2019 Letter to Shareholders

Dear Fellow
Shareholders:

Fiscal 2019 was another successful year for Darden. When I reflect on what we accomplished, I am grateful for the tremendous partnership and strategic guidance we continue to receive from our Board of Directors and the unwavering commitment of our 185,000 team members to our mission — to be financially successful through great people consistently delivering outstanding food, drinks and service in an inviting atmosphere, making every
guest loyal.

Today, our focus remains on creating exceptional dining experiences for our guests and value for our shareholders. But we are equally concerned with ensuring Darden and our brands remain a great place to work, and that we are a company that continues to make a difference.
We think about all of this in terms of

OUR
PEOPLE

OUR
Purpose

OUR
Performance

Our People

With 185,000 team members, Darden is one of the 40 largest private employers in America1, and we are proud to employ a workforce that is as diverse as the guests we serve. During fiscal 2019, we were also honored to be recognized by Forbes as one of the Best Employers for Diversity.

We are focused on championing leadership behaviors that enable us to hire, train, reward and retain people with diversity of thought, talent and experience. Our team members exemplify servant leadership and are able to make authentic guest connections because of their varied backgrounds and experiences. Our leaders take pride in understanding what makes each person unique, and they value these differences and build teams that are unified in their purpose to deliver on our promise to our guests. While we are proud of the diverse makeup of our workforce today, we are committed to getting even better.

  Women People of Color*
  Darden
(as of 5/26/19)		 Full-Service
Industry Avg.^		 Darden
(as of 5/26/19)		 Full-Service
Industry Avg.^
Restaurant Team Members 54% 53% 50% 52%
Hourly 55% 54% 51% 52%
Manager 41% 41% 33% 36%
General Manager/Managing Partner 31% 28% 25% 24%
Director of Operations 24% 19% 18% 19%
  Darden
(as of 5/26/19)		 Corporate
Workforce Avg.+		 Darden
(as of 5/26/19)		 Corporate
Workforce Avg.+
Corporate Team Members 51% 48% 35% 31%
Individual Contributor 55% 49% 43% 33%
Manager 50% 39% 25% 24%
Director & Above 37% 23% 23% 15%

*Denotes African American, Asian, Hispanic, Native American, Pacific Islander, Two or More Races

^Source: 2018 YTD TDN2K People Report for Full-Service Dining

+Source: Equal Employment Opportunity Commission, Employer Information Reports (EEO-1 Single and Establishment Reports), 2016

Our team members are our greatest asset, which is why we continually invest in them. During fiscal 2019, we invested another $15 million in initiatives directly benefiting our workforce, on top of the $20 million annual investment we made in fiscal 2018. We will continue to find additional ways to invest in our employment proposition.

For many of our team members, Darden is their first employer. This is a role we take great pride in — and a responsibility we take seriously. That is why we invest more than $40 million a year in training for our team members. For some, a job at Darden is the start of a career with our company. For others, it enables them to further their education and eventually pursue a career elsewhere. Whatever the case, we know that the skills and experience we provide will help our team members not only grow and succeed within Darden, but wherever their career paths take them.

For our frontline team members, a job in one of our restaurants provides an opportunity to earn well above the minimum wage and grow with us. Across our brands, our hourly team members earn, on average, more than $16 per hour. Approximately half of our 6,300 restaurant managers are promoted from our hourly ranks, and 90 percent of our 1,785 General Managers and Managing Partners, the most influential role in our company, are promoted from within. Similarly, 90 percent of our 213 Directors of Operations, who oversee six to 12 restaurants each, are promoted from within.

With more than 8,000 leadership positions across our restaurants, we provide a pathway for thousands of individuals across the country to advance from entry-level jobs into management. Of course, not every one of our restaurant team members chooses to move into management. Many of our team members join Darden because we offer flexible work schedules and we work to accommodate their additional responsibilities. So it is not uncommon to find servers, bartenders and culinary team members who have been with our company for 15, 20 … even 40 years.

We are proud of the employment proposition we have built and we work hard to ensure our results-oriented culture remains a competitive advantage for us. Our industry-leading retention rates confirm it is an area of strength, but we know there is always room for improvement. So we will continue to work to do the right thing for our team members every day. Because we know that when our team members win, our guests win.

Our Purpose

Purpose is a term that is increasingly taking on more meaning for companies. As a company, our core purpose will always be to delight our guests. But as a company that serves nearly 400 million guests a year and has a significant presence throughout North America, we have both the opportunity and the desire to do more by making a difference in the communities we serve. When we talk about our broader purpose at Darden, it revolves around two areas — Sourcing Responsible Food and Helping Communities Thrive.

Sourcing Responsible Food

We know great food starts with quality ingredients that are sustainably sourced. That is why we created our Food Principles in 2016, to outline our commitment to our guests in the areas of sustainable sourcing, nutritional disclosure, food safety and animal welfare.

Building on our Food Principles, in fiscal 2019, Darden adopted an outcomes-focused Animal Welfare Policy to ensure that farm animals raised in our supply chain experience good welfare throughout their lives. This was the result of a year-long effort that included extensive benchmarking and input from a variety of stakeholders — including animal welfare experts, industry partners and suppliers.

Our approach, which is aligned with Darden’s business priorities and can be leveraged with our supply chain partners, will help to clearly prioritize areas of focus and promote improved animal welfare outcomes in line with the best available science and production practices.

Helping Communities Thrive

As a restaurant company, Darden is uniquely positioned to help in the fight against hunger. Across the country, one in eight households are food-insecure, living without consistent access to food. To help, we proudly partner with Feeding America, and in 2019, the Darden Restaurants, Inc. Foundation provided $2 million to support Feeding America and its member food banks across all 50 states. For every dollar donated, Feeding America can supply 10 meals to people in need — meaning our financial support helped donate 20 million meals. This year’s donation marked the ninth year of our partnership with Feeding America, during which time the Foundation and Darden have donated a total of $7.8 million.

