Good morning. Welcome to the Darden fiscal year 2019 fourth quarter earnings call. Your lines have been placed on listen-only until the question-and-answer session. To ask a question, you may press star one on your touch-tone phone. This conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Kevin Kalinowski. Thank you. You may begin.
Thank you, Jill. Good morning, everyone, and thank you for participating on today's call. Joining me on the call today are Gene Lee, Darden's CEO, and Rick Cardenas, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed 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 at darden.com. Today's discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.
We plan to release fiscal year 2020 first quarter earnings on September 19th before the market opens, followed by a conference call. This morning, Gene will discuss our fiscal year performance and quarterly business highlights, and Rick will provide more detail on our financial results from both the fourth quarter and the full year before providing our initial outlook for fiscal year 2020. As a reminder, all references to the industry benchmark during today's call refer to estimated KNAPP-Track, excluding Darden. During our fiscal fourth quarter, industry total sales growth was 0.7%. Industry same-restaurant sales declined 0.3%, and industry same-restaurant guest counts decreased 2.4%. For the full fiscal year, industry total sales growth was 1.6%, industry same-restaurant sales grew 0.7%, and industry same-restaurant guest counts decreased 1.2%. I will turn the call over to Gene.
Thank you, Kevin. Good morning, everyone. As you've seen from our press release this morning, the fourth quarter wrapped up a very strong fiscal year 2019 for Darden. Total sales from continuing operations for the year were $8.5 billion, an increase of 5.3%. Same-restaurant sales for the year increased 2.5%, and adjusted net earnings per share were $5.82, an increase of 21% from last year. I want to start this morning by briefly talking about the industry dynamics we saw during the fourth quarter and also share some thoughts on the consumer. As you know, the industry experienced sales volatility during the quarter. After a good March, April was a challenging month, the industry bounced back in May. A significant part of the volatility was due to the holiday shift, which helped March but hurt April.
Our business followed the same pattern. I was pleased to see that our traffic gap to the industry expanded each month throughout the quarter. As we think about the consumer and look at the macro environment, the economy continues to be strong. Unemployment is at the lowest levels in nearly 50 years. Wages are growing at a healthy rate, outpacing inflation. Consumer confidence remains high. Turning to our brand highlights for the quarter. Olive Garden had a good quarter, which resulted in its 19th consecutive quarter of same-restaurant sales growth. Total sales grew 3.7%, driven by same-restaurant sales growth of 2.4% and 1.3% growth from new restaurants. Same-restaurant guest counts declined 0.4%. Olive Garden's gap to the industry expanded throughout the quarter, even as they continued to reduce incentives. If you adjust for the lack of incentives, guest counts would've been positive during the quarter.
Check average increased by 2.8% this quarter, comprised of 1.6% pricing and 1.2% menu mix. The reduction in menu mix compared to prior quarters was driven primarily by promotional offerings being similar to the prior year. Olive Garden's results were driven by the team's focus on flawless execution, everyday value, and their off-premise business. During the quarter, the restaurant team's focus on flawless execution helped maintain all-time high guest satisfaction ratings. A great example of this focus was on Mother's Day, the busiest day of the year at Olive Garden, when they recorded the highest Mother's Day sales ever. Olive Garden continued to strengthen their everyday value platform throughout the quarter.
They refreshed their five for $5 value drink platform and increased awareness on everyday value through secondary TV advertising, which highlighted their lunch duos starting at $6.99, everyday early dinner duos starting at $8.99, and Cucina Mia starting at $9.99. Finally, Olive Garden's off-premise sales increased 9%, representing 15% of total sales. The team remains focused on improving to-go capabilities and executing at a high level while driving continued growth in their catering business. Olive Garden had an excellent year. They continued to gain share in casual dining market share as they grew total sales 5% to $4.3 billion, which outperformed the industry benchmark by 340 basis points, and grew traffic for the fourth year in a row. The business remains strong. The team is doing a great job of executing against the strategy to drive frequency among their most loyal guests while making the appropriate investments.
LongHorn Steakhouse had another strong quarter. Total sales grew 5.7%, driven by 2.4% growth from new restaurants and same-restaurant sales growth of 3.3%, the 25th consecutive quarter same-restaurant sales growth. Same-restaurant guest counts grew 0.3%. The LongHorn teams continue to successfully execute 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. They remain focused on creating relevant promotions by leveraging their guests' favorite core menu items. Focusing on core items ensures their operators are able to execute at a very high level. The LongHorn team also continue to do a great job of supporting these promotions by telling their quality story through multiple guest touchpoints. Additionally, during the quarter, LongHorn launched a new beverage program that brought their focus on quality, simplicity, and culture to life.
