Welcome to the Darden Fiscal Year 2021 fourth quarter earnings call. Your line has been placed on listen-only until the question and answer session. To ask a question you may press star one on your touchtone phone. The conference is being recorded. If you have any objections please disconnect at this time. I w ill now turn the call over to Mr. Kevin Kalicak. Thank you. You may begin. Thank you, Regina. Good morning, everyone, and thank you for participating on today's call. Joining me on the call today are Gene Lee, Darden's Chairman and CEO, Rick Cardenas, President and COO, and Raj Vennam, 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 this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted on the investor relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of those measurements are included in the presentation. Any reference to pre-COVID when discussing fourth quarter performance is a comparison to our fourth quarter of fiscal 2019. Any annual reference to pre-COVID is the trailing 12 months ending February of fiscal 2020. This is because last year's results are not meaningful due to the pandemic's impact on the business as dining rooms closed and we pivoted To Go only model during the fourth quarter of fiscal 2020. We plan to release fiscal 2022 first quarter earnings on September 23rd before the market opens, followed by a conference call. This morning, Gene will share some brief remarks, Rick will give an update on our operating performance, and Raj will provide more detail on our financial results and share our outlook for fiscal 2022. Now, I'll turn the call over to Gene. Thank you, Kevin. Good morning, everyone. As you saw from our release this morning, we had a very strong quarter that exceeded our expectations as sales quickly accelerated from the third quarter. During our call a year ago, I talked about the resiliency of the full-service dining segment and the confidence we had in the industry's ability to bounce back from the impacts of the pandemic. We've begun to see demand come back at strong levels. As we think about the industry, our consumer insights team has done a lot of good work to better understand the size of the full-service dining segment. There are multiple sources of data that offer sales estimates for the restaurant industry. The size of the industry, and the full-service industry specifically, varies considerably across these sources. This year, we are adopting Technomic as our data source, which we believe better reflects the sales contribution from independent operators, provides a broader view of the restaurant industry, and aligns more closely with the census data. Going forward, we will be referencing industry data provided by Technomic, which sizes the casual dining and fine dining categories for fiscal 2020 at $189 billion and for fiscal 2019 at $222 billion. Given the strong demand we're seeing and the financial health of the consumer, we believe the categories will return to that size or greater, despite having approximately 10% fewer units than before the onset of the pandemic. Over the last 15 months, we have made numerous strategic investments. At the restaurant level, we've invested in food quality and portion size that will help strengthen long-term value perceptions for each brand. We also made considerable investments in our team members to ensure our employment proposition remains a competitive advantage. We invested in technology, particularly within our To Go capabilities, to meet our guests' growing need for convenience and desire for the off-premise experience. Our business model has evolved and is much stronger today. As we begin our new fiscal year, we will remain disciplined in our approach to growing sales. More specifically, our focus is on driving profitable sales growth. Given the business transformation work we have done and the demand we are seeing from the consumer, we are well positioned to thrive in this operating environment. Before I turn it over to Rick, I want to say thank you to our team members in our restaurants and our support center. This was, without a doubt, the most challenging year in our company's history. Thanks to your dedication and perseverance, we've emerged stronger. On behalf of the Board of Directors and the senior leadership team, thank you for all you do to take care of our guests and each other. Rick? Thank you, Gene, and good morning, everyone. Our results this quarter are a culmination of the business model transformation work that Gene referenced, as well as the simplification efforts we implemented throughout the year. Significant process and menu simplification at each brand has enabled us to drive high levels of execution and strengthen margins, further positioning our brands for long-term success. As we began the quarter, our restaurant teams remained disciplined while continuing to operate in a difficult and unpredictable environment. As restrictions continued to ease and dine-in traffic increased, our teams successfully managed through it thanks to their focus on being brilliant with the basics, ensuring we provided great food with outstanding service in an enjoyable atmosphere for all of our guests. This enabled us to deliver record-setting results. For example, Olive Garden broke its all-time single-day sales record on Mother's Day. Additionally, both Olive Garden and LongHorn Steakhouse achieved the highest quarterly segment profit in their history. Even as capacity restrictions eased and we were able to utilize more of our dining rooms, off-premise sales remained strong during the quarter. Off-premise sales accounted for 33% of total sales at Olive Garden, 19% at LongHorn, and 16% at Cheddar's Scratch Kitchen. Guest demand for off-premise has been stickier than we originally thought. This is driven by the focus of our restaurant teams and the investments we made to improve our digital platform throughout the year. Technology enhancements to online ordering and the introduction of new capabilities, such as To Go capacity management and Curbside I'm Here notification, improves the experience for our guests while making it easier for our operators to execute. As a result, during the quarter, 64% of Olive Garden's To Go orders were placed online, and 14% of Darden's total sales were digital transactions. Thanks to additional technology enhancements, we continued to see guests utilize our digital tools even when they were dining in our restaurants. Nearly half of all guest checks were settled digitally, either online, on our tabletop tablets, or via mobile pay. The business model improvements we have made also reinforce our ability to open value-creating new restaurants across all of our brands. During the quarter, we opened 14 new restaurants, and these restaurants are outperforming our expectations. While Raj will discuss specific new restaurant targets for fiscal 2022, we are working to develop a pipeline of restaurants and future leaders that would put us at the higher end of our long-term framework of 2%-3% sales growth from new units as we enter fiscal 2023. Finally the strength of the Darden platform has helped our brands navigate near-term external challenges. The employment environment has been an issue for the industry. The power of our employment proposition, strengthened by the investments we have made in our people, continue to pay off as we retain our best talent and recruit new team members to more fully staff our restaurants. While there are staffing challenges in some areas, we are not experiencing systematic issues. Additionally, the strength of our platform has helped us avoid significant supply chain interruptions. Our supply chain team continues to leverage our scale to ensure our restaurant teams have the key products they need to serve our guests. Notably, the few spot outages we have experienced are related to warehouse staffing and driver shortages, not product availability. To wrap up, I also want to recognize our outstanding team members. During my restaurant visits, I'm inspired by the positive attitude and flexibility you demonstrate every day. Thank you for all you have done and continue to do to deliver great experiences for our guests. Now I'll