Kevin Kalicak - IR Eugene I. Lee Jr. - President and CEO Ricardo Cardenas - SVP and CFO

Chris O'Cull - KeyBanc Capital Markets Brett Levy - Deutsche Bank Joseph Buckley - Bank of America Merrill Lynch David Tarantino - Robert W. Baird & Company, Inc. Billy Sherrill - Stephens Inc. David Palmer - RBC Capital Markets Karen Holthouse - Goldman Sachs Brian Bittner - Oppenheimer & Co. Matthew DiFrisco - Guggenheim Securities LLC John Glass - Morgan Stanley Jeffrey Bernstein - Barclays Capital Jason West - Credit Suisse Nicole Miller - Piper Jaffray Alexander Mergard - JPMorgan

Welcome to the Darden Fiscal 2017 First Quarter Earnings Call. Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] This conference is being recorded. If you have any objections please disconnect at this time. I will now turn the call over to Mr. Kevin Kalicak. Thank you and you may begin. Kevin Kalicak : Thank you, Jay. Good morning and welcome everyone. With me today is Gene Lee, Darden's CEO, and Rick Cardenas, CFO. 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 press release, which was distributed earlier today, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at www.darden.com. Today's discussion and presentation include certain non-GAAP measurements and a reconciliation of these measurements is included in the presentation. We plan to release FY 2017 second quarter earnings on December 20 before the market opens, followed by a conference call. This morning Gene will share some brief remarks about our quarterly performance and business highlights. Rick will then provide more detail on our financial results from the first quarter and update our outlook for FY 2017. And then Gene will have some closing remarks before we open the call for your questions. Now I'll turn the call over to Gene. Eugene I. Lee Jr.: [Technical Difficulty] …keep going -- cultivate our results-oriented people culture to enable growth. We remain confident that we have the right strategies in place, both in the operating businesses and at the Darden level. And we continue to significantly increase market share as we execute against them. Olive Garden's positive momentum continued during the quarter. Same-restaurant sales grew 2%, outperforming the industry benchmarks, excluding Darden, by 410 basis points. This was our eighth consecutive quarter of same-restaurant sales growth at Olive Garden. The primary drivers of this performance include; one, our ongoing focus on flawless execution inside the restaurants. Our teams are working hard to get better every day which is reflected by the fact that our overall guest satisfaction scores rose to an all-time high during the quarter. Two, the strong performance of OG ToGo. ToGo sales grew 20% compared to the same period last year and more than 50% on a three-year basis. And, three, culinary innovation. During the quarter we introduced dishes that build on brand equities and flavor profiles that our loyal guests enjoy most, including pepperoni fettuccini and Italian pot pies. Additionally, we continue to interact with our guests in a variety of ways. During the summer we surprised and delighted many guests by setting up our never-ending family table in multiple states across the country. It debuted at the High Line in New York City where we served 6,000 guests in four hours. This type of non-traditional marketing is popular with Millennials and leverages Olive Garden's strong emotional connection. The Olive Garden business is strong, and we remain laser focused on delivering exceptional experience for our guests. LongHorn Steakhouse maintained its top line momentum and delivered significant profit growth during the quarter. Same-restaurant sales grew 0.6%, the 14th consecutive quarter of growth outperforming the industry benchmarks, excluding Darden, by 270 basis points. We continue to focus on strengthening our in-restaurant execution to improve the guest experience. One way we are doing this is through operation simplification, which enables our team members to better focus on delivering a quality experience for our guests. Another way we're strengthening in-restaurant execution is through enhanced training for all culinary team members because we know perfectly grilled steaks are critical to a great steakhouse experience. This came to light during the quarter through our Steak Masters Challenge, a highly engaging training program and two month competition that began with 6,000 culinary team members and ended with the grill master Alex Alvarado being crowned as Steak Master champion. The team at LongHorn is focused on the right priorities and our research shows that we're making meaningful progress on multiple fronts. Turning to our specialty restaurants; all five of our businesses continue to perform well and increase share, and each one is well positioned for growth as we build out our pipeline. The Bahama Breeze team delivered another strong quarter. Same-restaurant sales were up 3.9% as guests continued to respond positively to the enhancements we're making to create an immersive experience that feels like a tropical getaway. Seasons 52 performed well with same-restaurant sales up 0.7%. We continue to be a leader in culinary innovation and the restaurant of choice for guests who are conscientious about what they eat but are not willing to compromise taste. Same-restaurant sales were flat at Yard House. I really like what the team is working on as Mike Kneidinger gets further immersed in the business. Finally, The Capital Grille and Eddie V's same-restaurant sales were down 1.2% and 1.7%, respectively, wrapping on 7.2% and 5.1% same-restaurant sales growth last year. Not only did we anticipate this was going to be a difficult wrap for both brands, Texas continues to be a tough market for our fine dining brands. However, if you normalize for Memorial Day, which was observed in Q1 of this year but Q4 of fiscal 2015, the Capital Grille would have been positive. Now I'll turn it over to Rick to discuss our results in more detail.