The program is focused on strengthening their growing beverage sales. Initial guest feedback has been positive. Finally, the LongHorn team has been focused on ensuring the to-go experience equals their in-restaurant experience for guests who choose this convenience. They're enhancing their capabilities and have a dedicated to-go area in 40% of their restaurants. This ongoing focus has resulted in improvements in overall experience with high guest satisfaction scores for order accuracy and timeliness. I'm very pleased with LongHorn's performance this year. They continue to take share of the casual dining market as they grew total sales 6.3% to $1.8 billion, which outperformed the industry benchmark by 470 basis points. These results reflect their commitment to execute their long-term strategy. Cheddar's Scratch Kitchen total sales increased 0.6% in the fourth quarter, driven by sales growth from new restaurants of 3.8% and offset by same-restaurant sales decline of 3.2%.
The magnitude of this decline was driven by the former franchise restaurants, which fell 6.1%. The original company restaurants were down 1.5%. I was encouraged to see a sequential improvement in guest count trends for Cheddar's from Q3 to Q4. At the beginning of the fiscal year, the Cheddar's team established three strategic priorities, staff to win, master the tools, and standardize and simplify, with the goal of repairing fundamental elements of the business and shifting momentum. During the quarter, they continued to make progress against these priorities. Overall staffing levels for both team member and managers are now on par with our standards. This better enables the Cheddar's team to focus on execution. While turnover has improved, it's still significantly above the Darden norm. In addition, the restaurant teams continue to build acumen with our systems and tools.
They improved the use of their guest count forecasting application, which is critical to running efficient shifts. Finally, the Cheddar's team made progress with standardization and simplification by deploying new culinary processes during the quarter. These improvements contributed to better execution, efficiency, and productivity while enhancing speed of service. Fiscal 2019 was a challenging year for Cheddar's, one that was filled with significant change. However, the team made meaningful progress throughout the year that helped Cheddar's deliver double-digit profit growth this quarter. While I'm disappointed the work is yet to translate to top-line sales growth, I am encouraged that we saw 180 basis point improvement in guest count trends from the first half of the year to the second half of the year. These improvements indicate momentum is beginning to shift in the right direction.
There's still a lot of work left to be done, but I'm confident in the plan the Cheddar's team has in place and their ability to execute it. Fiscal 2019 was a great year for Darden. Our restaurant teams demonstrated their commitment to getting better every day as they executed our back-to-basics operating philosophy, and we continue to make meaningful progress in strengthening our four competitive advantages. I remain convinced that we have the right strategy in place, and we are well positioned to achieve our long-term value creation framework over time. On behalf of our board of directors and senior leadership team, I want to thank our 185,000 team members for all they do to make our company successful. Now I'll turn it over to Rick.
Thank you, Gene, good morning, everyone. We're pleased with our fourth quarter performance. We grew total sales by 4.5% from the addition of 39 net new restaurants and same-restaurant sales growth of 1.6%. Fourth quarter adjusted diluted net earnings per share from continuing operations was $1.76, an increase of 26.6% from last year. This quarter, we paid $92 million in dividends and repurchased $42 million in shares, returning a total of $134 million of capital to our shareholders. Looking at the P&L, restaurant-level EBITDA margin was flat versus last year, adjusted EBIT margins expanded 10 basis points to 11% this quarter. Food and beverage was flat to last year as pricing and cost savings offset inflation of just over 1% and unfavorable menu mix.
Restaurant labor of 32.2% was unfavorable 10 basis points driven by mark-to-market, while the 120 basis points of unfavorability from continued wage inflation was offset by favorability from pricing leverage, incremental sales leverage from higher check mix, and productivity improvements. Both marketing and G&A were favorable 10 basis points driven by sales leverage. Depreciation and amortization was unfavorable 20 basis points as we continue to invest in new restaurant growth, remodels, and technology. Impairments were favorable 20 basis points as we lapped $4.5 million of impairments last year for restaurants that were earmarked for closing as their leases expired. Our effective tax rate for the quarter was 5.5%. This rate was approximately 400 basis points lower than we anticipated in March. Roughly half of this favorability was from a higher than anticipated benefit from stock option exercise and mark-to-market hedges.
The remainder was the result of strategic tax projects that were completed in Q4. Turning to our segment performance, all of our segments grew total sales and segment profit dollars again this quarter. Segment profit margin held flat at both Olive Garden and LongHorn, while the fine dining and other segments grew segment profit margins. Of particular note in the other segment, as Gene mentioned, Cheddar's significantly grew segment profit this quarter, even with negative same-restaurant sales, as they focused on running more efficient food costs and labor. Fiscal 2019 was another great year of performance as our brands continued to leverage Darden scale and other competitive advantages. Our strong operating model generates significant cash flows, this year was no exception. This year's strong top and bottom line performance drove approximately $1.2 billion in EBITDA from continuing operations.