turn it over to Raj. Thank you, Rick, good morning, everyone. Total sales for the fourth quarter were $2.3 billion, 79.5% higher than last year, driven by 90.4% same-restaurant sales growth and the addition of 30 net new restaurants, partially offset by one less week of operations this year. The improvements we made to our business model, combined with fourth quarter sales accelerating faster than cost, drove strong profitability, resulting in adjusted diluted net earnings per share from continuing operations of $2.03. Our reported earnings were $0.76 higher due to a non-recurring tax benefit of $99.7 million. This benefit primarily relates to our estimated federal net operating loss for fiscal year 2021, which we'll carry back to the preceding five years. Looking at our performance throughout the quarter, we saw same-restaurant sales versus pre-COVID improving from - 4.1% in March to +2.4% in May, and same-restaurant sales for the first three weeks of June were + 2.5% compared to two years ago. To Go sales for Olive Garden and LongHorn continue to be significantly higher than pre-COVID levels. We have seen a gradual decline in weekly To Go sales. That decline is being more than offset by an increase in dining sales. Turning to the fourth quarter P&L, compared to pre-COVID results, food and beverage expenses were 90 basis points higher, driven by investments in both food quality and pricing below inflation. For reference, food inflation in Q4 was 4.3% versus last year. Restaurant labor was 190 basis points lower, driven by hourly labor improvement of 320 basis points due to efficiencies gained from the operation simplification and was partially offset by continued wage pressures. Marketing spend was $44 million lower, resulting in 200 basis points of favorability. G&A expense was 30 basis points lower, driven primarily by savings from the corporate restructuring earlier in the year. As a result, we achieved record restaurant level EBITDA margin for Darden up to 22.6%, 310 basis points above pre-COVID levels, and record quarterly EBITDA of $412 million. We had $5 million in impairments due to the write-off of multiple restaurant-related assets, and our effective tax rate for the quarter was 12%, excluding the impact of the non-recurring tax benefit I previously mentioned. Looking at our segments, we achieved record segment profit dollars and margins at Olive Garden, LongHorn, and the Other business segment this quarter. Fine dining improved segment profit margins versus pre-COVID despite sales declines. These results were driven by reduced labor and marketing expenses as we continue to focus on simplified operations while also continuing to invest in food quality and pricing below inflation. 2021 was a year like no other, and despite the challenges of constantly shifting capacity restrictions and uncertain guest demand, we delivered $7.2 billion in total sales. The actions we took in response to COVID-19 to solidify our cash position and transform our business model helped build a solid foundation for recovery and resulted in over $1 billion in adjusted EBITDA and over $920 million of free cash flow. As a result, we repaid our term loan, reinstated our pre-COVID dividend, and quickly built up our cash position. Our disciplined approach to simplifying operations and driving profitable sales growth positions us well for the future. As a result of our strong performance, cash position, and the fiscal 2022 outlook, this morning, we also announced our board approved a 25% increase to our regular quarterly dividend to $1.10 per share, implying an annual dividend of $4.40. This results in a yield of 3.2% based on yesterday's closing share price. Finally, turning to our financial outlook for fiscal 2022, we assume full operating capacity for essentially all restaurants, and we do not anticipate any significant business interruptions related to COVID-19. Based on these assumptions, we expect total sales of $9.2 billion-$9.5 billion, representing growth of 5%-8% from pre-COVID levels. Same-restaurant sales growth of 25%-29% and 35-40 new restaurants. Capital spending of $375 million-$425 million. Total inflation of approximately 3%, with commodities inflation of approximately 2.5% and hourly labor inflation of approximately 6%. EBITDA of $1.5 billion-$1.59 billion, an annual effective tax rate of 13%-14%, and approximately 131 million diluted average shares outstanding for the year, all resulting in a diluted net earnings per share between $7 and $7.50. With that, we'll open it up for questions. At this time, if you'd like to ask a question, simply press star then the number one on your telephone keypad. We ask that you please limit your questions to one and one follow-up. Our first question comes from the line of Brian Bittner with Oppenheimer. Please go ahead. Thank you. Good morning. Gene, you stated that Darden is well-positioned to thrive in this operating environment, and I think that's just a pretty powerful statement given all the labor challenges and cost issues that we're hearing from all of your peers. What is your reaction to these dynamics, and why specifically do you believe Darden is standing out from the crowd as it relates to the near-term impacts from these issues? Let's start on the labor front. We've made significant investments over time in our people. Starting way back when we had the tax reform, we made the choice to invest in our people at that point in time. We've invested in our people throughout the pandemic. Our best people have stayed with us through this. We have an attractive employment proposition. We're able to attract people to our businesses to work for us. We think that we're fairly well-staffed right now. As the environment continues to improve, we see no reason why we're not the employer of choice in our businesses. I've been pretty clear saying, I think the restaurant industry is going to continue to struggle attracting workers, but there's enough great hospitality workers out there to staff all of Darden Restaurants if we provide the best employment proposition. Not just employment proposition today, it's about potential growth, our ability to promote from within. We're promoting 1,000 team members a year into management. We're providing other opportunities through training and going out and opening new restaurants. I think our team members really love the experience. I think that we're in great shape from an employment standpoint. We'll continue to invest. We'll do great salary administration to ensure that we're paying competitive wages. I think that we have the flexibility to manage the wage inflation because of our margin structure. Combined with our pricing philosophy, I think we have some room there if need be, to offset that and to be able to increase wages if we need to. As far as food inflation goes, our team has done a fantastic job. We're fairly long on the things that we need to be long on. I think using our platform and our scale to our advantage through this has been a big advantage. We feel like we're very well-positioned to manage whatever inflation comes our way in the near term and even in the long term. Thanks, Gene. Just a quick follow-up for Raj. We're no longer talking about 90% sales recapture. Thankfully, we're on the other side of this, it feels, in your guidance. For 2022 is 5%-8% above pre-COVID levels, so obviously over 100% recapture. I believe the EBITDA margins at the midpoint of that guidance are 16.5%, so 250 basis points above pre-COVID. What is the philosophy on communicating investments to us now and the philosophy on communicating how you're thinking about EBITDA margins now that this path for sales above pre-COVID levels is so much more clear? Brian, I think as we look at where our guidance is, let me just start with that. When you think about what we guided this morning for FY 2022, that implies EBITDA margin growth of between 200 on the lower end to 250 on the higher end. Clearly as sales have recovered, some of the flow-through, we're letting it flow to the bottom line. We have made some investments, continue to make investments. As Gene mentioned, we're pricing well below inflation. In fact, I think this morning, we said