Thank you, Gene, and good morning, everyone. Darden's first-quarter diluted net earnings per share from continuing operations were $0.88, an increase of 29.4% from last year's adjusted earnings per share. We returned more than a $0.25 billion of capital to our shareholders in the form of more than $70 million in dividends and approximately $196 million in share repurchases. And as we announced this morning, our Board of Directors approved a new share repurchase program for up to $500 million of Darden's outstanding common stock. This plan does not have an expiration date and it replaces the previous plan. For clarity, we repurchased an additional $4 million worth of shares in the first week of the second quarter, which were still under the prior authorization, bringing our year-to-date repurchases to $200 million. As a reminder, while our long-term framework reflects share repurchases of $100 million to $200 million per year, the actual amount of shares we repurchase in any given year could be higher or lower than that range, just like any of the elements in our framework. Looking at key drivers of our earnings performance for the first quarter, we had sales leverage from our positive same-restaurant sales of 1.3%, a favorable commodities environment resulting in approximately 1.5% deflation in food and beverage expense, continued progress leveraging our scale to achieve cost savings throughout the P&L, and approximately 170 basis points of incremental restaurant rent expense and other taxes resulting from real estate transactions last year. Excluding these costs, the restaurant expense line would have been approximately 10 basis points favorable to last year. In addition, below the restaurant level EBITDA line, we had depreciation and interest expense savings related to the real estate transactions, a planned gain of approximately $8 million, primarily related to the sale and closure of one Bahama Breeze restaurant. This transaction occurred in the first month of the fiscal quarter and was contemplated in the full fiscal 2017 earnings outlook we provided in June. And legal expenses that were unfavorable to our expectations by approximately $3 million, along with $2 million of support center rent expense and other taxes related to the sale leaseback. Excluding these expenses, G&A as a percent of total sales would have been 40 basis points favorable to last year's adjusted G&A expense. Turning to segment performance, as a reminder, due to the real estate transactions last year, segment profit for the quarter includes incremental rent and other tax expense of $29 million. The benefits of lower depreciation and interest savings are not recognized in segment profit. Olive Garden segment profit margin of 19.4% was 90 basis points lower than last year for the quarter as additional rent drove 230 basis points of margin unfavorability versus last year. Excluding the incremental rent, Olive Garden's segment profit margin was 140 basis points higher than last year. LongHorn Steakhouse continues to strengthen its business model, improving segment profit margin by 70 basis points this quarter to 15.6%, even with a headwind of 150 basis points related to additional rent expenses. Excluding the incremental rent, segment profit margin increased 220 basis points at LongHorn. Segment profit margin declined 90 basis points to 14.8% in our fine dining segment. Although margins were lower due to negative same-restaurant sales in the quarter, they were flat when excluding incremental rent expense and preopening costs, primarily related to two new Capital Grille openings in the quarter. Our other business segment profit margins were down 10 basis points on a year-over-year basis, as additional rents drove 60 basis points of margin unfavorability versus last year. Excluding the incremental rent, segment profit margin at our other business was 50 basis points higher than last year. Turning to our annual outlook, we increased our fiscal 2017 annual earnings per share range to be between $3.87 to $3.97, from our previous $3.80 to $3.90. This reflects an updated diluted average share count for the year of approximately 126 million shares, primarily as a result of higher than anticipated share repurchases in the first quarter as we took advantage of volatility in our stock price. All other aspects of our fiscal 2017 outlook remain unchanged, including our same-restaurant sales growth outlook of between 1% and 2%. And while we don't provide specific quarterly guidance, I do want to remind you of a few timing-related factors that impact our quarter-to-quarter performance and comparisons to the prior year, specifically in the second quarter. First, in November we will lap the completion of our real estate transactions last year. As such, we will incur approximately two-thirds of the incremental quarterly rent and depreciation impact we've been experiencing. However, we will have essentially a full quarter's of interest savings relative to last year as most of the debt reduction related to our real estate transactions didn't occur until early in last year's third quarter. Additionally, the G&A expense in the second quarter of last year was abnormally low due to a favorable legal settlement of approximately $13 million that we do not expect to recur. Finally, this favorable settlement was partially offset by approximately $8 million in asset impairments in the second quarter of last year, which is reported on the impairments line of our financial statements. As Gene mentioned, we are confident we have the right strategies in place. This is clearly evident in our sales outperformance versus the industry, while our teams continue to better manage their businesses and leverage Darden's scale to improve profitability. We continue to believe Darden represents an attractive investment, given our strong cash flow generation, our investment grade credit rating with a compelling dividend yield, which is 3.65% based on yesterday's closing price, and, as we laid out in our long-term framework, our expectations for 10% to 15% total shareholder return over time. And with that, I will turn it back over to Gene for some closing remarks. Eugene I. Lee Jr.: Thanks, Rick. I was informed that I had a problem with my microphone as I opened. So I'm going to summarize my opening comments before I close. Overall, I'm very pleased with our performance and the progress we made against our strategic initiatives in the quarter. Total sales from continuing operations were $1.7 billion, an increase of 1.6%. Same-restaurant sales grew 1.3%, outperforming the industry benchmarks, excluding Darden, by 340 basis points. And earnings per share were $0.88, an increase of 29.4% from last year's adjusted diluted net earnings. So overall, Q1 was a good quarter for us. Our strategy's working. We continue to grow share, improve margins and make meaningful investments in our business, while returning capital to shareholders. It was also an important time of year for us as we held our annual leadership conferences for each business. These conferences allow us to get in front of every General Manager and Managing Partner across our 1,539 restaurants to align on our plans for the year and generate a lot of excitement. For me personally, aside from being in our restaurants day-to-day, it's one of the things I enjoy most about my job. It's a great chance to engage with our leaders and listen to those closest to the action. It also confirmed for me that our result-oriented people culture is truly what sets us apart. Our restaurant teams and our restaurant support center staff are the best in the business. And I take great pride in the fact that our team member turnover continues to be flat year-over-year, which reflects our compelling employment proposition. So I'll close by saying thank you to our team members who are at the heart of everything we do. And now we'll open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Chris O'Cull, KeyBanc. Your line is you now open. Chris O'Cull: Thank you. Good morning, guys. Gene, on the last call you indicated less menu pricing for the year than I believe what was maybe taken this first quarter. Has your thinking changed or do you expect less pricing in future quarters? And then I have a follow-up. Eugene I. Lee Jr.: Good morning, Chris. I think we expect to price less in the back half of the year than we did in the front half of the year, as we had some pricing from the third and fourth quarter last year that's still on the menu that we haven't lapped yet. Chris O'Cull: Okay. And then I know there had been some traffic growth embedded in the 1% to 2% comp guidance. But can't you achieve the guided range with slightly negative traffic and less pricing, given the contribution you're seeing from the off-premise sales growth? Eugene I. Lee Jr.: Yes, I think that's true. I think that we're also having some more success with our add-on sales and other things that we're doing. But when you look at the Olive Garden number, you've got about between 50 to 60 basis points in there of mix that's really guest count, so it should be associated with guest counts. Chris O'Cull: With the catering business? Eugene I. Lee Jr.: Yes, with anything that's -- anything that's large container. So when we sell a pan of lasagna, we're not giving [ph] ourselves any guests. Chris O'Cull: Okay. That's right. Thank you.