We invested approximately $450 million of capital in the business, returned over a half a billion dollars to shareholders, consisting of $371 million in dividends and $208 million in share repurchases. In fact, since 2016, we've grown EBITDA 9% annually, returned over half a billion dollars to shareholders each year in the form of dividends and share repurchases. Before I share our outlook for fiscal 2020, I want to reiterate our long-term value creation framework. This framework calls for a 10%-15% total shareholder return, which is meant to be achieved over time, assuming a constant earnings multiple. Our actual total shareholder returns have well exceeded our long-term framework since its introduction in 2015. In fact, our annualized TSR over the three-year fiscal period ended May 26th was approximately 25%.
To achieve our long-term framework, we anticipate earnings after tax growth of 7%-10%, which is made up of total sales growth of between 3%-6% and EBIT margin expansion between 10-30 basis points. Additionally, we expect to return another 3%-5% to shareholders in the form of a dividend payout ratio between 50% and 60% of our net income and share repurchases between $150 million and $250 million. As I mentioned on last quarter's call, fiscal 2020 includes two unique items. First, it's a 53-week year, and we anticipate a positive impact on diluted net earnings per share from continuing operations of roughly $0.15. Second, in the first quarter of fiscal 2020, we are implementing ASC 842, the new accounting standard for leases. We currently estimate this will negatively impact EPS by approximately $0.05.
Roughly three-quarters of this impact is in interest, while the rest impacts EBIT. Turning to our full outlook for fiscal 2020, we expect total sales growth of 5.3%-6.3%, driven by approximately 2% from the addition of the 53rd week, same-restaurant sales growth of 1%-2%, and approximately 44 net new restaurants. Capital spending between $450 million and $500 million. Total inflation of approximately 2.5%, with commodities inflation of 1%-2% and total labor inflation of 3.5%-4.5%. An annual effective tax rate of 10%-11% and approximately 124 million diluted average shares outstanding for the year, all resulting in diluted net earnings per share between $6.30 and $6.45.
This morning, we also announced that our board approved a 17% increase to our regular quarterly dividend to $0.88 per share, implying an annual dividend of $3.52, resulting in a yield of 3% based on yesterday's closing share price. With that, we'll take your questions.
Thank you. At this time, if you would like to ask a question, please press *1 on your touch tone phone. Please be sure to unmute your phone line and record your name and company so that I may introduce you to ask your question. We ask that you please limit yourself to one question and one follow-up. Our first question will be from Brian Bittner with Oppenheimer and Company. Sir, your line is open.
Great. Thanks. This is actually Michael Tamas on for Brian. When you think about driving sales in 2020, is the playbook the same? Is there anything you think you need to do differently, whether you're looking at the competitive environment, or how do you think about 2020 sales drivers versus, say, the last 12 months, which was really healthy? Thanks.
I think we stay focused on our back to basics philosophy. I think it's going to be more important than ever that we continue to ensure that our restaurants are staffed with the appropriate team members and that we're creating great dining experiences. We think there's still opportunity with throughput
Especially on the weekends in these high demand days. We're continuing to focus on how do we simplify our operations so that our teams can execute at a higher level. We're going to continue to win this at the nine square feet. We've got to do a better job than our competitors do taking care of our guests and providing offerings that our guests are excited about. I'd sum that up by saying our playbook's not changing. We're focused on the exact same things.
Got you. Thanks. Just on the cost side, I think, your total cost basket's up a little bit more in 2020 versus 2019. Is there anything that you have to do a little differently there, or is there a little more productivity you need to kind of squeeze out of them all, or how do you think about that? Thanks.
Yeah. We are working on productivity every year. We don't anticipate squeezing out a lot more than we did last year. We still anticipate productivity enhancements. We also have a great supply chain team that'll continue to look for cost savings to help offset any incremental inflation.
Thank you.
Thank you for your question, Mr. Bittner. Our next question comes from David Tarantino with Baird. Your line is open, sir.
Hi, good morning. Gene, just a question about the industry environment. I appreciate your opening remarks, if I look at the last three or four months, it does look like traffic in the industry has softened relative to what we were running, I guess, the prior 12 months. Wondering if you have some thoughts on why we've seen that softening trend, even when you kind of normalize out for the calendar shift. Then as you think about that trend, do you think you need to sort of normalize the value promotion or maybe tick back up the value promotion after maybe pulling back on some of the offers over the last 12 months or 24 months? Thanks.
David, good morning. We've been trying to tease out the change in traffic trend. I'll pivot just here for one second to say what we're really pleased about is as the industry traffic has softened a little bit, our gap has increased. That's been really reassuring. We haven't been able to point to any particular thing that's causing this traffic softness in the industry. We've tried. We've come at it from different angles. Overall, I think our thought is that the consumer's still in a really good place, and we don't see that changing here, in the near term. Obviously, we're living in a more volatile environment. I will say one of the things that we do see is day to day, week to week, there's a little bit more volatility than there had been. Again, hard for us to try to figure out what's driving that.