we expect overall inflation to be around 3%, and our pricing is in the middle of our 1%-2% target. We are pricing well below inflation. That's the biggest investment we're making. Also gives us some extra dry powder if there was additional inflation that was to come our way. We do think that 200 basis points-250 basis points is a good target for us now. As we think beyond that, I think we need to better understand the economic and competitive environment as we hone in on the business model. I would say based on where we are today, we expect to retain most of that margin improvement we'll see in FY 2022. Thank you. Congratulations. Your next question comes from the line of Eric Gonzalez with KeyBanc Capital Markets. Hey, thanks for the question. My question is on the inflation outlook. Clearly, there have been some big moves in commodities in recent weeks. Can you talk about some of the key variables, including that 3% inflation? I think you said 2.5% on the food side, and perhaps how that might stage throughout the year. Do you expect inflation to be higher in the beginning of the fiscal year before perhaps leveling out towards the end? Thanks. Hi, Eric. Yes, as you look at inflation, we said commodities is around 2.5% for the full year, but the front half of the year is somewhere between 3.5%-4%. It tapers off a little bit as we go into the back. As I said in my prepared remarks, Q4 this year was 4.3%, which is where we think as we wrap on that next year, we expect Q4 to be more closer to flat. That's kind of the cadence. About the drivers of commodity inflation, I'd say chicken and seafood are high. We're also seeing significant inflation in cooking oil, a little bit in dairy. I'd say the other thing is packaging. Packaging continues to be, especially with resin cost going up, packaging is another factor. All in all, those are the big drivers of inflation on the commodity side. On the labor side, overall labor, we expect to be somewhere between 4% and 4.5%, but wage rate itself, we expect that to be around 6%. Very helpful. Thank you. Your next question comes from the line of David Tarantino with Baird. Hi, good morning. I'm wondering, related to Olive Garden or perhaps your overall sales, how much do you think capacity constraints are still in play in terms of weighing down the performance? I guess relatedly, what do you think the upside is, Gene, as you see the restaurants come back to full capacity now that you're seeing some of these To Go sales stick more than you thought they would? David, good morning. It is very limited capacity restrictions out there. There are still a few states and municipalities that have some restrictions on us, but we got California back last week and we got New York back. No major market has restrictions. When we think about where we're at from a sales perspective, we think there's still more room inside the restaurants as we continue to work on. We think the work we do with our menus and our business model are going to help us with throughput, which is going to enable us to, in these high volume periods, get more volume to the restaurant. I think Rick's comment in his prepared remarks about what the teams were able to do and execute on Mother's Day to have the best Mother's Day we've ever had before says a lot about our ability to execute and get more people to our restaurants in a limited time period. I don't think we have any capacity restrictions. Obviously, we're seeing less sales growth on the weekends than we are midweek, just because there's less opportunity in a lot of our high volume restaurants to get through extra volume. The word I use a lot is we're still in search of equilibrium, and we're not there yet. I don't know when we're going to be there when we see consumers really get into what I would call a normative behavior pattern. We get to where we understand what the in-restaurant dining is going to be, what the off-premise is going to be. Rick, in his comments, talked about that we're pleased with where the off-premise is leveling out, even though it's declined slightly. I said this a while ago. I think a lot of you guys disagree with me. I think you were right and I was wrong that some of this off-premise was stickier than what we thought. I think a lot of it has to do with the capabilities we created through the pandemic to make it a lot less frictionless. We're searching for equilibrium, understanding when and where the business is going to come from. I think we're still in the early innings of that, and I think we still got a lot more upside. Thanks for that, Gene. I guess one other follow-up question on this point is, the gap between how LongHorn is performing and how Olive Garden is performing relative to pre-COVID is very significant. I was wondering if you could give your thoughts on why either LongHorn is outperforming by so much, or Olive Garden is lagging the performance you're seeing for LongHorn. First thing I would say is Olive Garden is not lagging. I'm just thrilled with their performance. When you're looking at 25.5% restaurant level margins and getting back to pre-COVID sales levels, that's just amazing. That performance is unbelievable. When you look at what's going on in LongHorn, we've been investing in that business for five years since Todd's come back, and he and his team have just done a great job of improving the value perception. When we look at where they are in Technomic and the ratings, they're number one in most categories. They've moved from middle of the pack to number one. I think LongHorn's performance is just a culmination of a lot of work over a great period of time. I want to also recognize that the whole steakhouse segment is moving. The whole steakhouse segment has outperformed the other segments, and I believe that is because the segment has high value perceptions. They're definitely getting a segment lift, but they've also done a great job and they're executing at an extremely high level. Great. Thank you very much. Your next question comes from the line of Jeffrey Bernstein with Barclays. Great. Thank you very much. Two quick ones, actually. The first one just on the first quarter as we now seemingly exit, hopefully, the pandemic. I think you said, Gene, your month to date comps are up 2.5. I think that's actually identical to what you said for May. I'm just wondering, how does that compare to expectation, whether you would have expected further acceleration with additional markets, like you said, having recently reopened or any kind of thoughts you can give us, having given us full year guidance, just wondering, want to make sure with this being the first quarter of lapping full COVID. An y thoughts on those sales or whether there's any parameters around the earnings that you want us to think about? One follow-up. Hey, Jeff. This is Raj. When you think about the cadence, I think, May to June, three weeks, 2.5%, we feel pretty good about where we are on that in terms of same-restaurant sales. I would argue they're actually a little bit better than what we had expected going into the fiscal year. As you look at the cadence of some of these, as the markets open up, as the capacity restrictions are lifted, we are seeing some movement, especially in California and places like that. When you blend everything, at the Darden level, some of these brands that are impacted the most are brands that are not a big part of our overall portfolio. It takes a lot to move the needle on our blended same-restaurant sales. Then there are other factors you got to take into consideration, especially as you look at versus fiscal 2019, because we're not doing some of the promotional activity. We're not doing things that would have stimulated demand in the past that we're doing now, right? There is that. We are basically comparing to a level that was different when we had a lot more spend in marketing and other stuff. As Gene said, I think, continuation of the same theme, that we're thrilled with where we are, and we're also thrilled with our business model and the fact that we're able to make investments not only in our people, but also in our guests through food quality, food portion, and pricing. We're giving a lot back