Earnings Call: Q1 2020

Sep 19, 2019

Thank you for standing by. We now welcome you to Darlene Restaurants First Quarter Earnings Conference Call. At this time, all participants are in listen only mode. And we will have a question and answer session. Please take note that we will only take one question and one follow-up. Now let me hand the call over to your host, Kevin Kalicuk. You may begin. Thank you, Ray. Good morning, everyone, and thank you for participating on today's call. Joining me on the call today are Gene Lee, Guardant's CEO and Rick Cardenas, CFO. As a reminder, comments made during 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 in the Investor Relations section of our website atdarden.com. Today's discussion and presentation include certain non GAAP measurements and reconciliations of these measurements are included in the presentation. We plan to release fiscal 20 2Q2 earnings on December 19 before the market opens, followed by a conference call. This morning, Gene will share some brief remarks about our quarterly performance and business highlights, and Rick will provide more detail on our financial results during the Q1. As a reminder, all references to the industry benchmark during today's call refer to the estimated Knapp Track excluding Garden, specifically Olive Garden and LongHorn. During our 1st fiscal quarter, industry total sales growth was flat. Industry same restaurant sales declined 1.2% and industry same restaurant guest counts decreased 3.3%. Now I'll turn the call over to Gene. Thank you, Kevin, and good morning, everyone. As you've seen from our press release this morning, we had a solid quarter. Total sales from continuing operations were $2,100,000,000 an increase of 3.5%. Same restaurant sales increased 0.9% and diluted net earnings per share were 1.38 dollars Comparable same restaurant sales for the industry continued to weaken during the quarter as the industry once again faced tougher comparisons. However, the industry comping negative is surprising considering unemployment remains at all time low and there continues to be strong wage growth which historically has been positive for the industry. I'm particularly pleased with the performance of Olive Garden and LongHorn Steakhouse given industry performance and their difficult comparisons over the Q1 of last year. We remain focused on our back to basics operating philosophy and leveraging our 4 competitive advantages and I'm pleased we continue to take share and protect our margins. Turning to brand highlights for the quarter. Olive Garden had a strong quarter, which resulted in its 20th consecutive quarter of same restaurant sales growth. Total sales grew 3.6% driven by same restaurant sales growth of 2.2% and 1.4% growth from new restaurants. Olive Garden same restaurant sales gap to the industry was 340 basis points this quarter, representing the largest gap to the industry since the Q1 of fiscal 2019. And on a 2 year basis, Olive Garden grew total sales by nearly 10%, outperforming the industry benchmark by 840 basis points. Olive Garden's results were driven by the team's ongoing focus on flawless execution, everyday value and convenience. Guest satisfaction ratings remain impressive and catering delivery metrics reflect the highest intent to recommend within the brand giving us confidence that our teams are delivering great experiences inside and outside the four walls of our restaurants. The Olive Garden team made a strategic decision to change the order of their Q1 promotions. This was necessary to separate the 2 strongest value promotions, buy 1, take 1 and never ending possible to more evenly deliver industry trends resulted in lower traffic than last year that was the right strategic decision for the long term. Recognizing the strength of buy 1, take 1 promotion, Olive Garden added $5 take home entrees to the everyday value lineup, which was supported with national advertising to drive awareness. It has been met with strong guest demand and it will be a catalyst to continue to grow the off premise business. Everyday value is also strengthened with the introduction of a new weekday lunch menu with 21 options under $10 including guest favorites like chicken Parmesan and items from the Taste of the Mediterranean menu like chicken Margarita. This initiative was supported by integrated marketing and resulted in stronger weekday lunch traffic and guests preference. Finally, the Olive Garden team remains focused on their off premise capabilities to meet their guests' needs for convenience. A key part of that focus has been optimizing the digital sales channel for both mobile and desktop. During the quarter, digital sales grew by more than 30% and represented approximately 40% of to go sales. Overall, off premise sales grew 12%, representing 14% of total sales. Olive Garden remains a truly iconic and broadly appealing brand and the team is doing an excellent job of focusing on their strategy and competing effectively. LongHorn Steakhouse had a strong quarter as well. Total sales grew 4.6% driven by 2% growth from new restaurants and same restaurant sales growth of 2.6%, the 26th consecutive quarter of same restaurant sales growth. On a 2 year basis, Longhorn grew total sales by 11%, outperforming the industry benchmark by 9 40 basis points. The Longhorn team remains focused on their long term strategy of investing in the quality of the guest experience, simplifying operations to drive execution and leveraging their unique culture to increase team member engagement. During the quarter, the Longhorn team ran 2 successful menu promotions, Grow Master Favorite and FireCrafted Flavors, which were supported by their award winning You Can't Fake Steak advertising campaign. They also supported these promotions by reinforcing their quality story through multiple guest touch points. The team also continued to focus on ensuring that to go experience equals their in restaurant experience for guests who choose this convenience. The team simplified