As far as value, I think that we'll continue to look for ways to add value to the consumer proposition. I think as we think about incentives right now, we believe that we're still in the mode of withdrawing incentives based on the environment. I'd rather continue to find ways to invest in what we call everyday value in the businesses. There's no doubt, we've taken a lot of currency out of the marketplace, and we do have that available to put back in if we think that's the right thing to do.
Gene, maybe a follow-up on that last comment. What would you need to see to add back some of those incentives or get more aggressive on the value side?
Well, I think, if our traffic started to go the other way against the industry, if the gap started to shrink. I think then we have to consider what's going on with the business model. I think one of the things that we focus on is protecting our business model and using our scale not to make short-term decisions that may drive a few extra guests here and there, but really aren't that profitable. I think as long as our gap to the industry is healthy from a traffic standpoint, we'll continue to be very cautious with that.
Makes sense. Thank you very much.
Thank you for your question, Mr. Tarantino. Our next question comes from David Palmer with Evercore ISI. Your line is open, sir.
Thanks. Good morning. Question on just the Polished Casual dining side. It does look like that's a little tougher than it has been in that segment. Wondering if there's a reason or insight there, tax season, stock markets might impact that segment more also regionally bigger on the West Coast. Separately on LongHorn, is that brand picking up steam or was there in a way that feels like in the medium term that is widening its gap to KNAPP-Track, or was there certain reasons within that quarter for that to happen? Thank you.
David, great question on Polished Casual. I'll sum that up as saying Polished Casual operates in some of the best retail trade areas across the country, I believe there's more good competition, smaller brands that are really good businesses that are expanding in those trade areas, putting more pressure on our Polished Casual brands. I'll use, I think, a very good example. If you're going to grow True Food Kitchen, where are you going to put a True Food Kitchen today? You're going to put it right on top of a Seasons 52. There are other brewery brands that are, where are they going to put their businesses? They're going to put them right on top of a Yard House. Those brands operate in very good trade areas, and we're experiencing a little bit more competition there.
I think you ask a good question. I think that's the insight there. As far as LongHorn goes, I think when Todd Burrowes came back, under his leadership, we've been making great investments in LongHorn. I think that there have been multiple year investments. I think we're gaining a lot of momentum in that business. We've increased the size of the stakes. We've simplified the operation. We've simplified the promotional constructs. Our retention is incredibly high. We're executing at a really high level. I think there's a lot of good momentum in that business. The last thought on LongHorn is we had a pretty good growth curve there really between 2010 and 2015. We broke into a lot of new territories. Those new territories are really starting to mature nicely. We're getting good growth from them.
Going in and being the fourth or fifth steakhouse in a marketplace, it's really tough to break in and get into the consumer routines. Over time, we know that LongHorn will build loyalty in those years in their three to 10 year cycle. There's a lot of momentum in that piece of the business also.
Thank you.
Thank you for your question, Mr. Palmer. Our next question comes from Chris O'Cull with Stifel. Your line is open.
Thanks. Good morning, guys. Gene, several of the bar and grill and mid-scale casual dining chains have been pretty aggressive with new promotional platforms. While Olive Garden clearly has the scale to compete, do some of the other smaller brands like Cheddar's and Yard House, do they need to make any adjustments to their marketing strategy?
Chris, I think they've got to always reexamine where they are from a value standpoint. I would say that Cheddar's is the value leader. Maybe there's some opportunity as we move forward to highlight that value differently and to bring that to life. There's no doubt, I've said at the last couple calls, that the large casual dining brands are much more effective and disciplined today and advertising very effectively, and their share of voice is up. That's making it a little bit more difficult for a Cheddar's to compete effectively. We may have to think about how we go to market to highlight that great value that we have. Your insight is relevant, and it's a challenge that we face with the Cheddar's brand.
Is there any plans to test or introduce anything in the coming quarters?
Yes, I'm not going to talk about them.
Fair enough. Thanks.
Thank you for your question, Mr. O'Cull. Our next question's from Gregory Francfort with Bank of America Merrill Lynch. Your line is open, sir.
Hey. I just had two quick questions. The first one was just a follow-up to David's question on polished casual. Is that any different in terms of the store growth capacity adds that's happening at polished casual versus maybe casual dining more broadly? Because my understanding was casual dining store growth might be slowing a little bit. A question just for Rick. Just on the cash balance and where it ended at the end of the quarter, I think the last time you ran a cash balance close to this high, you made a pretty big acquisition. Is there a reason why maybe you're not deploying that cash for purchases? As you think about acquisitions, how much does Cheddar's performance and the need to turn that impact your thoughts on future acquisitions? Thank you.