to the guests while actually getting a strong business model. I think that's how I would, I guess, address the question. Great. Then just my follow-up, just wondering, as you think about fiscal 2022, what do you think is the greatest risk? Seemingly, you're feeling quite good about current quarter to date trends and thriving in the outlook commentary. But in terms of risks for fiscal 2022, would you say it's more on the sales or the cost side? Maybe where you'd think yourself and/or the industry would be most vulnerable as we come out on the other side. Thank you. Well, I think the greatest risk still is COVID. I think we're getting to the point where we think we're getting to the other side of that. When I look at what we've put out there for guidance, and obviously, we think we can achieve that. I look at the greatest risks as being external, not internal, and I don't see risks from a sales perspective or a cost perspective. I think we've got the flexibility, and we've set this up to have the flexibility to deal with almost anything that is thrown at us, with the exception of another outbreak in COVID-19 where we had to have some restrictions on our business. To me, that's the greatest risk to what we put forward. Thank you. Your next question will come from the line of Chris Carril with RBC Capital Markets. Hi. Good morning, and thanks for the question. Just in looking at the segment margins, holding aside the performance at Olive Garden and LongHorn, the Other business segment margin was particularly strong and well above 2019. Curious to hear what some of the key drivers of the performance were in that segment and maybe how much of a factor that segment's improvement is contributing to your 2022 outlook. I know last quarter you had discussed the improvements at Cheddar's, so any additional color or update there would be great as well. Yeah. I think as we look at the Other segment, I point out a couple of brands where the business model transformation was significant. I would say Cheddar's is a big part of that, and Bahama Breeze is another brand where we saw a significant improvement in the business model. Part of this is going back to the simplification. We had a chance to break down everything, rebuild back up, and figure out a way to transform the business model. Those two brands are primarily contributing to the growth that we have in the Other segment. As we look at next fiscal year, they still play a decent role. When you look at the Other segment, it's about 20% of it, so they're not going to be a huge contributor, but related to their size, they are going to be outperforming on the segment margin. Yeah, Chris, on Cheddar's, I would just say that we're extremely pleased with where this business is at this point. As Raj indicated, the biggest improvement in the business model in all of our business came in Cheddar's. We continue to focus on strengthening the restaurant leadership teams to be able to handle the future growth. Overall, we're very pleased with where this business is at today and very excited about the potential. Great. Thanks for that detail, and I'll just pass it along here. Your next question will come from the line of James Rutherford with Stephens. Please go ahead. Yeah, thanks. I wanted to start off with a technology question for Rick. Last quarter, you mentioned being in the middle of developing a new three-year roadmap for technology, and I was curious where you expect to see the biggest returns, whether it's consumer-facing in the box, online, back of the house, support center, or in some other area. Where are the biggest opportunities and priorities for the next three years on the tech side? Yeah, James, thanks for the question. We have completed our three-year roadmap and what we're working on, and we look at it in a few places, but I would say the primary theme is reducing friction. What we're doing with technology is reducing friction in the guest experience, in the team member experience, and in the manager experience in what we do. That would mean continuing to enhance our off-premise capabilities to make it easier for a guest to order repeat orders and to pick up their off-premise experience. In the restaurant, we're looking at a revamp of our point-of-sale system. It's a pretty old system that we developed years ago. We're going to revamp that to make it much easier for our team members to handle the guest experience and to handle off-premise. For the managers, we're simplifying the way things look in the back of the house. A lot of our systems, while they have great back ends, very great back ends, the user interface isn't as great. We're working on improving the user interface. All of those are under the theme of reducing friction. Okay, excellent. Raj, just one follow-up. I think last quarter you said you were sitting at 115,000 hourly employees across the company. Could you update us on where you stand today and where you view full employment given the demand environment here today? I don't know that we're comfortable sharing the total number of employees at this point, but I'd just say we have made significant progress. In fact, going back, I don't know if we said 115. I think it was a little bit more than that. Anyway, at this point, I'm not so sure we want to get into the exact number of employees other than just let you know that we feel pretty good with staffing, and we don't see any gaps. Okay, excellent. Thank you so much. Congratulations. Your next question comes from the line of Andrew Charles with Cowen. Great. Thanks. Raj, you guys impressively raised your dividend 25% to $1.10. If you think about the historical 50%-60% target payout ratio, this would imply EPS of $7.33-$8.80 versus the formal guidance of $7-$7.50. Can you help rectify that a little bit? Is this just conservatism reflection in the formal guidance? Okay, great question. Let me start with when you think about how we look at our dividend, the 50%-60% is our target range. At this point, given where we are with our cash on the balance sheet, we feel pretty good about going to the higher end of that range. As you pointed out, if you look at 60%, then it's closer to the middle of our guidance. If you take the middle of our guidance, we're basically at 61% payout. I would argue that's not that different from the 50%-60%, especially given we're sitting on a $1.2 billion cash flow, and we expect to still generate significant free cash flow. At the end of the day, when we look at our business model, the proposed dividend or the dividend that we actually announced this morning only eats up about 50% of our free cash flow. I feel really good about where we are. Also just remember the target is over time. We had a year where we were below the target. Think of this as a way to make up for a little bit of that. That's fair. Thank you. Your next question comes from the line of Jeff Farmer with Gordon Haskett. Thank you. On the March earnings call, you reported that hourly labor productivity had improved by, I think you said over 20% for the system. I'm just curious, two things. How are you measuring labor productivity? I think you touched on it a little bit earlier, but how have you driven this level of improvement in productivity? Hey, Jeff, this is Rick. Yes, we did mention that productivity was about 20% better across the system. We measured on an hours per guest basis. How many guests can we serve per hour, per labor hour? We're still seeing significant labor productivity improvements. As Raj mentioned, we had a significant improvement in labor margin even with inflation. The way we did it was what we've been talking about for the last year, is continue to improve our processes from the food coming into the back door to getting to the table. Which means significant menu design work, significant prep design work, which took a lot of the steps and procedures out of the kitchen. What I would say is we are never done with that. We redesigned our processes over the last year. We have to look at them again, and do we have to redesign again? We're going to continue to do that, to drive efficiencies where we should drive efficiencies so that we can reinvest those savings in our P&L, and