the online ordering process which significantly reduced the order time. During the quarter, digital sales grew almost 50% and represented more than 1 third of total to go sales. Additionally, they have now completed a dedicated to go area in more than half of their restaurants. These actions led to continued improvement in guest satisfaction scores for order accuracy and timeliness and helped to drive to go sales growth nearly 12%. Finally, Longhorn's industry leading retention rates continue to even get better despite the tight labor market. Team member turnover during the quarter was 68% compared to approximately 120% for casual dining and management turnover during the quarter was 13% compared to approximately 36% for casual dining. We know that engaged team members provide better guest experiences and the Longhorn team's ongoing focus on retention and culture building is a key driver of the strong business performance. Head to Scratch Kitchen total sales decreased 2% driven by same restaurant sales decline of 5.4% and partially offset by sales growth from new restaurants of 3.4%. The trend change was driven by reduced marketing efforts and overall industry softness in the quarter. In addition, the same restaurant sales decline continue to be more pronounced in the former franchise locations. These restaurants experienced significant disruption during the quarter as they were the last restaurants to complete the kitchen transformation project. While I was disappointed to see the sales trend decline, the Cheddar's team made significant progress against their priorities during the quarter. At the beginning of the new fiscal year, they established 3 new strategic priorities, create a people focused results oriented culture, reduce friction in the guest experience and build a brand people talk about with the goal of building on the progress they made last year repairing fundamental elements of the business and improving their sales trajectory. During the quarter, the Cheddar's team continued to see improvements in both manager and team member turnover trends as they implemented initiatives that led to higher retention levels. Overall staffing levels for both manager and team members improved during the quarter. Because of the progress made this quarter in staffing and retention, the Cheddar's team was able to better execute operational improvements designed to enhance the guest experience. For example, they implemented standards that significantly upgraded their ability to successfully serve large parties. With these and other improvements, they saw better guest experience results compared to last year across all key metrics. Near the end of the quarter, Cheddar's introduced a new menu with more price diversity within categories and they launched their Quick Pick lunch combo starting at $5.99 These combos are generating strong preference at lunch and have led to higher value and intent to return ratings compared to last year. I recognize there's still a lot of work to do, but the progress that Cheddar's team has made operationally and their improved HR metrics are encouraging. Now that they feel they're moving in the right direction from an operations and a staffing perspective, they will begin to increase their work and media spend. Cheddar's has the highest guest frequency of any Darden brand and this investment is intended to build upon the strong position, improve brand awareness and drive trial. They will be leveraging Darden resources and best practices to implement the media plan. Finally, during the quarter we acquired 4 previously franchised restaurant locations in Texas and I'm pleased to say that each of these 4 restaurants is performing at a very high level. In closing, I'm pleased with the progress our teams made executing against the strategic initiatives. Our strategy is working allowing us to continue to grow sales, increase market share, improve margins and invest in our people and brands, all while continuing to return capital to our shareholders. Of course, none of this would be possible having the best people in the business. So I want to take this opportunity to thank you, our 185,000 team members who continue to create memorable dining experiences for our guests. Now I'll turn it over to Rick. Thank you, Gene, and good morning, everyone. We had another good quarter with total sales growth of 3.5%, driven by 2.6% growth from the addition of 40 net new restaurants and same restaurant sales growth of 0.9%. 1st quarter diluted net earnings per share from continuing operations were 1.38 dollars an increase of 3% from last year's diluted net earnings per share. We paid repurchased $95,000,000 in shares, returning over $200,000,000 to shareholders this quarter. Before I get into the detailed results from this quarter, I want to mention that we adopted the new accounting standard releases at the beginning of this fiscal year. Consistent with the expectations discussed on last quarter's call, we estimate that this will negatively impact EPS by approximately $0.05 in fiscal 2020. However, the more meaningful impact was to our balance sheet as you saw from this morning's press release. This quarter, we also updated our segment reporting. Beginning in fiscal 2020, our calculation of segment profit now excludes non cash real estate related expenses and fiscal 2019 has been restated for comparability. This change allows for more consistent evaluation of our business across segments and fiscal periods. Now turning to our detailed margin results. Food and beverage costs were flat to last year as pricing of 2% and continued cost savings initiatives offset commodity inflation of approximately 1.5% and continued investments. I'm impressed with restaurant labor being flat to last year, particularly in light of same restaurant sales growth of 0.9%. Total labor inflation of 4% was offset by pricing, check mix and productivity improvements in new and existing restaurants. Restaurant expense was unfavorable 10 basis points due to