I'll go first. On the polished growth, I think that it's an attractive space. We have a lot of entrepreneurs out there that over the last decade have created some pretty good concepts that are starting to get to getting past that 10 unit area and starting to grow. It's obviously an attractive marketplace. It's also relatively small. It just happens on our smaller polished brands when we have increased competition, it has a bigger effect on the overall top-line number. What we do believe is that we can fight off that initial competition over 12 to 18 months, and our restaurants will get back to the sales levels they were prior to the competition coming in. It's just something that I think you have to continue to operate really well, and you don't make an adjustment in the short term for that increased competition.
You just go back to winning the nine square feet, and your business will get back to growth.
Yeah, as it relates to our cash balance, even though we have significantly more cash than we had last year, our teams are still focused on doing the things every day to continue to increase that cash balance. One of the things that we did in the fourth quarter was we significantly improved our working capital position. We also did a few more sale-leasebacks. That helped increase our cash balance. It talked to the team's ability to continue to find the best use of our cash and actually take as much cash in as we possibly can, even though we have some cash. As it relates to what we're going to do with that, we continue to speak to our board to determine what the best use of that cash is, whether it's through share buybacks or dividends.
As you heard earlier, we just increased our dividend by 17%. We will find the right times and to either buy back shares or acquisitions if they come to play. It has nothing to do with Cheddar's, whether we're doing an acquisition right now or not. It just has to do with making sure that we have the right brands, et cetera, to target.
Thank you.
Thank you for your question, Mr. Francfort. Our next question is from John Glass with Morgan Stanley. Your line is open, sir.
Thanks very much. I know Darden's position on delivery has been clear, Gene, do you see either, one, that delivery is helping the overall industry in any way? It may not show up in traffic, but maybe it shows up in check, for example. Two, do you think by not participating in delivery at this point, that in any way has put you at a traffic or a total sales disadvantage?
I'll start with the second part of that. I don't believe it's put us at a disadvantage at all. I really like the way our off-premise business continues to grow. I think we continue to remove friction from the process. We continue to offer great value without having to have any destruction to our overall margins. So I like where we're at. I don't think we're missing out on anything. This is still an immature business. There's still lots to learn. There's a lot of discussion around whether it's incremental, it's non-incremental. Where I want us to focus, and I want our teams to focus on, is creating a compelling in-restaurant experience that people want to come and visit. I think when you do that helps create the demand for the off-premise visit. We know convenience will continue to be important to the consumer.
Where our focus right now is to create an in-restaurant experience that drives in a compelling off-premise experience in which the consumer will still come and pick up because the value and the quality of the offering is so strong.
Just to follow up, if I missed it, I'm sorry. What was the Olive Garden off-premise business this quarter, and how much did it grow? Just to the first part of my first question was simply, do you see any evidence anyone is getting a real lift to delivery, or is this all talk and we haven't really seen the industry sales in fact benefit from this in total?
Yeah, sorry, I missed that part, John. I don't think I've seen any real growth from it. I'm seeing margin destruction, but that's my opinion. We've got tests going on, the results aren't compelling enough that we're running out and doing something with it. I think with that, it really indicates how we're feeling about it. Olive Garden to go was 9% for the quarter, two-year stack of almost 18%, 14.5% of sales. I'm really pleased with where we are with our off-premise business. We continue to enhance those capabilities, which is really important. We continue to work with the adoption of digital because we think that's going to be a continued driver. We've got some other investments that we'll continue to make to remove some friction in the off-premise experience.
Great. Thank you so much.
Thank you for your question, Mr. Glass. Our next question's from Matthew DiFrisco with Guggenheim. Your line is open, sir.
Thank you. Just had a follow-up, then a question. Specific to the Olive Garden and I guess what could be perceived as a slight shortfall versus what expectations were, then LongHorn's topping. Did the Olive Garden brand, was that the only one that saw basically less incentives and had somewhat of a drag in the quarter, or did LongHorn's experience some of that as well?
LongHorn didn't have the same drag as Olive Garden did. There was much more reduction in incentives in Olive Garden than LongHorn for the quarter.
Where are we in that cycle of reductions? Are we going to expect that to continue into the first half of 2020, or are we starting to maybe now see more comparable year-over-year comparisons on incentives?
I think beginning to the middle of the second quarter is when last year is when we started to really pull back.
Okay.
We still got a little bit more time before we wrap that.
My last question, you mentioned a lot about some of the competition coming in and where you would grow a store. The obvious place would be sort of where a The Capital Grille already sits or some other of your brands. As far as the real estate availability, say, for the next three to five years, what are you seeing out there for the potential for the Cheddar's brand and those brands that are positioned best for the lower income consumer or the broader consumer base? A lot has been said that there's not a lot of availability. Do you feel the same, or do you think the brand is something that can fit into more locations maybe than some other brands that have commented about tight locations?
