant level is about developing a system that’s as efficient as it possibly can be. I think it’s the opportunity of all operations departments inside the restaurant industry to be rethinking how they deliver the guest experience inside their building. And as we move forward, it’s going to be important for us to increase productivity of our operations, and that starts with how we build our menus, how we design our preparation procedures, how we design our cooking procedures, how we service the guest. And so there’s going to be pressure on our ability to become more efficient. The methodology that I like to use in this business is how many labor hours do we need to use to create a guest? And we need to create more guests from every labor hour that we use. And so you are correct. There will be pressure on the labor line. We just can’t continue to ask our people to work harder. We have to design more effective operations. And I firmly believe that starts with how you design your menus. We also need to use technology, and then we need to think about simplification. Simplification is something that a lot of restaurateurs are talking about today, but it’s going to be an important part moving forward. How simple can you create an operation and still have the value proposition that you need to drive the business? Bradford Richmond : And I would just add one thing. If you look at our cost basket, food and beverage is about a third of it, and labor at the restaurant level is about another third of it. So those have a lot of opportunity outside of restaurant labor to pursue on top of how Gene was talking about we could go at restaurant labor itself. So we see a wide area of opportunity. First thing that we’ve been talking about is the G&A, and we’ve made tremendous progress in that area. You can look at our year over year performance has been pretty good. And the fact is, as we look forward, we see ourselves below 5% for G&A as a percentage of sales. John Ivankoe : Yes, and I certainly see that, but question was really at the store level, as Gene pointed out. And if I may continue on that theme, do you remember a couple of years ago, at one of your analyst meetings, I think it was Dave George that was talking about some kitchen simplicity and operation, the menu simplicity at Olive Garden, that he was beginning to work on and maybe paralleling some of the [BB] experience at Olive Garden that maybe would be an opportunity at Longhorn. So have these initiatives not yet been implemented, or are they just beginning to be implemented, or is there still a long runway to go in terms of the menu and kitchen simplicity that will presumably help on the cost side? Eugene Lee : When Dave got to Olive Garden, one of the first things he did was implement significant change to the kitchen operation, which created, I believe, approximately $20 million in cost savings. And so he’s been developing what he would call phase two of kitchen simplification now, but a lot of that is going to come from how the menu evolved over time. We also are looking at ways to prepare our soups more efficiently. We’re looking at ways to prepare our sauces more efficiently. And so there’s some production opportunities available to us in Olive Garden. As far as Longhorn goes, the nature of a steakhouse business is that it’s extremely simplistic. And that’s why we create 2.7 guests for every labor hour we use in Longhorn, and we create 2.1 guests for every labor hour we use in Olive Garden. And so the opportunities for simplification in Longhorn, although they are there, are not as great as the opportunities for simplification in the Olive Garden operation.

Our next question comes from Mr. Keith Siegner with UBS.

Just two quick ones for me. To go back to the to-go business, the takeout business, and congratulations on such good success with that, as we think about that being a big part of the same-store sales, as you mentioned, how do we think about the margins on the to-go business versus the base business? If this business continues to have this kind of momentum, how do we think through that marginal margin? Eugene Lee : First of all, let me just reiterate that the check average is significantly higher with the online ordering, and when we move people away from ordering meals off the menu and move them to more of a bulk order, the margins improve. And so in other words, we get orders for trays of lasagna, family meals. They’ve got meals that they’re offering for four, for eight, for twelve, for sixteen. The next evolution now is to get more into this catering and delivery type business, which we think is a huge opportunity. So the answer to your question, margins do improve when we get to the bulk takeout orders. Obviously, the margins, when we’re doing meals to go, are the same as they are as in the restaurant, except we lose the beverage occasion, which helps leverage our margins down in the restaurant. So we’re relying on this bulk business to improve the overall takeout margins. Keith Siegner : And then another question, just to follow up, lunch specifically, there’s a lot of competitive intensity in lunch, a lot of different concepts really trying to get creative and draw in that incremental traffic. Could you talk a little bit about the traffic trends at Olive Garden you’re seeing at lunch? Maybe some of the specific programs you have in place there to address the increased competitive intensity? Eugene Lee : Lunch is definitely an opportunity at Olive Garden. We’re feeling much more pressure with guest counts at lunch than we are at dinner. Lunch is based around the convenience for a lot of people. The interesting thing about the Olive Garden lunch experience is that we have multiple constituents at lunch. We have guests who are looking for convenience, that want to get in and out. We have guests that are looking for a business lunch that want to be in for an hour, hour and fifteen minutes. We have a lot of guests that come to lunch, this is their big day out and they’re looking for a two-hour experience. And so we’re trying to satisfy different constituencies and have offerings for all of them. We have what we believe is the ultimate fast casual lunch at Olive Garden, soup, salad, and breadsticks. It’s the original fast casual offering, 30% of our guests buy that. We believe the key to reenergizing our lunch business is some sort of evolution of this product and this offering. It’s been out there since 1981, it is a great, great product, as you would expect if 30% of the people who are coming in are buying it. But we need to continue to innovate around that product. We’ve done some work with the salad toppers and some other menu items like the trios, and so we’re making progress. We think lunch is really about fast, fresh, and value, and we think we have great food that can deliver on that. It’s going to be price competitive. Lunch is very much about price, and we have to figure out how we create the appropriate value to reenergize lunch. We, on average, do 275 guests a day at lunch. I would put that up against any other casual dining restaurant operator out there. We start from a place of strength, and what we need to do is we need to continue to deliver on the consumer need states for that meal occasion.

Our next question comes from Ms. Priya Ohri-Gupta with Barclays. Priya Ohri-Gupta: I was hoping you could provide maybe some initial thoughts about how you’re thinking about your credit ratings, particularly with regard to the evaluation of your real estate portfolio and the opportunities that lie there. And specifically, whether, as you create shareholder value, there are also opportunities for that paydown in some capacity? Bradford Richmond : I think fundamental to all this, and we haven’t said it in this call so far, is that we do understand and value the importance of our investment grade credit profile. And so a lot of our actions are geared towards that, and we would include that in the consideration set for any type of real estate opportunities should it come along. I think as we look ahead what we put out as our guidance and expectations for this year, along with the debt paydown that we’ve done, we’ve talked about adjusted debt to adjusted capital of being in that 55% to 65% range. We see ourselves near the bottom of that range as we move through the year, so we’re making progress there. And the coverage ratio with this type of earnings performance gets closer to our target and gets below three times. And so we’re making progress there, I think Gene talked about earlier, the success that we have in running the business will help us make further progress here, and then we’ll look at opportunities as they come along for any type of action on the real estate to consider that as well. And then one thing I wanted to follow up on is Joe, you’d asked the question earlier about all the other activity adjustments that we made in the quarter, and what was their impact, and I said it was fairly minor. I actually had a chance to go back and look at those. It’s about $0.01 of the impact on the annual EPS from those in the current year. So it does add a little bit, but maybe less than it seems like on the surface.]

There are no further questions over the phone at this time.

Thank you, everybody, for your questions. We’ll look forward to speaking to you soon. And again, appreciate all the questions you’ve asked. Thank you.