deleverage as our comp sales growth was below inflation. As a result, restaurant level EBITDA margin of 18.1% was 10 basis points unfavorable to last year. General and administrative expense was 50 basis points lower than last year from favorable mark to market expense, which is generally offset in the tax line, lower management incentive expense and sales leverage. Our Q1 effective tax rate of 9.8 percent was slightly below the range in our annual guidance. We still anticipate our effective tax rate to be between 10% 11% for the fiscal year. Overall, I'm pleased with our performance this quarter and impressed with our strong EAT margin of 8.1%. Turning to our segment performance, Olive Garden grew sales and profit in the quarter driven by positive same restaurant sales and net new restaurant growth. Segment profit margin increased 40 basis points by leveraging the same restaurant sales growth and managing costs effectively. Longhorn also grew sales and profit in the quarter driven by positive same restaurant sales and net new restaurant growth. Segment profit margin decreased slightly due to elevated beef inflation and continued investments during the quarter. Fine dining grew sales and profit in the quarter as well, driven by positive same restaurant sales and net new restaurant growth. Segment profit margin decreased because of higher preopening expense and inefficiencies related to 3 new restaurants. Sales for our other business segment grew 1.8 percent driven by net new restaurants. Both segment profit dollars and margin decreased this quarter due to margin deleverage from negative same restaurant sales growth in the quarter. As you saw in the press release, we reiterated all aspects of our fiscal 2020 outlook. Looking ahead at our Q2 performance, there are 2 things I would like to address before we open up the call for questions, both of which are contemplated in our annual guidance. First, the timing of the Thanksgiving holiday this year relative to last is shifting from the Q2 into the Q3. Since we are closed in the majority of our restaurants on this day, this shift should positively impact Darden's 2nd quarter same restaurant sales by approximately 80 basis points to 100 basis points with a corresponding offset in the 3rd quarter. 2nd, given the prolonged media coverage and the storm's duration, Hurricane Dorian had a meaningful impact on the 1st 2 weeks of our fiscal Q2. We are currently estimating a drag of 20 to 30 basis points to same restaurant sales in the 2nd quarter. And with that, we'll take your questions. Thank you. We'll now begin the question and answer session. Our first question is from Matt DiFrisco from Guggenheim Securities. Your line is open, sir. Thank you. My question is with respect to the Cheddar's, I guess, lagging in difference between Olive Garden and LongHorn. Would you attribute that mostly, it sounds like, to the marketing spend? Can you sort of bracket or compare how much or back pullback of marketing spend there was versus last year in either terms dollars or terms of weeks of support so we could get a better understanding of that? We're not going to get that granular with our spending in Cheddar's. I would just say that we now have enough transactional data to look at some things in Cheddar's we hadn't had the opportunity to do before. And one of the big insights is that our frequency in Cheddar's is higher than any other Darden brand. And we married that up with some other research that we were doing and we recognize that our awareness for this brand is extremely low. And our primary advertising had been more driven towards a frequency play and we decided once we had this insight during the middle of the quarter, we were pulling we pulled back from that type of activity and now we're going to go out and we're going to test and learn and understand how to best increase our awareness in markets. We also recognize the fact that it's going to be more important than ever in this environment to continue to build out markets, develop, become more efficient in those markets from a media standpoint. And I would say more use more traditional media to increase our awareness to drive this business. And so it was a really good quarter from that standpoint, from an insight standpoint for us to really recognize and we that maybe triggered a change in frequency to that heavy, heavy user from the past or is it the change in ownership that they noticed or something of that? No, it's just the fact that we actually now have the transactional data to be able to analyze and have that insight. That's why it's so important when we do an acquisition for us to put our systems in so that we can get the data and then do our analysis. Understood. Thank you. Thank you. Our next question is from David Tarantino from Baird. Sir, your line is open. Hi, good morning. Gene, I just wanted to talk to you about the industry trends that you're seeing. It seems like you acknowledged in the prepared remarks that this was a little surprising that we've seen such soft trends, especially in the most recent months. So just curious to get your thoughts on why you think that's happening? And secondly, do you think you need to adjust any of your marketing or promotional strategies to the new environment, so to speak? Thanks. Yes. Good morning, David. As I said in my prepared remarks, the backdrop appears to be very strong for the consumer. We have good wage growth. We have strong employment. Historically that's been really good for us. As we look at the data and we look at behaviors, we look at confidence. I personally believe that there's some uncertainty entering into the consumer and it's impacting their confidence. How long I got to believe with all the media attention around what's happening, how long does this environment continues. So there's nothing structural that we see that's changed out there other than there appears to be a little bit more uncertainty today than there was in the future. As far as what do we need to do, we need to