Thank you. Our next question comes from Brett Levy, Deutsche Bank. Your line is now open.

Good morning. Can you please give us a little bit of incrementality on what you're thinking about the competitive landscape, and why Olive Garden performed so much better than the others, and, really, where you saw the pockets of softness across the other brands, whether it be on the value, the premium sides and regionality? Thank you. Eugene I. Lee Jr.: Well I think I'd start, let me start pretty broad, Brett, and then I'll get down into our brands. I think the consumer environment, it continues to be difficult. I think there's a lot of choices the consumer has with their discretionary income. And I think restaurants are competing against a lot of those other choices, not just restaurants. I think restaurants today have to stay -- they have to stay relevant, and they need to continue to invest in the experience. And I believe that this quarter of outperformance has less to do with what we did this quarter but more to do with what we've done over the last two years to improve the overall experience in Olive Garden. We've been on this plan now for almost three years since Dave George has been involved, and everything cumulatively is adding up to our competitive advantage that we have in Olive Garden, which is value. And I think our advertising's relevant. I think, most importantly, we're running better restaurants today than we were in the past. And as you all know, this is a momentum business and I think this business has that momentum right now. When I look at what you call weaknesses in the other business -- I'm not sure I want to use that word -- I think our businesses performed well. We had big gaps in the marketplace. And I think LongHorn had a really good quarter. When we look at LongHorn, we're giving you segment earnings now, we need to look at that number, the overall performance of that business is up. We needed that business to contribute more from an earnings standpoint. We're getting that. And I'm pleased with that. When I look at -- let me give you a little bit of color, just based on geographic. Texas it still, it continues to be an area where we struggle. I would say Olive Garden continues to hold its own in Texas but the momentum has slidden there, too.

Thank you very much.

Thank you. Our next question comes from Joseph Buckley, Bank of America. Your line is now open.

Hi. Thank you. First, a bookkeeping question. The $7.8 million gain, is that the normalized tax effect against that? Is that in effect about $0.05 a share in EPS?

Joe, that's about $0.04 in EPS -- $0.03 to $0.04 in EPS.

Okay. And then curious on the off-premise, if you could elaborate a little bit on that, how it's breaking down between ToGo and catering, if delivery's playing into that. And I realize the -- I expect, maybe I don't realize -- I expect the mix is going to vary somewhat seasonally by quarter. Could you share with us what the mix of off-premise was in this quarter?

No, I'm really not going to share the mix for competitive reasons. Let me say that we've identified convenience as a huge opportunity. We've demonstrated that we've been able to pull that lever, take out – altogether it is -- up 50% over the last three years. What I will say is that we have momentum in the catering and delivery space but I'm not going to break down the components of our ToGo for competitive reasons.