give a better experience to our guests. Just as a quick follow-up, and I might have missed this earlier, I apologize, but of the 25 states or so that have ended the supplemental unemployment benefits early, what has the hiring or staffing dynamic looked like since that's happened in those states? Yeah, Jeff, a lot of those states announced something either late May or early June, that would take effect sometime in June. I think the first date took effect maybe last week. Anecdotally, we've seen a little bit of an improvement in the trends of applicant flow, but we've seen it all across the country, not just states that have eliminated the UI, but even states that haven't yet. It could be because those states that haven't yet are actually starting to open up, you're going to see applicant flow. We feel really good about our applicant flow into our restaurant. We're net hiring a lot of people every week. We had a record hiring quarter in the fourth quarter, and we feel really good about where we are. Thank you. Your next question comes from the line of Brett Levy with MKM Partners. Great. Thanks for taking the call and good morning. I guess just two separate questions. You're obviously talking about some significant EBITDA margin expansion. How should we be thinking about that from a split between the recovery of G&A spending, as well as the unit level profitability, and does the progress you've seen of late change what you think the longer term ceilings are for your restaurant level margin? Then the second question is on the development side. We've obviously seen a lot of news out there of delays of inflation, of labor availability. What are you seeing on those fronts, and how confident are you about either the cadence of the 35-40 or the ability to reach the higher end? Thank you. Hi, Brett. Let me start, then I'll hand it over to Rick for the development question. As you look at our margins, I'd argue that the margin that you saw in Q4, where bulk of it came from the restaurant level, is a little bit at the G&A. I say a little bit, it's actually 30, 40 basis points, which is huge. I think as you look forward, I think the way to think about it is G&A is probably going to be somewhere around 40 basis points of favorability, the rest is going to come from the restaurant level margins. The way I would kind of categorize that is that really, restaurant labor and marketing are going to see an improvement. However, we're going to continue to see some increase in food costs because of the investments. That's a deliberate choice we made. That's how I kind of categorize that. The restaurant expenses line should be a little bit better, but not as significant because that one, especially because we're not pricing in line with overall inflation, you get to have an impact on all the line items across the P&L. Yeah, Brett, on the development side, this is Rick. On the development side, we have a couple things. One is, we shut down our pipeline at the beginning of COVID-19 and we restarted the pipeline during this fiscal year as we saw us coming out of that. We feel really good about the 14 restaurants we opened. I would say, you hear a lot about labor shortages in construction and about product shortages in construction. We're getting out in front of that. We're ordering product a lot farther in advance than we used to make sure we've got the stainless steel in the kitchen to do the things that we need to do. The good news is you're seeing some of these input costs come down. Hopefully by the time we're starting to build our restaurants, those input costs are back to a more reasonable level. The margin improvements we've made in our restaurants and our restaurant profitability has really helped, even if the inflation was where people are hearing about it. In terms of cadence of openings, as I said, we got in front of this and started ordering product earlier for our restaurants. We typically open mid-teens restaurants in the fourth quarter. Of our 30-40 restaurants we're going to open this year, we'll probably have mid-teens in the fourth quarter, and the other ones will be kind of spread throughout this fiscal year. Great. Thank you. Your next question will come from the line of Lauren Silberman with Credit Suisse. Lauren, you may be on mute. We can hear you now. You can hear me? Okay, great. On the To Go, you talked about To Go being stickier than perhaps you originally thought. Are you seeing any discernible differences across markets that have recaptured more on-premise sales? Is there anything that you can share on how consumers are using the To Go occasion and whether that's a replacement for on-premise versus an at-home meal? Well, I think for us, if they're using it as a home meal replacement or maybe in the workplace during the day, I think there's no behavioral change there at all. There's really no difference in what's happening throughout the country as more restaurants and more dining rooms open. It's been the same kind of shift. You tick down 200 basis points, and you pick more of that up in the dining room. I think that, as I said earlier, I'll give the analyst community credit on this. This was stickier than what we thought. We know we've reached some new consumers here. The experience is very good. I think that we don't know where it's going to net out. It's going to net out a lot higher than it was pre-COVID. I think it's something that's part of our business we'll have to pay a lot more attention to as we move forward. Great. Just if I could do a follow-up on June running at 2.5%, are there any seasonality considerations in June relative to May, or are you largely seeing similar average weekly sales? I'd say, yeah, the similar average weekly sales once you take out the noise of the holidays. Thank you very much. Your next question will come from the line of Chris O'Cull with Stifel. Thanks. Good morning, guys. Raj, I believe you stated that demand came back at a faster pace than cost. I was hoping you could elaborate on what those costs were, given staffing hasn't been an issue and maybe the impact of that timing dynamic. Well, I'd say a little bit of it was staffing. We had to catch up on staffing through the quarter as they accelerated faster than we hired. By the end of the quarter, we're in a good place. There was a little bit of that. Beyond that, I think as you look at our P&L, you can see obviously the marketing didn't grow as we had sales come in. The level of travel was a lot less. Some of these costs that we have, the other cost is really more around growth costs that we said we're going to want to bring back, especially because we want to have the right pipeline of talent for new openings. Those costs, we were holding off on some of these to wait for the sales to get back to the levels where we thought we were delivering the right level of returns. Now that the sales are at the levels that are above the pre-COVID, some of these costs we want to put that back into the P&L, and that's part of the guidance that we provided this morning. Can you quantify the impact to the store level labor from that timing mismatch during the quarter? I'd say it's in the 10, 20 basis points. Not huge. Great. Thanks, guys. Your next question comes from the line of Jon Tower with Wells Fargo. Great. Thanks for taking my question. Rick, I just wanted to circle back on a comment you made about unit growth in FY 2023 potentially being above or, sorry, towards the higher end of that 2%-3% range that you've historically guided to. I'm just curious, how sustainable do you feel that level of growth is into the future beyond just FY 2023 in terms of that potentially being a catch-up year of growth from this more disruptive period? Perhaps you can dig into the components of that growth. Obviously, Olive Garden's been a bigger piece of growth historically, going forward, how should we think of that relative to the other brands in the portfolio? Jon, thanks. First of all, on the sustainability of the growth going forward, the only thing that's going to slow us down in growth after this ramp up is having enough people to open our restaurants, right? Having enough general managers ready and able to open our