continue to create compelling guest experiences and come up with and reinforce our value propositions. I do think that we have to think about how we're going to market in our smaller brands and how do we advertise those brands in different channels and become more effective and compete more effectively. I think that's an important change that we need to make in the upcoming quarters. I think we have the luxury of being patient and test and learn and really make great long term decisions as we try to figure out how to support those brands and compete more effectively in this marketplace. We're pleased that we're heading into Never Ending Pasta Bowl and Olive Garden, it's a great promotion for us. We had a lot of buzz around our pasta pass this year. And so I think it's a good promotion going into this time of year and where the consumer is at. And maybe just a follow-up, Gene, does the current environment or what you've seen recently make you think differently about the degree of difficulty in hitting your comp guidance for the year? I know you have maybe less difficult comparisons coming up, but how should we think about the middle of the comp guidance or the upper end of the comp guidance relative to where you were 3 months ago? Well, I guess we reiterated our guidance today. We believe our same restaurant sales for the year will be somewhere between 1% 2%. Great. Thank you. Thank you. Our next question is from Will Slabaugh from Stephens. Your line is open. Hey, guys. This is actually Niall on for Will. Thanks for taking the question. Just a quick one here. Wondering if you can give any insights into commodity costs. You spoke of some elevated beef costs there. Just wondering how you're feeling about this going forward, whether you've seen any effects from African swine fever? Thanks, Niles. This is Rick. We were about 1.5% inflation in the Q1, which is around where we expected it to be. We have seen a little bit of elevation in beef, but the boards are coming back down and are a little bit more our favor. So we still expect our inflation to be where we thought at the beginning of this fiscal year. As a result or as an answer to your African swine flu question, we still haven't seen a very big impact on African swine flu. As we mentioned in the last call, pork is really only about 2% of our sales. So it's a relatively small impact and we haven't seen the downstream impacts of pork prices yet. Perfect. Thank you. Thank you. Next question is from Joshua Long from Piper Jaffray. Your line is open. Great. Thank you for taking my question. Wanted to circle back to the trends you've seen here lately and maybe any sort of regional variations or any regional variations you've seen across the system? And then also in terms of your initiatives and kind of the underlying trends you've seen, any sort of differences in the weekday, weekend trends? You've got some very strong lunch offerings in there, but didn't know if that was maybe moving the needle like you expected or maybe ahead of expectations? No, I really don't have a lot to add to your question. We've really not seen much from a geographic standpoint and there's really been no trend change to any of the weekday, weekday night, weekday launch or weekend business. I would say that the trends have weakened in all areas of the business. Great. Thanks. And then one follow-up, if I may. In terms of your work on the to go business, the strength there is still very promising. Any sort of learnings you've had as you've stuck with this and worked on the fulfillment internally versus the thought process of working with external partners? I know you're always testing and always learning, but curious on what you're seeing there if there's any update? I think the biggest thing our teams are doing is they're taking friction out of the process and I think we're getting it's like anything else, repetition is a great thing. You continue to get better and better with it as you do more business. I think Longhorn has made tremendous progress. We've seen this. Their scores go up, the satisfaction scores go up. Olive Garden has really honed in on this process. They continue to find ways. Very, very impressed with the digital growth in both those businesses. We think that's something to continue to look at. So to me it's really about making that experience as compelling as we possibly can with great value, right. I think it's and that's been our strategy is make sure we have strong value on the off premise and not have the consumer be willing to come pick it up versus it being delivered. Great. Thank you. Thank you. Our next question is from Brett Levi from MKM Partners. Your line is open. Good morning. Thanks for taking the call, gentlemen. If we could just hone in a little bit more, I'm going to ask the consumer question a different way and hopefully get some semblance of a different answer. When you think about the consumer right now, are you seeing any changes in how they're using you? Obviously, take home is further building out your off premise, but are you seeing any changes in terms of full price, value, add ons, size of parties, something like that? Thank you. No, Brett. No, we haven't seen any change at all. And when I look at the quarter, let me just let me put it back to look at the quarter. Let's think about what Olive Garden has done in the last 2 years. Even though the industry has weakened, I'm incredibly impressed that we've grown our business approximately 10% at Olive Garden with a 2 year comp that I think is extremely impressive. And so the industry and a lot of the comments that I've made today about the industry decelerating. When I look at our 2 large brands, I think they're competing very effectively. The gaps are very, very strong to the industry. So I think we have a way to compete very effectively with these two brands and I'm excited and yes, we watch the industry and we give you some insight to it. But our job and our leaders jobs are to find a way to compete effectively in any