Okay. And maybe just one more then on LongHorn. Can you talk about what you're doing competitively? It seemed like the email coupons picked up during the quarter. Again, maybe that's seasonal, or I didn't know if you were getting a little bit more aggressive perhaps than you had been in the past couple of quarters. Eugene I. Lee Jr.: Yes, let me address that because this is a strategy that we're implementing. We're executing this holistic marketing strategy and looking at all the tools we have available to us. As part of that, we've increased our digital spending in conjunction with our promotional strategy, which is really less broad scale discounting, and while using more targeted incentives to create value. And you can see the results of that as you look at our check average over time. We're not giving up check average as we shift incentives from free-standing inserts to digital. Digital's a much more cost effective way to reach your consumer. As you take the value away from these price points and promotions, which were deep in LongHorn over the years, and you shift it to more of a targeted digital incentive, we think that's a much better way to go after this, and I think we can see it in our financial performance. I would also just say the landscape on advertising and marketing is changing dramatically and we are constantly trying to find new ways and using our data scientists to analyze what is going on and what is the most cost-effective way to deliver the appropriate value to the right guests at the right time. We will continue to evolve this over the next probably 24 to 36 months as the environment continues to change.

That's helpful. Thank you.

Thank you. Our next question comes from David Tarantino, Baird. Your line is now open.

Hi. Good morning. Gene, my question is about Olive Garden's relative performance versus the industry. If I look at the past several quarters, it looks like you saw a very sharp acceleration in the middle two quarters of last year in terms of your relative performance. My question is really about your degree of confidence in sustaining the type of relative performance you've been seeing in the upcoming quarters, given how difficult the comparisons are starting to get. And then I have a brief follow-up. Eugene I. Lee Jr.: That's a pretty tough question, David, in all honesty. We think that we're doing the right things. We're starting with focusing on the basics of the operation. I'm really impressed with Dan Kiernan, our head of operations and what he's done with that team to keep them motivated on trying to improve. Our guest feedback is at its highest levels ever. We think our promotional strategy moving forward is sound. But do I feel confident that we're going to continue to outperform at the levels we've outperformed? I'm not sure. We're going to do the best we can but I can't predict that. I think we've got a good plan. I think we've done our work over the last few years and we'll continue to do our work. So, I think we're well positioned, but those are big hurdles to get over.

Great. Then the quick follow-up, Gene, are you assuming that the industry trends get a little better than they have been recently or are you assuming more of the same as you look at the balance of the fiscal year? And then maybe the second part of the question is what do you think is needed for the industry trends to get better than what we've seen recently? Eugene I. Lee Jr.: I think there's a lot in that question, David. I would say that, as we think about the industry, we are preparing -- we prepare our plans, we assume the industry's going to stay where the industry's going to stay. We're not assuming that the industry's going to get a whole lot better. I would say that my message to our team's let's focus on what we can control, running great restaurants and delivering great food service and atmosphere. I think there's some real uncertainty in the near term here but that's going to pass from a consumer standpoint. We're focused on the long term. When you think about what's it going to take to move the whole industry, I don't know, I still look at there's a lot of great brands out there doing great things, growing sales and growing new restaurants and same-restaurant sales. I think they're well positioned. They've got good value equations. I'm hoping that some more inventory will come out of the system. We've seen some big announcements of closures lately. And I also think there's other -- as you drive down the road, you're starting to see more restaurants close. You're also seeing more restaurants open. But we could use some inventory to come out. That would be helpful.

Great. Thank you very much.

Thank you. Our next question comes from Sara Senatore, Bernstein. Your line is now open.

This is actually Stephanie representing Sara Senatore. Good morning. A question on LongHorn. A lot of the conversation this quarter has been focused on gaining a certain mix of profitable customers. Now that you've had a bit of time to assess the data and the P&L and work on the strategy, has the profitability mix responded in the way that you expected it to? And if low beef prices were to persist, does this strategy still make sense? Thank you. Eugene I. Lee Jr.: Yes, I think we're thrilled with the performance of LongHorn. Profitability has come back to historic norms. We've had 14 consecutive quarters of same-restaurant sales growth, significant outperformance over that time period, over the industry. So we've taken a lot of share. So we feel good about where we're at, at this point in time. We'll continue to make investments. Yesterday, we made some huge investments into our business in LongHorn. We actually went back and increased the size of a couple of our steak [ph] that we felt we needed to and make that investment to get the quality where we need it to be. We improved our house salad yesterday. So, we're making investments in that business.

Okay. And a quick follow-up -- could you update us on your commodity outlook and if you're still expecting a return to inflation after this quarter; and, on a similar note, what that means for price competition within in the context of this environment? Eugene I. Lee Jr.: I heard the commodity outlook question. I didn't hear the second part of your question. Can you repeat that?