These efforts go hand in hand with our Harvest program. Each day, across every one of our restaurants, we collect surplus, wholesome food that is not served to guests and, rather than discarding the food, we prepare it for donation to local nonprofit partners where the food is served to those in need. In fiscal 2019, our brands donated 7.5 million pounds of food, the equivalent of more than 6 million meals2. Since the program began in 2003, we have donated more than 115 million pounds which is equal to nearly 96 million meals.2

Preparing more than one million meals for our guests each day requires significant amounts of energy, water and food. Darden has a long history of conservation at our restaurants, and we also help our communities thrive by operating efficiently.

About 10 years ago, we set energy and water conservation goals for our restaurants to reduce usage of both by 15 percent each by 2015. At the time, it was an ambitious goal for a restaurant company to take on with such a diverse portfolio of restaurant buildings and kitchens to operate. When we sunset those goals in 2015, we had significantly exceeded both, with a remarkable 22 percent reduction in water use per restaurant.

These reductions came with investments at the restaurant level — in equipment, energy management systems, and operational initiatives to build awareness around the use of natural resources at our restaurants.

Since 2015, we have continued to reap rewards from our investments in conservation efforts by maintaining energy and water efficiency in our restaurants. Our goal is to continue to run the most efficient restaurant network in the country.

We also continue on our journey toward our aspirational goal of sending zero waste to landfills. We have more than doubled our diversion rate over the past 10 years to reach our current 32 percent diversion rate from landfills. We have accomplished this by minimizing food loss, standardizing our food donation program across all of our restaurants and maximizing cost-effective recycling options.

As our restaurant portfolio has grown over the last 10 years, we’ve done so sustainably. Since 2008, we have reduced the average greenhouse gas emissions per restaurant by 19 percent. And I am excited about our work to manage our climate exposure risk, both in our direct operations and food supply chain.

We believe our commitment to our people and our purpose helps strengthen our company by demonstrating to our team members, guests and other stakeholders why Darden is a great place to work and what we are doing to make a difference. We continued to make strides in both areas in fiscal 2019, which was once again another strong year for Darden.

Our Performance

The strategy we implemented four years ago continues to drive our business. Our restaurant teams remain focused on the execution of our Back-to-Basics operating philosophy anchored in providing great food with exceptional service in an engaging atmosphere, while at the Darden level, we continue to concentrate on strengthening and leveraging our four competitive advantages:

  • Our significant scale that creates cost advantages
  • Our extensive data and insights that improve operating fundamentals and help us better understand our guests
  • Our rigorous strategic planning process that our brands cycle through on a regular basis
  • Our results-oriented culture, which enables growth

This focus resulted in strong performance in fiscal 2019. Total sales increased 5.3 percent to $8.51 billion driven by the addition of 39 net new restaurants and a blended same-restaurant sales increase of 2.5 percent. Adjusted earnings before interest and taxes (EBIT) grew 7.7 percent3, and we achieved adjusted diluted net earnings per share (EPS) growth of 21 percent to $5.82.3

And each of our segments delivered sales and profit growth for the year.

  Annual Sales Annual Segment Profit*
($ in millions) 2019 2018 % 2019 2018 %
Consolidated Darden $8,510.4 $8,080.1 5.3%      
Olive Garden $4,287.3 $4,082.5 5.0% $884.0 $819.7 7.8%
LongHorn Steakhouse $1,810.6 $1,703.2 6.3% $324.3 $301.1 7.7%
Fine Dining $605.9 $574.4 5.5% $127.6 $117.0 9.1%
Other Business $1,806.6 $1,720.0 5.0% $257.8 $255.3 1.0%

*Segment profit represents sales, less costs for food & beverage, restaurant labor, restaurant expenses and marketing expenses

Our strong operating model generates significant cash flows, and this year was no exception. Our robust top- and bottom-line performance generated approximately $1.2 billion in adjusted earnings before interest, tax, depreciation and amortization (EBITDA)3 from continuing operations. We invested approximately $450 million of capital in the business and returned more than half a billion dollars to shareholders, consisting of $371 million in dividends and $208 million in share repurchases. In fact, since 2016, we’ve grown adjusted EBITDA3 nine percent annually and returned more than $500 million to shareholders for each of the last three years, in the form of dividends and share repurchases.

We are committed to creating value for our shareholders and we remain well-positioned to achieve our long-term value creation framework of 10-15 percent total shareholder return. This framework is meant to be achieved over time, assuming a constant earnings multiple. Our actual total shareholder returns have well exceeded our long-term framework since its introduction in 2015. In fact, our annualized total shareholder return over the three-year fiscal period that ended May 26, 2019, was approximately 25 percent.4

Fiscal 2019 was an excellent year for Darden, and I remain convinced that we have the right strategy in place to keep winning in this highly competitive environment. I also know that by ensuring Darden and our brands remain a great place to work, and by continuing to make a difference, we will prosper as a company.

On behalf of our Board of Directors and our 185,000 team members, thank you, our fellow shareholders, for your ongoing support. We value the trust you have placed in us and we will work to continue earning it.

Eugene I. Lee, Jr.
President & Chief Executive Officer

1 According to HR Executive magazine’s Top 100 Largest Employers list for 2019

2 USDA ARS Analysis of “What We Eat in America,” NHANES 2011-2012

3 Represents a Non-GAAP measure. A reconciliation of GAAP to Non-GAAP numbers can be found at the end of this letter.

4 Assumes shareholders reinvested all dividends in Darden stock.