environment. And I think that's what our teams have done really well in this Q1. Thank you. Our next question is from John Ivankoe from JPMorgan. Your line is open. Yes. Hi. Thank you. Also just an industry question for you, Gene. Gene. Obviously, NAP all store traffic has actually been negative. And what I think you said to a previous question is a relatively strong underlying consumer environment, especially in terms of some of the top line spending. Where do you see that consumer actually going? I mean, where that consumer is working and that consumer has higher income, where is that consumer currently dining, whether in the house or out of the house is kind of the first question. Secondly, do you see independents being as late cycle as we are as potentially taking share versus change? And what would you look out for maybe a shakeout, some supply growth that's been added in the space over the last several years? And then the final point, I think you kind of you mentioned a few times more value at Olive Garden and Cheddar's. Is there any thought of bringing back couponing and doing other things that are going to be direct call to action for the consumer for you to maintain traffic in what you described earlier as any industry environment? John, you get the award for most questions inside of one question. It's all related. I think you can do it in one paragraph. So I got independence, I got discount. What was the first The first one is like where are people going? John, we are definitely seeing some strength in limited service, both fast casual and quick serve. There's no doubt about that. And you think about there is good income growth on the lower end of the curve and those folks seem to be trading or dining out a little bit more frequently. And I don't know where people are trading out of in casual when you look at a 10 year period. That's been a big question. I'm not sure we've had we as an industry you have an answer. Again, we focused on our brands and we seem to be getting more than our fair share. The data that we're looking at is saying that large chains are still taking more share and they're taking that share from independents. Where you see independents in small regional chains are in really what I would call the better, better trade areas, the higher income trade areas where they're having an impact and I think performing well. But I think on a national scale when you look at it, independents are still donating share and large brands continue to do better and take share from both smaller probably older brands and independents. As far as discounting, we're going to continue to use whatever levers we can use to grow our business. When we look at incentives, we don't look at them just as one piece. We have to look at our overall advertising program, what is going on from a television standpoint, what's going on from a digital and online, what are we doing from an incentive standpoint, we have multiple ways to put incentives out there. And so we have a lot of leverage that we can pull over time depending on the environment and we will use those appropriately to drive our business in a profitable way. The one thing that I think that we are proud of and I'm very proud of our teams is that we continue to drive our business while protecting our margins And we continue to invest in our business, invest in quality, invest in food, invest in portion size, invest in our people and we're able to do that in a way that has protected our margins and as Rick talked about our +8% margins are incredibly impressive in this environment. And so when we think about incentives, we think about holistically and all that we're doing to build our brands over the long term. That's great, very helpful. Excellent answer. Thank you. Our next question is from Andrew Strelzik from DMO Capital Markets. Your line is open. Hey, good morning. Thanks for taking the question. Over the last couple of months, we've been hearing a lot more about delivery take rates coming down, being renegotiated lower. Wondering if that changes your perspective on the viability of delivery for Darden at all, especially as you kind of highlighted some of the changes on the digital side and the willingness given the numbers that you cited for customers to engage with the brands digitally, if your thoughts are evolving at all on delivery? No, we haven't. We really haven't thoughts haven't involved at all. We will acknowledge that the cost burden does appear to be shifting from the company to the consumer. And we're going to watch that closely, but I think that I have a lot of concerns about that. This is still we're still it's so about value and how much of the overall experience are you willing to dedicate towards convenience. And so it's something to watch. It's definitely a shift that we internally predicted that would happen and we'll watch it. But I want to pivot back to what I said earlier. Our job is to create a compelling off premise experience right now to the consumer with so much value the consumer is willing to come get it. That seems to be working for us and we're going to continue to focus on that. If I could just follow-up on the value piece then, just quickly. The Olive Garden price was above percent for the quarter. Was that what the underlying price was? Not that it's a huge deviation from where you've been prior, but should we be thinking about a little bit more price broadly at Olive Garden going forward? Andrew, this is Rick. The price was at 2.2%, I believe, in the Q1 and that's just due to timing of pricing year over year. We still expect our price to be below 2%, which is our long term goal to keep pricing below our inflation and below competitors to increase our value perception in the marketplace while still making great investments. So yes, this was just a little bit of a timing anomaly for the quarter. Great. Thank you very much. Thank you. Our next question is from Stephen Anderson from Maxim. Your line is open. Yes, good morning. I would actually want