I was asking if you could update us on the commodity outlook and if you're still expecting a return to inflation after this quarter, and if you could talk about what that means for price competition. Eugene I. Lee Jr.: Okay. We still expect commodities to inflate in the back half of the year, more towards the fourth quarter. But we do expect commodities to be flat to low single digits unfavorable for the year. And, as I said, this quarter we had 150 basis points of commodity deflation. So, you would see that we'd have some inflation in the back half of the year. What does that mean to pricing? We still believe that we have the pricing strategy that's correct for us. Overall inflation for us, when you include labor and other things, is still going to be 1.5% to 2%. So, even though commodities are down in the beginning of the year and they're inflating in the back half, overall for the year we expect total inflation of 1.5% to 2%. As that relates to pricing, as we said, we expect to be in the low end of our 1% to 2% pricing this year. Olive Garden has taken their pricing action for the year already. And LongHorn just did this week -- earlier this month, I'm sorry. And so we don't expect to do much more with pricing for the rest of the year unless something dramatically changes.

Thank you.

Thank you. Our next question comes from Will Slabaugh, Stephens. Your line is now open.

Hey, good morning, guys. This is actually Billy on for Will. Thanks for taking the question. I wanted to ask on the labor line. You mentioned again last quarter the labor market remains tight across many of your markets. Do you have any updated thoughts that might be helpful for us? And should we still be thinking about that 2.5% to 3.5% wage inflation as appropriate, even headed into this new calendar year? Eugene I. Lee Jr.: Yes, it's a good question. I think that your 3% assumption for wage rate in the back half of the year is probably the right assumption. The market continues to tighten. And as I said in my prepared remarks, we're holding turnover flat year over year. We've got a strong employment proposition. Our people like what we do. We're a place people want to work. And so we'll continue to monitor the environment. We've changed some of our processes and procedures around hiring to help enable our restaurant managers to do a better job. And most importantly, we'll continue to look for ways to improve productivity at the restaurant level. I've said it for two years now, simplicity is a key to success in this business. We've made these businesses too complicated and we can get productivity enhancements as we simplify.

Thanks. That's helpful. And then just one more if I could, kind of taking a step back. I wanted to ask on possible acquisition opportunities. Do you guys have any updated thoughts here? Lately as we've seen valuations come in across the space, your balance sheet seems to be in a good place. So I guess, is there any reason why something like that would be off the table if a good opportunity presented itself? Eugene I. Lee Jr.: As I've said in the past, the management team and the Board will regularly evaluate all the alternatives open to us to achieve our financial goals and we will continue to do that. I'm not going to make any further comment than that.

Got it. Thanks. That's helpful. Eugene I. Lee Jr.: Jay, we are ready for our next caller.

Yes, our next question comes from David Palmer, RBC. Your line is now open.

Thank you. Gene, first a follow-up on Joe's question earlier. Last quarter the take-out catering mix was a little under 11%. Are you updating that number? Can you give that number for the quarter? Eugene I. Lee Jr.: Total take-out was 11%, it was 11% of the business.

Thank you. And the discount that I was getting on our adjusted email list -- and I know we're a sample of one and we were seeing online orders that was being marketed at 20% discount versus the traditional pricing. It seems like an important initiative for Olive Garden to get people into that habit, at least for take-out. Can you maybe walk us through the rationale of doing discounts like that? Perhaps it just makes sense on a mix basis given the saved labor and other, and maybe there's a growing base of web marketing that you can get from that. And then if I could squeeze one more in, is online ordering of delivery for individual orders in your future and how distant could that be? Thanks. Eugene I. Lee Jr.: A lot there. Let me deal with the first one and hopefully I'll remember the second one. We believe that it's important to move as many people as we possibly can over to online ordering. We've talked about the importance of that because the average check is much higher when someone orders online and we can prompt them through that order. But secondarily, from an operations standpoint it's really important, if we can move people off the phone taking orders to serving guests in the restaurant, that's really helpful. And when you think about, we have a ToGo specialist, one, two or three, and they're on the phone taking an order and there's a guest in front of them, the priority becomes the guest in front of them, not the person on the phone. So we feel like the service experience is a lot better as we move people to online. And we will continue to incentivize people to get in that habit. And we believe that the 20% discount, to do that is well worth it until we can change the behavior. The second question was individual order delivery. Yes, we will continue -- we are monitoring what is going on in that space. We are intimately involved with the big players that are in that space. They need us, we need them. We're going to proceed with caution. However, individual delivery orders are coming in the future somehow, some way. We just don't know who's going to be our partner, what the economics are going to be at this time.

Thank you very much.

Thank you. Our next question comes from Karen Holthouse, Goldman Sachs. Your line is now open.