I think we have a lot of green space, right? We're still relatively under-penetrated, that gives you a lot more opportunity. It's obviously a lot easier for us to find sites for Cheddar's than it is for Olive Garden. I don't see availability being an issue for Cheddar's long-term growth. Olive Garden now, everything that we do with Olive Garden, we have to really figure out what the cannibalization's going to be, versus we don't have that much of an issue with Cheddar's. I think it all depends on what's your size, what's your penetration level. I don't see that as a burden as we move forward with Cheddar's.
Thank you.
Thank you for your question, Mr. DiFrisco. Our next question's from Jeffrey Bernstein with Barclays. Your line is open.
Great. Thank you very much. Two questions. One, just on the fiscal 2020 guidance. I'm just wondering if there was anything in the fiscal fourth quarter just ended, whether it would be slower or more volatile comps or maybe higher than expected costs. Anything there that might have led you to temper your initial fiscal 2020 guidance? I know if you look at past years, it seems like initial guidance was fairly conservative, allowing for a beat and raise, which, Gene, I know that's a critical component is to guide conservatively. Looking back to fiscal 2019, you beat comp by 75 basis points. You beat earnings growth by 700 percentage points. Just wondering, as you think about your initial guidance for 2020, how that was impacted by the most recent trends in the industry. I have one follow-up.
Hey, Jeff, this is Rick. Yes, I'm assuming you're talking about our same restaurant sales guidance of 1%-2%. As Gene mentioned, we are seeing a little bit more volatility in the industry. This is an annual guidance, so this is 12 months ahead of time. We want to make sure that we're prudent and being at the lower end of our 1%-3% range makes sense. We also have seen a little bit of a slowdown in discretionary spending in this calendar year versus last calendar year. We feel like 1%-2% is the right range at this time.
From an earnings per share perspective, would you view that similarly in terms of a little bit more cautious to start the year?
I wouldn't say it's a little bit more cautious to start the year than we've been in the past. We have a few things. One, it's our same restaurant sales of 1% to 2% with a little bit more inflation than we've seen in the past. Also, a big difference in tax rate year-over-year will impact our EPS.
Got it. My follow-up was just on the unit guidance for fiscal 2020. Seems like on a net basis, we're looking at roughly 2.5% growth. I'm just wondering if you can give some color in terms of where Olive Garden and LongHorn fall into that and confidence in Cheddar's maybe accelerating, or is Cheddar's still in wait-and-see mode?
Yeah. First of all, in the broad picture, the total number of openings that we have this year will be very similar to last year. The difference is the openings will fall a little bit later in the fiscal year than they did this year, just because of construction and developers not necessarily meeting the timelines that they had originally. While our openings will be about the same, our timing will be a little bit different. The total percent from Olive Garden and LongHorn is about a little bit over half of our total openings, which isn't that different than we've had this year. Cheddar's will have about the same pace as last year.
Got you. Thank you.
Thank you for your question, Mr. Bernstein. Our next question is from Andrew Strelzik with BMO Capital Markets. Your line is open, sir.
Hey, good morning. Two things from me. First, a number of the casual diners that have pulled back on promotional activity are actually performing, from a same-store sales perspective, among the best in the group. I'm just wondering, do you think consumer sensitivity to discounting has maybe lessened a bit, or it's less disruptive than it has been in the past with more everyday value on menus across the group? That's first. Second, the conversation around African swine fever has ticked up, and I saw that you increased the commodity inflation relative to last year. How did that play into your thinking? How comfortable are you with that and how it may impact Darden? Thanks.
Yeah. On the everyday value question and sensitivity promotions, I think there's been a lot of good work done in the industry over the last couple of years to put more everyday value in. We've been saying for a while that the consumer didn't want to be told what they had to do, what they had to buy to get that value. I think a lot of people have rotated to more everyday value. To be able to do that means that you have to be less promotional when you make that strategic choice. I think that there's not much more for me to add there other than I believe we led the way with everyday value. Others have followed. I think it's the right thing to do, and it tones down the promotional activity. Rick will talk about the other question.
As it relates to African swine fever, a couple of things. One is pork represents approximately 2% of our total buy. It's really a small impact, and it had a very small impact on our guide. It's going to take 18 to 36 months for this to work itself out. We're currently not seeing a huge increase in pricing, but we expect to see some more of that in the back half of the year, and that's already contemplated in our inflation numbers.
Great. Thank you very much.
Thank you for your question, Mr. Strelzik. Our next question is from Dennis Geiger with UBS. Your line is open.
Thank you. Gene, I wanted to ask a bit about the strength of operational execution at Olive Garden, which you often identify as the biggest driver of the brand's success and probably the largest sales driver. Just wondering if you could talk more about ops execution in the quarter, if it remained as strong as what you've seen in recent quarters. I guess just more importantly, if you could frame the runway from here for operations and throughput specifically to be a continued driver of outperformance as we look ahead through the balance of the year. Thanks.