to ask about the test you have underway for your rewards programs to get multi concept. As I recall, it's about 7% of your stores you're testing that at right now. I want to ask about how the test is progressing and whether you're ready to roll that out to additional locations or potentially the entire system? Thank you. Hey, Steven, this is Rick again. Thanks for the question. As you said, yes, we have our loyalty program in about 7% of our restaurants across the nation. We're still monitoring that test. As we have said quite a few times, this is going to take a long time to understand the frequency driving nature of the loyalty program and how much we'd have to provide discounts to our most loyal consumers to come to us versus other incentives for them to come. The test is going okay. It's going well. But we're not ready to pull the trigger on adding more restaurants. We're going nationally. And when we do, I'm sure all of you will be the first to know. But right now, we're kind of holding steady on our test. The fact that it's still out there tells you that it's not going well. But we want to just make sure that it's the right thing to do in the long run as part of what Gene says, our overall strategy of how do we market to our consumers. Thank you. Thank you. Our next question is from Dennis Geiger from UBS. Your line is open. Great. Thank you. Just wanted to ask about mix and I guess specifically on Olive Garden. If the impacts that you saw in the quarter was roughly in line with the expectation prior to the quarter? And then more importantly, just looking out over the next few quarters, anything that would make you think the mix contribution could remain above kind of a long term steady state. I guess if you could just kind of highlight some of the mix considerations this year, some of the puts and takes, thinking about incentives, trade up promos, catering delivery or catering off premise, etcetera? Thanks. Yes. 2 things I think that will probably drive mix maybe a little bit above our target will be continued growth in catering, catering delivery and the addition of the $5 take homes. Those two things probably going to drive that mix slightly above our long term expectations. The $5 take the $5 take home is a great value offering and is something that we think is a real catalyst to continue to drive the off premise business, which should have a little bit more of a positive mix than what we want to try to do for long term. Great. Thank you. Our next question is from Eric Gonzalez from KeyBanc Capital Markets. Your line is open. Hey, good morning. Thanks for taking the question. I think in the Q1, you benefited from a few extra weeks of the buy one, take one as you pull that forward. But I think you said in your comment that it was a drag on traffic due to media shift. So I was wondering if you can maybe clarify what you meant there. I know you had the hurricane impact, but perhaps you can quantify what the impact of not having those extra weeks of the buy 1, take 1 in the early part of the Q2? Thanks. No, I'm not going to we're not going to talk about the Q2 and the impact. And we shifted some media. We moved things around which is always going to move our comparisons somewhat. But I'll go back to my statement. This was something that we think strategically needed to be done. And again, I would also add this also always shifts in our media spending as we it's the only way you can really discern what is working and what is not working and where to put more weight against whether it's promotion or lunch or value is that you have to change the media spend to learn. And so we shifted a little bit inside the quarter. I wouldn't get caught up in that. I'd point back to a great 2 year stat, great outperformance of the industry. We made a strategic a big strategic choice to separate the 2 value promotions that gives us more balance in our value messaging throughout the year, which is really important. Let's not get hung up on week to week media shifts. If I can maybe sneak in a follow-up there. On the $5 take home and the buy one, take 1 are similar type of they're sort of similar programs. Are you moving away from buy one, take one next year or is that something that's on the table? No, I think they're similar but different. And so there are different types of value offerings and our team will continue to re energize buy 1, take 1. It's an important part of our value proposition. And if it's done right, it will continue to support the $5 take home, not it shouldn't be a cannibalistic thing. It should it really should support it and move it after you run buy one, take one, that should be the springboard for $5 take homes the rest of the year and then you can re energize the promotion each year. So that's how we're thinking about that. So it should be additive not shouldn't be dilutive at all. That's helpful. Thanks. Our next question is from John Glass from Morgan Stanley. Your line is open. Thanks very much. First, just on the other brands and the continued softness there. I think you commented last quarter that there was increased competition. So maybe what we're seeing here is just more of that. But can you talk about how you think about about what is the breakthrough strategy to help market those brands better if you can achieve national advertising scale on those brands? Does delivery make sense in some we talk about delivery holistically, right? Do you like delivery or not? But does it make sense in some brands, maybe some of these smaller brands, it's worth giving a try given that they don't have that scale and delivery through the aggregators sort of provide scale that they don't otherwise have? Well, it's an interesting concept John or as you think about the smaller brands, we've been reluctant to really add a lot of marketing costs to these businesses that they're unique, they've got great strong value propositions. But I think in this environment, I think we've finally come to grips with that we're probably going to have