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Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
Edition 11ISBN: 978-1111526207Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
Edition 11ISBN: 978-1111526207 Exercise 2
Darden Restaurants Serve Up Long-Term Growth
Growth has been on the menu ever since Bill Darden opened his first Red Lobster restaurant in Florida in 1968. The combination of fresh seafood and casual dining caught on quickly-and quickly caught the eye of General Mills, which bought the fast-growing company in 1970. In 1995, General Mills renamed the company after its founder and spun it off in a public offering. Once it went public, Darden Restaurants used the proceeds to chart a new financial path to long-term growth.
Today, Darden employs 180,000 people and serves more than 400 million meals across North America in 1,800 casual, full-service restaurants. The company's six restaurant brands are: Red Lobster (seafood), Olive Garden (Italian menu), LongHorn Steakhouse (Western-theme steaks and more), The Capital Grille (premium steak house), Bahama Breeze (Caribbean-theme casual dining), and Seasons 52 (fresh-grilled foods). In all, Darden's yearly revenue tops $7 billion.
Healthy cash flow is definitely on the menu. The average Capital Grille unit rings up $6.8 million in annual sales, the average Olive Garden rings up $4.8 million in annual sales, the average Red Lobster rings up $3.8 million, and the average LongHorn Steakhouse rings up $2.8 million. With the cash generated from restaurant revenue, Darden has been reinvesting in its businesses by opening new units, remodeling existing units, and greening its restaurants with eco-friendly materials and energy-saving touches. Because of its size, it can take advantage of economies of scale in buying foods and beverages from global sources, which in turn helps keep costs under control and supports good profit margins.
Over the years, the company has fueled its continued expansion with a combination of debt and equity. The company can draw on a revolving credit agreement of more than $600 million, which helps smooth out the financial bumps of its seasonal business. Typically, Darden's revenue spikes in the spring and falls to a low point in the fall, although sales are definitely affected by weather conditions, economic circumstances, holidays, and other uncontrollable elements. Having revolving credit in place provides the flexibility to borrow if and when needed.
Darden has also raised money by issuing corporate bonds, some of which mature in 5 years, some in 10 years, and some in 20 years. Twice a year, the company pays interest to its bondholders. On the equity side, Darden's common stock trades on the New York Stock Exchange, and it pays dividends to its shareholders. Its cash flow has been so strong, in fact, that Darden increased its dividend not long ago and has focused on paying down debt even as it invests in business.
Looking ahead, Darden expects to continue its growth spurt, despite an unpredictable economy and intense competition from big names in fast food and casual dining. It avoided the heavy, broad-based discounting that some chains used to attract customers during the recession. Instead, it used occasional, selective price promotions to heighten its message of affordability. The company's financial stability means that it has money available for making acquisitions, building new restaurants, developing new menu items, training new staff members, and launching new advertising campaigns.
Within the past decade, Darden has used its financial strength to buy and expand the Capital Grill and Long-Horn Steakhouse restaurant chains. It is also catering to increased consumer interest in healthy dining by opening more of its Seasons 52 restaurants, which feature only steamed, baked, or grilled dishes. As its name implies, Seasons 52 adds new menu items regularly, depending on what's in season. The ever-changing menu brings customers back again and again to try seasonal specialties and enjoy old favorites.
Sometimes Darden closes under-performing units or sells entire chains so it can put its money and management attention into other growth opportunities. A few years ago, Darden divested its Smokey Bones Barbecue Grill chain after determining that this restaurant concept did not have the potential for nationwide expansion and profit potential that Darden required. What will Darden do next in its quest for profitable, long-term growth? 16
Why would Darden issue corporate bonds that mature in 5, 10, and 20 years?
Growth has been on the menu ever since Bill Darden opened his first Red Lobster restaurant in Florida in 1968. The combination of fresh seafood and casual dining caught on quickly-and quickly caught the eye of General Mills, which bought the fast-growing company in 1970. In 1995, General Mills renamed the company after its founder and spun it off in a public offering. Once it went public, Darden Restaurants used the proceeds to chart a new financial path to long-term growth.
Today, Darden employs 180,000 people and serves more than 400 million meals across North America in 1,800 casual, full-service restaurants. The company's six restaurant brands are: Red Lobster (seafood), Olive Garden (Italian menu), LongHorn Steakhouse (Western-theme steaks and more), The Capital Grille (premium steak house), Bahama Breeze (Caribbean-theme casual dining), and Seasons 52 (fresh-grilled foods). In all, Darden's yearly revenue tops $7 billion.
Healthy cash flow is definitely on the menu. The average Capital Grille unit rings up $6.8 million in annual sales, the average Olive Garden rings up $4.8 million in annual sales, the average Red Lobster rings up $3.8 million, and the average LongHorn Steakhouse rings up $2.8 million. With the cash generated from restaurant revenue, Darden has been reinvesting in its businesses by opening new units, remodeling existing units, and greening its restaurants with eco-friendly materials and energy-saving touches. Because of its size, it can take advantage of economies of scale in buying foods and beverages from global sources, which in turn helps keep costs under control and supports good profit margins.
Over the years, the company has fueled its continued expansion with a combination of debt and equity. The company can draw on a revolving credit agreement of more than $600 million, which helps smooth out the financial bumps of its seasonal business. Typically, Darden's revenue spikes in the spring and falls to a low point in the fall, although sales are definitely affected by weather conditions, economic circumstances, holidays, and other uncontrollable elements. Having revolving credit in place provides the flexibility to borrow if and when needed.
Darden has also raised money by issuing corporate bonds, some of which mature in 5 years, some in 10 years, and some in 20 years. Twice a year, the company pays interest to its bondholders. On the equity side, Darden's common stock trades on the New York Stock Exchange, and it pays dividends to its shareholders. Its cash flow has been so strong, in fact, that Darden increased its dividend not long ago and has focused on paying down debt even as it invests in business.
Looking ahead, Darden expects to continue its growth spurt, despite an unpredictable economy and intense competition from big names in fast food and casual dining. It avoided the heavy, broad-based discounting that some chains used to attract customers during the recession. Instead, it used occasional, selective price promotions to heighten its message of affordability. The company's financial stability means that it has money available for making acquisitions, building new restaurants, developing new menu items, training new staff members, and launching new advertising campaigns.
Within the past decade, Darden has used its financial strength to buy and expand the Capital Grill and Long-Horn Steakhouse restaurant chains. It is also catering to increased consumer interest in healthy dining by opening more of its Seasons 52 restaurants, which feature only steamed, baked, or grilled dishes. As its name implies, Seasons 52 adds new menu items regularly, depending on what's in season. The ever-changing menu brings customers back again and again to try seasonal specialties and enjoy old favorites.
Sometimes Darden closes under-performing units or sells entire chains so it can put its money and management attention into other growth opportunities. A few years ago, Darden divested its Smokey Bones Barbecue Grill chain after determining that this restaurant concept did not have the potential for nationwide expansion and profit potential that Darden required. What will Darden do next in its quest for profitable, long-term growth? 16
Why would Darden issue corporate bonds that mature in 5, 10, and 20 years?
Explanation
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Reason for issuing corporate bonds that ...
Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
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