Yeah. I think the team continues to make progress on improving operational execution. There's always pockets in a system the size of Olive Garden that has opportunities. There's always opportunities day to day, week to week, to improve your overall execution. When you think about the size of Olive Garden and the number of servers that we have on each and every day, we always break down a little bit. Every day that we break down a little bit less, more guests have a better experience. The keys to this long term are continued simplification. I believe that management and the operating team inside Olive Garden is really focused on taking it to simplification to the next level. That could drive even further improvement in overall execution for the next couple of years. Throughput will always continue to be an opportunity. We're very effective from an advertising standpoint.
A lot of our advertising drives people on Friday and Saturday night, and we have long waits in our restaurants. We talk a lot about convenience, that's not very convenient. Consequently, we've got to get better at making that experience more convenient for the consumer, and we have to get more people and guests through our restaurants each hour, and shorten up those dining experiences. We're going to continue to focus on this, and we think it's a big upside.
Great. Just if I could, just recognizing you've given a lot of the key guidance pieces, which is great. Can you also just summarize your expectations, thinking about EBIT margins for the year, maybe relative to the long-term framework, if there's anything else you could add there specific to that item? Thanks.
Dennis, this is Rick. Our EBIT margin will be within our long-term framework. Our long-term framework, as a reminder, is 10 to 30 basis points.
Thank you.
Thank you for your question, Mr. Geiger. Our next question is from John Ivankoe with J.P. Morgan. Your line is open.
Hi, thank you. I wanted to go back to off-premise for Olive Garden. Obviously, at 15% of sales, it's actually getting pretty big on a per store basis. Gene, you mentioned enhancing capability. I think that was around off-premise. How big do you think that can be on a per store basis? How much would you want it to be? Obviously, considering that much of that business is going to come when you're already the busiest on a Friday or Saturday night?
Yeah, I think that's always going to depend on consumer demand. I think improving our capabilities is going to be an important part of growing this. We've just opened a new prototype in Orlando that has a full dedicated off-premise area, where we're learning a lot from that. We think that that has tremendous upside for our higher volume off-premise restaurants. We have restaurants now doing well over $1 million off-premise. A lot of this business comes in and is out the door before 11:30 A.M. Again, a lot of the catering that we're starting to do now is really off, it's pre the big meal period, that's really helpful. We've got multiple projects going on today to improve our capabilities, and then we think there's some attachment opportunities. Can we attach additional sales to the normal off-premise experience?
Example, if we start building these takeout spaces, can we get some more beverage sale? Can we get other attachment? We're still in the infancy of thinking about that, we think it's a fairly big idea, which could grow that overall percentage over time. I think that the way to summarize this is that we see tremendous opportunity in this space without sacrificing what we're really here to do, which is create a great in-restaurant experience.
How big of a capital project would one of these dedicated takeout spaces be in existing restaurants?
John, it's too early to really talk about that. We've got it figured out in the different prototypes we have, where would we add it. It has to be added in a specific place where you can staff it in your down times without adding a lot of labor. You want proximity to the kitchen. You need to have the right heating and holding areas. So I don't want to put a price tag on it right yet. We're still too early in that process.
Helpful. Thank you.
Thank you for your question, Mr. Ivankoe. Our next question is from Sara Senatore with Bernstein. Your line is open, ma'am.
Thank you. I have a follow-up on Olive Garden, then a question on Cheddar's. On Olive Garden, I know you had said that in the past you were trying to reduce mix. Obviously you talked about pulling some promotional activity, I guess margins seemed fairly flat versus last year. I was just trying to understand a little bit about how to think about the trade-off between comp and margin or traffic and mix, however you think about the complexion of the comp and how that flows through to margin. I have a question on Cheddar's, please.
I think the margin impact in the quarter had a lot more to do with the investment we made with the Chicken Alfredo, with the 50% more chicken, which ticked up our cost of sales. We had a promotional construct that was pretty similar to last year at the same time, we didn't have the trade-up opportunity that was driving a lot of mix. At the end of the day, when you look at that Olive Garden margin, there's no one out there in the space that has those types of margins. We'll continue to invest in value, which may limit the upward mobility of that. We don't expect margins to contract, I want to make sure that we're investing properly into that business.
Okay. Thank you. On Cheddar's, a couple of comments just about you talked about maybe not having as much scale. You also talked about how the franchise businesses continue to be a much bigger drag, certainly than the formerly franchise than the rest, I guess. How do you think about that system going forward? One is, I guess, to me, Darden scale was a big part of where the value creation could be with respect to Cheddar. I'm just trying to understand, how you think about scale in the context of a brand that's smaller, but as a part of a very large system like Darden. Also, would you ever contemplate doing something more drastic with the former franchise restaurants?
I assume they're still covering their cost of capital. At some point, does it ever make sense to close them or to think about them differently?