to spend a little bit more money and become and try to find which channels in the digital environment can work best for them. I think there's not one channel that would work across all our small brands. And so each of them are so unique, we have to figure out what's the best way to talk to the consumer. As far as off premise, or 3rd party delivery for these smaller brands, I really don't see that as upside. We do have one of our tests is in the majority of the Yardhouses. We are using a provider. Just think about where a Yardhouse is located. It's embedded in a lifestyle center with no parking and so there is it's more difficult even for the last mile provider to get in there and pick up the food. So it's not a big part of the business. So I don't really think about that as a way to grow the business. I think that we need to make really good long term decisions. We've been able to protect our margins in these businesses. We've got to continue to innovate, make them attractive. We also have to recognize there's a lot of volatility in these businesses and it goes back to if you open another development, it's going to have a 1 year impact on the comps and we have that once in a while. These are great brands. We're going to obviously try to compete a little differently as we go forward. I wouldn't look for a big change here in the next couple of quarters because we're going to test and learn and we're going to do it responsibly. These are strong business models and I'm not going to put the brands on sale to get a headline number. I'm going to protect we're going to protect the overall business for the long term. Thank you. And I'm sorry to belabor the value point on Olive Garden. I just want to make sure I understand this correctly. You spent last year sort of reducing some of the couponing or discounting and reserving that value power if you needed in the future. Are you now suggesting you need that today or is this still it's in reserve, but you're not really changing your view on increased value promotions in 2020 as it stands today? I mean, as it stands today, I think our position is exactly the same as it was the past couple of quarters that Olive Garden continues to perform extremely well, over 300 basis point gap to the industry. We'll continue to look at each promotion, what kind of support that promotion needs depending on what we're doing from a television standpoint. I do think that the analyst community and investor community is looking at things too much in isolation and you don't have the whole picture of what's happening from overall media spend and because we run a TDI or TDI test, you read into a situation that things must be bad. Well, I think that's not the way to look at to analyze our business. It's just one of many levers that we have to pull to support our business. And right now, I think we're looking at the Olive Garden business as being competing extremely well in the environment. Great. No, that's very helpful. Thank you. Thank you. Our next question is from Jake Bartlett from SunTrust. Your line is open. Great. Thanks for taking the question. My question was about Cheddar's. And I'm wondering where you think you are now in the kind of the integration of the business, the turnaround of operations, the improvements. And in the context of your acquisition strategy going forward, do you feel like you're in a position now where you might get more active on acquisitions? Well, it's a 2 part question. I think where are we on Cheddar's? I think today I'm more optimistic than I've ever been. I think as I acknowledged in my opening comments is there's still a ton of work to do here. This is a high volume complex operation that has some operational challenges that aren't systemic, where we have strong leadership and great human resource metrics, we're running great businesses. We have to stabilize some of these other businesses. It starts with getting that right general manager in place, managing partner and then building a great team. So I think that I'm very encouraged that the HR metrics are really starting to improve. I'm encouraged that our operation metrics are improving. I'm encouraged that our controls are better today than ever. I'm encouraged that our restaurant is staffed. I'm encouraged with the new insight that we've really uncovered that we've got a real awareness problem even and that awareness problem is with people within 10 miles of our restaurants. So I'm encouraged that we can solve that. But we're going to solve these problems for the long term. We're going to build a strong foundation and we're going to do it right. This represents less than 8% of our overall business and I'm really resolute in the fact that I want to fix this and fix it right for the long term. I think this is still a huge opportunity and as much urgency as I'm putting behind it, I'm more concerned about doing it right. As far as M and A activity, I'll use a standard statement, the management and the Board are going to continue to look at opportunities to add to our portfolio when it's appropriate. And I really have no further comment on that at this point in time. Got it. And I had a follow-up question on your level of incentives and your approach to incentives. And your traffic has been negative the last two quarters at Olive Garden, obviously, outperforming the space significantly. As you look at that, are you focused more on the outperformance or your absolute level? And I'm kind of wondering how long you're going to you would kind of tolerate negative traffic versus kind of trying to insert more incentives to try to drive that positive? Yes. First of all, let's look at the magnitude of the negative traffic. I mean, half of the negative traffic that we reported last month is just due to catering delivery and as that piece of the off premise business grows, we're not giving ourselves any guest counts for that. We're not we're just we're not going to we're not doing that for multiple reasons. We could go ahead and change our