Hi. Another question on the ToGo business. As you started to move people onto a digital platform and have a little bit better sort of tracking of who's ordering what, do you have any numbers around frequency you'd be willing to share, or any suggestion that people are using large order delivery or large order take-out as almost a home meal replacement option versus a catering occasion? Eugene I. Lee Jr.: I'm not going to get into a whole lot of detail, again, for competitive reasons. But they are using it for all different occasions. They're using it as a whole meal replacement. They're using it -- catering's a big word, but you've got a minimum of $125, I believe, on the Olive Garden take-out. Some families that's a family meal, if it's a large family. So it's being used for all sorts of occasions. I would tell you that the satisfaction rate is incredibly high for anybody that uses these services. Obviously we're trying to monitor every single event and trying to get feedback from the consumer. But right now the consumer feedback is extremely high and they're very satisfied.

Great. Thank you.

Thank you. Our next question comes from Brian Bittner, Oppenheimer. Your line is now open.

Thanks. Good morning, guys. Just on the financial stuff, what's your calculated debt-to-EBITDAR ratio today? And how does that relate to your targeted range? And if it's below your targeted range, could you dip into this low interest revolver you have? I think you have $750 million of untapped availability there. Could you dip into that to help accelerate these repurchases?

Hey, Brian. It's Rick. Our debt-to-EBITDAR ratio right now is slightly under 2% and our long-term framework is 2% to 2.5%. We do have a $750 million revolver. That doesn't mean that we're going to dip into it. We'll continue to work with the Board on figuring out what the best use of our capital is. If the stock price becomes volatile, we'll take advantage of that. But that's probably about as far as we'll go in talking about how much we're going to buy back.

Okay. Just going back to this ToGo business, I think it's probably one of the main incremental drivers to your outperformance against the industry. And just still trying to fully understand what it is that sets you so far apart in this piece of your business relative to your competitors. Obviously the food appears to be more portable than others. But if you could just maybe hit a little bit more on what it is that you're doing to drive the incrementality there, and what's setting you apart on the ToGo business versus your peers. Eugene I. Lee Jr.: I think you hit on one of the most important ones, which is that the food travels really well. But I also think it's important to note that Olive Garden is under-indexed on Italian take-out for a long time. We think it was a huge opportunity for us to really promote and make people aware of what's available. And I think we're still, we're scratching the surface on how we market this and I think the opportunity is large. When you think about, even when we look at our other businesses and what the take-out opportunities are, they're not as great. Olive Garden, because of the food, you can you do a pan of lasagna, you can do a pan of fettuccini Alfredo. The cuisine lends itself to a take-out type of event. I think that's part of why we're having so much success there. We've got food, we under-indexed, and I think we're marketing it very effectively. And we've got a consumer that wants it. The consumer wants the convenience.

As you go forward and continue to talk to us about ToGo, is catering going to be lumped into the ToGo conversation? Are those all going to be talked about as one? Eugene I. Lee Jr.: Yes, Brian, they're all one. I really want to reel this in for competitive reasons.

Okay. All right. Thanks.

Thank you. Our next question comes from Matthew DiFrisco, Guggenheim Securities. Your line is now open.

Thank you. I have a question about the other side of the outperformance. I guess if you look, both brands seem to have, both LongHorn and Olive Garden, seem to have outperformed roughly about 200 basis points if you wipe away the benefit that you're getting from the growth, the 20% growth in take-out and catering. So I guess is that a reflection of not only the value but is that also a reflection of dinner? If you could talk about what you're seeing across the industry, both your brands have historically indexed a little bit more towards dinner than some of your Malcolm Knapp casual dining peer group. So I'm curious if the competition seems to be a little bit heavier that you're seeing at the lunch day part. Eugene I. Lee Jr.: Actually, we're seeing some decent growth at Olive Garden for lunch. I think if you go to an Olive Garden, you look at our lunch menu, there's only five or six price points on the front of that menu, except for the bottom part, and they're all below $9.99 in most parts of the country. So we've seen some good growth there at lunch. And dinner remains strong. I hate to keep pivoting back to this. I know that you guys don't like to hear it. But we're so focused on improving the restaurant visit for the guest at each individual restaurant. Operations is driving some of this growth. I can't emphasize that enough. This is a very difficult business to execute at a broad level. And we've done a great job focusing our teams on that. And I think that's what's driving growth.

That's great. Also, can you just talk a little bit about, as far as if I look at the margin side, when do we get to the point, or are we at the point, where take-out is, across the board, sort of being agnostic as to whether it's a order pick-up or catering, is it a higher margin than your in-store visit even with the potential discounting or marketing needed to drive the business? Are we seeing this as a positive flow-through on the margins, as well, on the mix effect?

Yes, Matt, this is Rick. We're still saying that our margins are neutral to what our in-restaurants are. A lot of it is because of the alcohol and the other beverages that you can sell in restaurants. Even though we do have a higher check on our ToGo business, we've got a lower margin on the food than on the alcohol.

And then just a last follow-up on that, where do you stand as far as testing across some markets, potentially delivery with some third parties?

We're testing. We're looking at different third parties. We're not really wanting to talk about our testing for competitive reasons. But as Gene mentioned, we're talking to a lot of these deliverers to see which one is going to win out.

Is it meaningful, though, to the growth that you're seeing now across enough stores that it's affecting the year-over-year growth rate that you're seeing in take-out and off-premise?