No. I'll start with the latter part of that question. These restaurants that are dragging the comp down are still extremely busy. Most of them are very high volume restaurants that are leaking back down to more of the system average. These are still great restaurants, on average. They still produce good returns. They've been through the most change. These have been the most disrupted restaurants, and I think that's why we're seeing a lot of the same restaurant sales decline come from those restaurants. The big disruption's been total management change, total system change. Everything that they do day in and day out has just changed operationally, and they've had some tough times adjusting. Overall, these are great restaurants and great territories, so there's no drastic, we're going to close these things.
I think when you look at it, and Rick alluded to it, and I talked about it, and we made more money in Cheddar this quarter than we did last quarter. I think one of the things I'm really excited about in Cheddar is when we really look at it and dissect it, our guest counts improved Q3 to Q4 against the industry 160 basis points. As the industry weakened, Cheddar's guest counts actually improved. We're making progress. One more thing on Cheddar that I didn't talk about in my prepared remarks, but I think it's important to recognize, is that we've been transforming these kitchens in the last year. We've done approximately 100 of them. We did 34 in the fourth quarter. This is a very disruptive process. The majority of the transformations this quarter were done in the formerly franchised restaurants.
This transformation allows us to really improve the efficiency in labor, improve the speed of service with the food coming out of the kitchen. These were big moves. This is behind us, and we're really excited about this, and we think that this is going to have a big impact. One of the things that we do know is that there is a significant sales decline after we do transformation as the teams struggle with this new operating procedure, but that works its way out. As far as scale goes, I think my reference to scale was more about just the overall size of the brand and the future growth opportunities. Today, Cheddar is definitely benefiting from our scale. It's plugged into our supply chain. It's been a huge benefit for them. It's allowed us to really continue to focus on value for the consumer.
I think scale is working for them on that side. They're going to benefit from our data scale over time. Most importantly, I think the thing that I continue to focus on is, can we get these human resource metrics closer to our Darden norms? I think that when that happens, that's where we're going to see some really great growth.
Thank you.
Thank you for your question, Ms. Senatore. Our last question is from Stephen Anderson with Maxim Group. Your line is open, sir.
Yes, thank you. Wanted to ask about the rewards program you have in test. It's about 130 restaurants or so. I wanted to ask what progress you've seen, what you've learned from that experience, and perhaps any plans to expand that program. Thank you.
We continue to have the rewards program in test. We continue to analyze what's happening there. There's some really positive in that program. There's some challenges with that program. We're going to continue to observe this and figure out whether we can drive greater loyalty with it. If not, we'll dissolve it. At this point in time, we have no plans to roll it out. We have no plan to dissolve it. We'll continue to observe the consumer behavior.
All right. Thank you.
Thank you for your question, Mr. Anderson. We do have a question from Brian Vaccaro with Raymond James. Your line is open, sir.
Thanks. Just wanted to open a circle back on third party delivery. Gene, we've seen some concepts that have been hesitant historically, sort of recently announced they're launching delivery. It seems more broadly that the economics for restaurants, and maybe particularly amongst large chains, could be improving. Would you agree with that? I heard your earlier comments, but are we getting closer to the point where it makes sense to pursue that opportunity with the existing off-premise growth moderating here? Thank you.
The burden of third party delivery is being shifted to the company, to the consumer. What I'm seeing is brands moving that burden away from themselves and onto the consumer. At this point, I'm just a little uncomfortable with that. What percentage is the consumer long-term willing to pay of their overall check to have that convenience? That has to be proved out to me over time, if that's something that we want to do. We're still in a value proposition, and I'm just not sure. We're watching what everybody's doing. We continue to believe, especially in Olive Garden, that it's much better for us to focus on the catering and delivery part of this. We've just changed how we think about that.
The dollar size of the order now has moved from $100 to $75, and we've moved from 24-hour notice to 5:00 the day before. We think that is a strong move, and we are very interested in delivering ourselves to people who want to have a food experience delivered over $75. Again, the average order of that activity for us is well over $300. It's a highly rated, from a satisfaction standpoint, event, and we want to focus on that more so than trying to move a $15 entrée. Again, we're watching what's happening. We don't think that the economic burden's changed that much. We think it's just been shifted from the restaurant to the consumer.
Yep. Understood. That makes sense. Just back to the changes you made on your existing off-premise, the pricing and the order times. When was that put in place? Is that literally this quarter, or was that partially through fiscal fourth Q?
It's just being put in place now.
Okay. Very helpful. Thank you.
Thank you for your question, Mr. Vaccaro. I will now turn the conference back over to Kevin Kalinowski for closing remarks.
All right. Thanks, Jill. With that concludes our call. I want to remind everybody that we plan to release first quarter results on Thursday, September 19th before the market opens, with a conference call to follow. Thanks again for participating in today's call.
That does conclude today's conference call. We thank you all for participating. You may now disconnect, and have a great rest of your day.