methodology and have positive traffic if we chose to do that. I think that when we look at traffic and we look at the overall business, there are going to be times that there's traffic available to you and it's worth driving. There are other times when you look at the business and you say, I'm okay with losing 10 or 15, 20 guests a week and being able to protect our business model. And so I don't think you can just have an let's do everything we can to grow traffic or let's do everything we can to protect our business model. I think it all has to be done in balance and I think our management teams and this leadership team have done an outstanding job over the last 4 years of really balancing these efforts. Great. Thanks for taking the question. Thank you. Our next question is from Chris O'Connell from Stifel. Your line is open. Thanks. Good morning. First, just a point of clarification and a question. Is the $5 take home entree promotion considered a new off premise transaction or is it just an add on to the dining check? And then Jean, can you provide some more detail about how Cheddar's plans to broaden reach with its advertising and when we might start to see that investment? Yes. The $5 take home is an off premise transaction. And as far as Cheddar's goes, I mean we're out there testing and learning with different digital vehicles to see and other traditional media to see what we can what kind of awareness we can generate with that. So, we've been out there at a small scale and we'll continue to increase that scale as we learn. Okay, great. Thanks. Our next question is from Peter Saleh from BTIG. Your line is open. Great. Thanks. Gene, just a couple of questions on Cheddar's. Can we just go back and talk about the guest satisfaction scores, maybe the direction that you're seeing there? Are those improving or have those kind of started to go backwards? And then on the turnover at Cheddar's, both the manager and the crew level, are those how far are those off from Darden's average? How much more work is yet to be done there? Thanks. Yes, good question, Peter. Guess how factors scores are increasing across the board as we've improved management employee staffing and there's still opportunity there and I would say that the divergence, the differential between the better operating stores and the ones with challenges is still too great and we got to close that gap down. As far as turnover, the metrics are still outside Darden norms, but they're inside industry norms for the first time, which is I think is a really good trend and it's going to take us a while to get them hopefully get them to Darden norms, but they're on their way and again inside industry trends at this point in time. Thank you. Thank you. Our next question is from Jeffrey Bernstein from Barclays. Your line is open. Great. Thank you very much. One clarification first. Gene, in your prepared remarks, you mentioned the industry comps continue to weaken. And then you did mention, I wasn't I'm just trying to gauge whether you think it's older than tough compare, because I think that was what you mentioned initially as the rationale or whether you do see that there's some sort of change in the consumer behavior because when we look at the past couple of quarters, it seems like the 2 year trend on comp and traffic seems relatively stable. So I don't know if maybe you're looking at broader industry data that we don't get a chance to see more holistically or whether you think it's again more just the 2 year comp compare being more difficult or whether there's actual change in the consumer? Well, I think that I think it's a combination of both. I think that's what I was trying to allude to in the comment was that the industry was facing some tougher comparisons. I think you all talked about that is that overall industry comparisons were a little bit more difficult. But I think what I was trying to get at is we were surprised that it went all the way to negative. We thought that our view was that the industry would stay positive in this environment. It may not the growth rate would have come back just like if you look at GDP growth, it's still strong, but it has decelerated. So we were just I think a little surprised that the industry went all the way back to negative. Understood. And then just all the talk about Cheddar's, I'm just wondering, it seems like the under the hood metrics are getting better and you seem excited about the opportunity longer term. I'm just wondering whether the frustration on the sales in the short term might lead you to delay when you would otherwise ramp up the new unit growth, which seemed like that was the big opportunity over time. I'm just wondering whether that timeframe might have changed or been pushed back at all? Only the time frame has changed. I think I've been pretty consistent with our talking point around that is the biggest thing for new unit ramp up growth will be human resources and I'm not so sure that I haven't said that we've won that battle yet. And so every time you open a new restaurant and you make that investment, you've got to have a great managing partner. And I don't think that we're there at that point yet that we can ramp up growth. We're still doing 5 or 6 a year, which is the right number at this point in time. And I want to I really want to see the management depth continue to build and that and when you get to that point, that's when you can start to ramp up growth. But I don't think that's we haven't given a timeline to that and I'm not going to give a timeline today. I'm focused on really, really getting great managing partners in these restaurants and I know when we do that, our likelihood of success dramatically. Thank you. Thank you. No more questions at this time. Let me now hand the call back to Kevin Kalicar. Thank you, Ray. That concludes our call. I want to remind you all that we plan to release 2nd quarter results on Thursday, December 19 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 now disconnect.