restaurants. We believe that we can stay in the higher end of our range for a little while. The economic environment could be different in a year or two. That might change that, but we feel really confident that we can get closer to the higher end of our range because of the business model improvements we have made, and it gives us the ability to open even more Olive Gardens, right? When we were opening an Olive Garden before, we would impact many Olive Gardens around them. With the business model enhancements Olive Garden has made, we feel even more confident being able to open some of those. Raj had already mentioned Cheddar's and how much they've improved their business model. That has given us more confidence in being able to open more Cheddar's. That gives us the ability to get towards the higher end of that range. Every one of our brands has the ability to grow, and that's the important thing. We've made significant improvements in the business model of Bahama Breeze. While someone asked about the other segment, I want to tell you that Seasons 52 has also made a huge business model improvement, even though their sales growth wasn't as strong as Bahama Breeze because of their clientele. That's all coming back. We've opened some pretty darn good Seasons 52s recently, and we opened a great Bahama Breeze recently. We feel really good about our ability to open all of our brands and be at the higher end of our range for the foreseeable future, unless the economic environment changes. Got it. Just following up to the comments on the To Go business, I think you'd mentioned that 64% of the To Go orders were online, and I'm just curious to get your thoughts on how you're communicating with those customers today. Is this essentially opening up a new channel of marketing that you've already put in place, or is that something that you're not necessarily even doing today but down the line could harvest as a new marketing channel? Yeah, Jon, because they're ordering online, we do get a little bit more information about them than we would on a phone order or other orders. That gives us the ability to market to them in the future. We haven't really done a whole lot of marketing in the last year. Olive Garden has done their TV because we had bought that media already. We've done some digital marketing just to keep the digital marketing moving, but we haven't really started focusing on those new customers and speaking directly to them. As we start thinking that we need to ramp things up, that's a great source of people to market to now that weren't coming to us before. Got it. Thank you very much. Your next question comes from the line of Dennis Geiger with UBS. Great. Thanks. Gene, appreciate the commentary on the industry and the industry size and shrinking supply. Just wondering if there's anything more that you can share on whether you've been able to identify gains for your brands from the restaurants that have permanently closed, or if you have any updated thoughts going forward on how you're thinking about your opportunity to gain share from that percentage of supply that's going away. I think, Dennis, our opportunity to gain share gets back to our ability to execute at a really high level, and the fact that we have continued to invest in portion size and quality. I think that's the key. I think this is all about running great restaurants and executing at a high level. I think we have a huge opportunity to gain share in all of our restaurants through comp store sales growth and through organic growth. That's why we're excited about our ability to add a lot of new restaurants. That's great. Just building on that, just one more, if I could, on Olive Garden. Just following up on the solid recovery that the brand has seen already. If you could talk just a bit more about some of the drivers of the continued AUV growth over, let's say, the near to medium term. Just want to make sure that I understand correctly that it's probably not really a function of further capacity increases from the brand from here. If it's specific drivers, if it's the marketing that you were just talking about turning that on, if it's potential promotional activities that you have in your back pocket, if it's digital, it's probably all of that and more. Gene, just curious if you could speak to some of those drivers, perhaps. I think there's one significant driver, and that's how we have to improve the crave-ability of the food. We continue to do that by investing in portions and quality. The team is laser-focused on this, and I think that's the best driver of overall profitable sales growth. Thank you. Your next question comes from the line of Peter Saleh with BTIG. Great. Thanks. Yeah, just wanted to follow up on Dennis' question, Gene, around the industry. I know you said there's been about 10% fewer units coming out of the industry, yet we're seeing a labor shortage. Just curious if you're seeing any sort of benefits on rent or availability of real estate or anything more specific around development that may be of benefit to Darden. No, there's tremendous speculation in the real estate market driving prices up. Okay. Just lastly on menu innovation. How are you guys thinking about menu innovation and expanding the menu? Is the labor squeeze right now, and I know you guys said it's not really as much impacting you guys, but is that keeping a lid a little bit on menu innovation? You guys still focusing on some of the core? Any thoughts there? We're focused on the core, where all innovation right now is trying to improve the products that the majority of our consumers buy. We love that focus. We think we're improving crave-ability. We continue to keep our restaurants simplifying, and we're sticking to one on, one off. The teams have great discipline around that right now, and I think that that's key to our ability to execute at a high level. As Rick talked about the improvement in productivity, and it's resulting in these record level restaurant level margins. Thank you very much. Your next question will come from the line of Nicole Miller with Piper Sandler. Thank you. Good morning. I wanted to ask about the specialty restaurant group of concepts, specifically around the higher end. I was wondering if you could just give an indication of which brands are above 2019 and which ones are slightly below maybe, and really getting at the ones that are above. What is the likelihood of that structurally being the new run rates? Or is there some reason that demand could pull back? Thank you. Well, I don't think there's any reason why demand would pull back. Demand might shift from suburban to urban a little bit as business travel starts to reignite. I've been thrilled with the recovery in the last six to seven weeks in fine dining. I was surprised how resilient the business was in suburbia through the pandemic. We've still got seven or eight really large restaurants in what I would call the heavy urban core that are starting to come back slowly. Overall, I think this is doing really well. The one business that has started to come back in the last couple of weeks was Seasons 52, which was hit pretty hard when you think about who their consumer was. Upscale fine dining is performing well above where we thought it would be and is coming back very quickly as we get our three major restaurants in New York City back up and running in downtown Boston and downtown D.C. Those five restaurants are core to what we do, and they're starting to come back quickly. Anything you would, excuse me, comment briefly on the customer profile. Same guests, different guests, eating differently, coming at different times, or just more of the same like it used to be? Thank you. Well, I think, again, in the suburban business, we're seeing a little bit more weekend business than what we did. We've seen a little bit of shift without the business travel and what midweek looks like. Overall, that's dynamic, and I go back to my overused word is equilibrium, not transitory. Equilibrium. We're waiting for equilibrium in that business. We're going to get there over the next six months, and we'll understand what the new norms are. I think we've exposed a lot of people to