No, no. The only delivery that's meaningful in our growth is our catering delivery that we're doing ourselves.

Excellent. Thank you.

Thank you. Our next question comes from John Glass, Morgan Stanley. Your line is now open.

Thanks very much. Gene, food deflation, and particularly food at home deflation, has been cited as one of the key reasons why restaurant sales have been weak recently. And that makes sense sort of intellectually, but I don't think I've ever really seen it happen, at least to this extent. So do you believe in that? Do you see it in your own data when you either talk to customers or survey customers that they're actually preferring to eat at home now instead of dining out because of that? Eugene I. Lee Jr.: John, obviously I was prepared for that question because it's being asked a lot of my peers. The way I think about this, John, it has to be a headwind for the entire industry. When I say the industry, I'm lumping fast food and other pieces in there. It's really hard for me to quantify the impact on casual dining. When I take the week-to-week noise out of the benchmarks, casual dining's down a little bit more than 1%, whether you look at it from a 13-week or 26-week or 52-week trend. So, when I look back over the year, as this spread has started to happen, I haven't seen a whole lot of difference in the trend. There's noise week to week but I like looking at these benchmarks on more of a trend to see what's happening, and try not to get too excited about what goes on week to week. I just have a hard time, when you think about our brands, that, where they're experiential, that people are trading out and staying home because they can get their groceries a little bit cheaper. I'm just having a hard time with that.

Got it. You mentioned some of the higher end brands that struggled. Do you see the higher-end consumer in, say, Olive Garden or LongHorn changing their behavior? If you look at your customers by that segment, are they ordering less or visiting less, maybe you're picking up lower-end consumers, or maybe you're getting the benefit of trade-down? How do you see the high end interacting with your main brands? Eugene I. Lee Jr.: I don't see, really, any interaction there. I don't see any change in behavior. I think when we look at The Capital Grille sales for the quarter, the one thing I didn't mention in my prepared remarks, we had some shift in the restaurant charity weeks that moved back into September, which are huge weeks for us. So those businesses, when you look at them on a longer-term trend, are performing really well. So I don't see any change in the upscale consumer behavior at this point in time, other than Texas. Texas continues to be weak. We're going to lap that here pretty shortly. But I haven't seen any -- it's not like the higher-end consumer is trading down. I think -- we look at -- again we set out two years ago to try to increase frequency in Olive Garden. We thought that was the play. We thought we spent too much time trying to increase our reach. We went back to try to increase our frequency and stay focused on our core. I think that's what we're doing. We're driving more core business.

Got it. And, Rick, just one quick one. You mentioned the one-time gain this quarter was in your guidance. I just feel compelled to ask, is there anything else in that guidance that we may not normally anticipate for the balance of the year?

Other than the things that I told you that happened last year, I wouldn't see there's anything very different than normal year-to-year stuff.

Thank you.

Thank you. Our next question comes from Jeffrey Bernstein at Barclays. Your line is now open.

Great. Thank you very much. Two questions. One, Gene, just on the comp trends, I'm just wondering from your seat, the sequential trends you look at, and I know we talked about shifts this year and last, more so last I guess, but would you say that trends through this quarter, ex those shifts were stable, or perhaps you saw any kind of trend one way or the other? I think you also mentioned something about when you think about the broader category that you're competing against broader consumer discretionary. So I'm just wondering, when you put that aside for a second, just from your restaurant peers how would you assess that competitive landscape, whether it's getting better or worse in terms of the discounting. And then I had a follow-up. Eugene I. Lee Jr.: Jeff, I would say, again, I think, when you look at month to month, we've got promotional changes in there where we've got different tests going on with incentives. So, I don't get too worried about what's going on month to month. I'm kept fairly well informed of exactly what's in market and being tested and what to expect. We're pretty good at predicting when we're going to be a little bit weaker versus last year and then when we're going to make it up. When you look at LongHorn for the quarter we are right on our plan. We planned to be at 0.6% and we were at 0.6%. We nailed the plan based on what we're doing with the marketing schedule. As far as the competitors, there's a lot of talk about it being very promotional. I would just urge you to go back and look at the benchmarks and see that there's still a 2% to 2.5% gap between -- we phrase it this way -- the consumer's paying 2.5% more this year than they did last year. And that's been true for seven years. For me, we haven't really seen a real promotional environment since the great recession. There was an 18-month period there where we saw a lot of promotional activity when check average was actually less than guest counts. But since then we've been adding between 2% and 3% to the consumer every single month. People say it's promotional. I'm not so sure that the consumer believes it's promotional because they're still paying 2.5% more.

Got it. And then just to clarify, I know in your slide deck you talked about the cost saves. I think you said $30 million in fiscal 2017. I'm just wondering whether you can provide any color in terms of the components of that. Are we now going forward in a state where we should be expecting savings in that range, and the low-hanging fruit of the $100 million-and-some-odd over the past couple years are now in the past, and this is the new normal run rate?