our fine dining brands through this, and I think that they really love the experience. Thanks again. Appreciate it. Your next question comes from the line of Andrew Strelzik with BMO. Hey, good morning. Thanks for taking the question. I wanted to just clarify quickly on the margin commentary, the 200-250 basis points improvement. Is that from an AUV perspective relative to pre-COVID-19 levels? Is that at fiscal 2022 levels? Just some context around that. My other question is just on the off-premise business. I think there's some uncertainty about how to think about the growth of that channel after the step function we've seen over the last 12+ months. What's the growth rate that you would expect from To Go over the next 18-24 months or maybe longer term, however you want to think about that and the drivers behind it? Thanks. I'll take the off-premise question, then Raj can take the margin question. I think on off-premise, until we understand where equilibrium is and where do we get to balance, where's the new level, then we can think about growth. We do think we have more avenues to grow that business. We've learned a lot about that business through the pandemic that we can use to, I think, grow it into the future. Consumers' desire for convenience is not going away, and I think we can fulfill that need with our brands and our technology. Andrew, on the margin question, we are referencing pre-COVID. I think the way to think about it is our EBITDA margin at pre-COVID was around 14%. I think it was actually 14.1%. The 200-250 basis points is relative to that. Great. Thank you very much. The next question comes from the line of John Ivankoe with JP Morgan. Hi, thank you. Obviously, you doubled your off-premise sales per unit at Olive Garden, basically fourth quarter of 2021 versus fourth quarter of 2019. That does leave a pretty substantial amount of capacity that remains for on-premise dining. I wanted to ask a few points on that. You mentioned that much of off-premise was being used as a home meal replacement. That would suggest, I guess, a lack of cannibalization for on-premise dining. Can you possibly update those, if you know the cannibalization numbers between the percentage of off-premise sales that are coming from on-premise? I guess at this point, do you think it's an opportunity, a necessity, to basically bring back those on-premise customers who were with Olive Garden so busy before, that maybe people weren't getting to eat at the times that they want? Just to think about getting that on-premise sales per unit back to the 100% level that you previously had in 2019, and if there's anything that you can talk about, whether it's age cohort, level of vaccination state by state, what have you, that shows different levels of success of achieving on-premise sales 2021 versus 2019. Thanks. Yeah, John, there's a lot in there. All I would say, because I want to be brief here, is we're going to do whatever we can to drive as much on-premise dining inside Olive Garden as we possibly can, profitable sales in the dining room, and we're going to try to grow as profitably as we can in the off-premise channel. We also have to recognize at this point in time, there's still a lot of people out there in our trade areas that aren't comfortable going to restaurants yet. We still have a ways to go to understand where that natural sales level for Olive Garden is going to level out. A lot to learn. We haven't been that granular yet to understand who the consumer is. We'll get there once we reach this new place. Our goal is to drive as much business as we possibly can, profitable business as we can in restaurant and do as much profitably as we possibly can off-premise. Do you have a sense of the amount of sales transfer between on-premise and off-premise, or is that data that still needs to come? This is data that needs to come, the environment's so dynamic. We'll need to analyze that, and we've got the analytics to be able to really look at that once we get to this equilibrium that I'm talking about. Fair enough. Thank you, Gene. Your next question comes from the line of David Palmer with Evercore ISI. Thanks. I'm actually going to follow up on that. If we assume the 15% sales mix at Olive Garden pre-COVID-19 was off-premise, you're looking at something like down high teens on-premise on a two-year basis. If that sounds about right, what constraints do you think were on the on-premise business in May? Is it really this consumer comfort that's driving that decline? How are you thinking about those factors as we go through 2022? I'd be curious to hear whether you think there are any constraints that you would imagine to the on-premise business getting back to, say, flat or even higher than 2019. I think you have to think about what our promotional and marketing strategy was. Right now we're out there on television just doing some brand advertising. We've been able to remove all incentives and all discounts from the business, and we'll continue to analyze when might be the right opportunity to put some of that back in. This is a complicated question. Olive Garden has never, ever operated at these margin levels, at this sales volume. We need to move slowly. I don't think that we're looking at what capacity was in 2019 and trying to triangulate this the way you guys are talking about it. We're trying to drive as much profitable sales as we possibly can. We're just extremely pleased with where this business is. We're not going to run the business and try to chase an index and get back to some level and look at our business differently than maybe others are looking at it. I just couldn't be happier where we've repositioned the Olive Garden business and the record profitability that this business has thrown off. I'm thinking back to some of our earlier conversations on these earnings calls, and I know you were thinking that you might actually have this on-premise swell where you would overshoot on the on-premise. I wonder if we might be a couple quarters away from that if the comfort levels continue to build. If that happens, do you think the capacity in terms of labor, the seats, the lack of cannibalization from off-premise, do you think that could happen? Do you still see that potential? Let me clarify one thing. This isn't being held back by labor. Our restaurants are fully staffed on the weekends. We're doing our three or four turns in Olive Garden. I think the issue is if you told me that we could get back to 100% of sales in Olive Garden and spend $100 million less in advertising, I didn't think we could do that. I'm thrilled with where we're at based on what we're spending and what our profit is per guest at these levels. We'll continue to focus on driving profitable sales growth and where that ends up, that ends up. Okay. Thank you. Your next question comes from the line of John Glass with Morgan Stanley. Thanks very much. Just Gene, back on the industry and your outlook. Capacity is being reduced, your margins are high. How do you think about M&A in the portfolio right now? Is this a good time to think about adding brands? Is pricing difficult or are you just very pleased with the current business and portfolio that you really don't think about M&A in this environment? We always are talking with the board and the senior management about what the possibilities are to add a brand to our portfolio that would benefit from being on our platform and we would benefit if they would come onto our platform. We're always thinking about that. More so today, we're thrilled with the business model transformations in our business, and we're very happy to invest our capital into our businesses and capture the return that we are getting today on those new businesses. Thank you. Raj, if I could just clarify, you said you thought in 2023 you could hold most of the gains in margins that you got this year. Historically, Darden has talked about 20 basis points-40 basis points maybe of margin gain year-over-year, so natural leverage. Is there some reason why 2023 and beyond may be different, like maybe marketing may be a risk that you've got to add some of that back in? How do you think about beyond the current year in terms