Jeff, just big picture on the cost saves, since Gene's been the CEO, we've taken about $160 million out of costs out of the business. Yes, a lot of that was early low-hanging fruit. We're continuing to look for other areas of productivity enhancements that we can get. We do expect $30 million this fiscal year. And as we said in June, if we get more than $30 million, we'll decide whether we want to reinvest those savings into our consumers so that we can improve our value perceptions. But we're going to continue every year to look for more productivity enhancements. I can't tell you what the savings will be in 2018 and 2019. We are still working through those. But if we have an update we'll give you one when we have one.

Thank you.

Thank you. Our next question comes from Jason West, Credit Suisse. Your line is now open.

Yes, thanks. Just one quick one first and then a follow-up. You guys mentioned the Memorial Day shift, I think, impacted the fine dining business in the quarter. But it didn't sound like it impacted any of the other brands. Can you just explain what happened there? Eugene I. Lee Jr.: It was de minimis in the other brands. It was almost 100 basis points in Capital Grille approximately. But the other brands were de minimis.

Okay. Got it. And then just big picture, on the two big brands there, you saw some strength at the end of the quarter in August. Could you try to just clarify how much of that was maybe promotional timing, things like that, maybe the pricing timing, versus if you are seeing any signs of improvement out there with just the general consumer, would be helpful? Thanks. Eugene I. Lee Jr.: I wouldn't read too much into August. Schools start differently every year, the calendar, we had some promotional changes. There was a lot going on in August. And we could tell in certain areas what schools went back before Labor Day. There were big changes in the school schedule. So I would look more at the quarter number than the month number.

Okay. Thank you.

Thank you. Our next question comes from Nicole Miller, Piper Jaffray. Your line is now open.

Thanks. Good morning. Could you update your potential new unit growth opportunity? And when we look back at the growth targets, I think you outlined in one of your investor decks in the spring or summer, do those represent both Company units and JV or franchise units? Eugene I. Lee Jr.: Nicole, what we said earlier in June was we'd expect 24 to 28 new units this fiscal year. We still expect to be within that range, 24 to 28. Now, I'm going to take you back to our long-term framework. Our long-term framework is 2% to 3% new unit growth. And as we said, early on in this long term, we'll be below that. But that does include just company-owned. That does not include any JV or any franchising sales growth for new units.

And any -- would any international, outside the US, be contemplated in that? Eugene I. Lee Jr.: No, international is all franchising. So that's not contemplated in the 2% to 3%. That would all be upside.

Thank you. And then just as a quick follow-up, in some of our field checks we've noticed a very heavy family mix, really tables with like very large families lately. Have you noted that customer mix change, as well, and does it have any impact? Eugene I. Lee Jr.: Yes, Nicole, we really haven't noticed a big change in family mix. Olive Garden's always had a larger family presence, anyway. So, we haven't really noticed a big change in mix in families.

All right. Thank you.

Thank you. Our next question comes from John Ivankoe, JPMC. Your line is now open.

Hi. Thank you for the question. This is Alex Mergard on for John. A quick question on Olive Garden remodel CapEx. I believe it was mentioned previously that you're targeting 62 for the year at about $250,000 a unit. Can you provide a quick update on where you stand at the end of the quarter and also your initial take for 2018? Thanks. Eugene I. Lee Jr.: Yes, Alex, we're still on track to hit our 60 roughly remodels for this fiscal year and we expect to do about 60 next fiscal year. We're still determining whether we want to accelerate that or not. But right now we're at 60 this year, roughly 60 next year, and then we'd be done with the year after at 60. They're running $250,000 to $450,000 in our total cost of remodels. But we're still on track for our 60 this year.

All right. Great. And then one quick follow-up question. Going back to the longer-term opportunity you mentioned accelerating development, perhaps, in 2018, particularly in your other business brands. Would you say that's still the framework for ramping development? Or could it be sooner? Later? Any clarity there would be great. Thanks. Eugene I. Lee Jr.: Alex, the other brands, you're talking about, the smaller brands on ramping up development, we believe that all of our brands have room to grow. It takes a little bit longer for those smaller, more specialty brands to build a pipeline. So when we kind of slowed the pipeline down a couple of years ago, some of these take 24 to 36 months to get open. What we talked about, our long-term framework on new units, was we expect to be below that long-term framework early and start ramping up for that. The good news is these specialty brands are higher sales volumes than an average Darden restaurant. So even if we open one or two, it's like opening three or four LongHorns. Again, we expect to be at the low end this year, or below the low end of our long-term framework for new units. And when we talk about 2018, we'll let you know when we get that sometime later this fiscal year.

All right. Great. Thank you.

Thank you. At this time I show no questions in queue. [Operator Instructions]

Jay, if there are no further questions, we'll conclude the call. I want to remind everyone that we expect to release the results for the second quarter on Tuesday, December 20 before the market opens, with a conference call to follow. Thank you all for participating in today's call.

Thank you. That concludes today's conference. Thank you for participating. You may disconnect at this time.