of margin expansion? Yeah. I think, John, that's real. I think there's still some time until we get to fiscal 2023 and beyond, and really, I think we need to better understand the economic and competitive environment and just we got to get a toe in on this business model where the real, I'll use Gene's term of equilibrium is, and just really want to find that. I think where we are today, given the dry powder we have, whether it's with pricing or other levers we can pull, we do feel confident we'll be able to keep most of the margin gains. Like I said, we'll let it play out and we'll have more to share next time. Thank you. The next question comes from the line of Jake Bartlett with Truist Securities. Great. Thanks for taking the question. Gene, I was wondering, it's great to see the recovery with Olive Garden, but as a percentage increase versus 2019, it is less than some of the other publicly traded companies that have reported. Can you just maybe give us a couple of the reasons why you think that is? I imagine because you're at high capacity in 2019 or you have less marketing, but maybe just help us understand why Olive Garden has recovered, I think, to a lesser degree than a lot of the others. We're not participating in giving away our food to third-party channels. We're not discounting heavily. We're not discounting our cash like others are through selling gift cards. We're running a business here to try to drive profitable sales growth. We've got a business that's doing over $5 million for average unit volumes in the fourth quarter. We put up 25% restaurant-level margins. Isn't our job to try to drive profitable sales growth? That's what we're focused on. There are a lot of reasons why we're not keeping up with where some of the other people are going. There's a lot that's changed in two years in how they're handling their businesses. Some of them have virtual brands and all this other stuff that's out there. Guys, you got to get off this. This is the best business in casual dining, not even by a little bit anymore, by a lot. We're doing $5 million in average unit volume with 25+ restaurant-level margins and growing. Our guests are loving the experience, and they love the credibility of the food. They love the changes that we made, and we're executing at a very, very high level. I think we're going to continue to grow. Great. I'm not chasing an index, and we're not chasing where we were in the past. We loved our position today. Great. I appreciate that. I guess also the question about the industry and about the cadence of the comps from April to May to June. We've seen people getting vaccinated, capacity restrictions being lifted. Why do you think the cadence is not increasing? Why don't you think June versus May versus April is increasing? What are the offsets to some of the benefits, which are capacity restrictions being lifted and people getting vaccinated? I'm not sure I understand. We did see sequential improvement throughout these months. These look like pretty strong numbers as I look at them across. We saw fine dining go from 12 down to six in May. That's without our N.Y. restaurants. We've gone from Other business eight to four from 14 in March, and we're seeing sequential improvement. Again, I think that, as we think about it, this has been a very, very fast recovery. As people start to get back to some normal behaviors, we think, and it's implied in our guidance, that we're going to get back to a pretty good level here. Great. I appreciate it. Your next question will come from the line of Jared Garber with Goldman Sachs. Hi, thanks for the question. Gene and Rick, you talked a little bit about the technology initiatives and some of the success you're having with the tabletop tablets, and I think last quarter you talked also about how this is maybe attracting a younger consumer to some of the brands. I just wanted to know if you had any update there on what you're seeing on the consumer side related to some of this technology, and maybe if you think the next kind of several years out, what are some of the consumer-facing technologies you think you'll see or we'll see enter the restaurant space in the in-dining room part of the business? Thanks. Jared, thanks. This is Rick. The investments that we've made really recently is more about the off-premise experience, right? Just anybody that's coming to our restaurants off-premise, the people that used to come inside that may not still feel comfortable to come inside are going to off-premise. We are getting a new consumer. At Cheddar's, we have a new consumer that didn't come to Cheddar's before. I don't want to get into the details on that, which gives us more confidence in their ability. They do have the tabletop tablets. I am not going to say that their consumer is younger or older because of the tabletop tablets. It's because they're learning about Cheddar's. We're going to continue to invest, as I said, in removing friction to make it easier for our guests to eat where they want, when they want, and how they want, and make it easier for our team members to serve them. That's what we're going to continue to do without getting into detail on the new guests or if technology is driving new guests. I'm not going to say technology is driving new guests. Our next question will come from the line of Brian Vaccaro with Raymond James. Hey, thanks, and good morning. Gene, I just wanted to quickly circle back on the positive industry view in a post-COVID world and kind of ask specifically, how do you expect consumer behavior to normalize as it relates specifically to cooking at home versus ordering in? Also how you see that consideration set that may have expanded for the average consumer to utilize casual dining for an off-premise occasion where that was not in the consideration set pre-COVID. Anything in the Technomic data or other data to size that opportunity to capture share of previously at-home cooking occasions? Brian, I'm not sure I can quantify that, but I think maybe the answer to your question is that the casual dining off-premise experience definitely got more exposure through COVID-19, I think people that would have never used that experience, probably because they weren't casual dining users, have now determined that that's a really good option for home meal replacement. I think that's an area where you're going to be able to actually hold onto this new consumer and maybe continue to market to them effectively. We don't have a whole lot of insight on cooking at home and home meal replacement. I do think that you're seeing mobility increase significantly, especially in the states that were heavily locked down. I spent a lot of time in the Northeast the last couple of weeks. It's still very quiet compared to what I see in Georgia and Florida when I travel. Mobility still has some opportunity to increase in these marketplaces. I think we still got another six to nine months to understand if we don't have any more problems with COVID-19, what are going to be the normal behaviors that are going to develop out of this? What was an adaptive behavior and what was normal? We'll get there over the next 6-12 months, and we'll have a better understanding of consumer behaviors. Then I think you start developing your marketing plans, and you get tactical on how to get to these folks and try to get them into your restaurants or use you as an off-premise dining occasion. That makes total sense. A quick follow-up on the guidance. Raj, sorry if I missed it, but what does the guidance embed in terms of G&A and marketing spend in fiscal 2022? Thank you. We did not necessarily share that detail, but I'll just tell you, I think you could expect to get some leverage on G&A, and we expect marketing to be significantly reduced from pre-COVID. Without getting into the exact numbers, that's what I'd tell you. I'll now turn the conference back over to management for any final remarks. Thank you. That concludes our call. I'd like to remind you, we plan to release first quarter results on Thursday, September 23rd, before the market opens with a conference call to follow. Thanks, and have a great day. Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.