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Darden Restaurants Agrees to Purchase Cheddar's Scratch Kitchen for $780 Million

Darden Restaurants Agrees to Purchase Cheddar's Scratch Kitchen for $780 Million

Tuesday, March 28th, 2017

Darden Restaurants, Inc. started this week with some good news. On Monday, the company announced this Monday that it has agreed to acquire Cheddar’s Scratch Kitchen for $780 million, and Tuesday saw the company release robust third quarter financial numbers.

Monday’s deal will add Cheddar’s to a portfolio of brands that includes Olive Garden, LongHorn Steakhouse, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V’s.

Gene Lee, President and CEO, Darden Restaurants"Cheddar's is an undisputed casual dining value leader with broad appeal and strong average restaurant volumes," said Darden President and CEO Gene Lee. "Cheddar's is a great fit in the Darden portfolio because it complements our existing brands. This addition will also enable Darden to further strengthen two of our most important competitive advantages: our significant scale, and our extensive data and insights."

The Arlington, Texas-based Cheddar’s operates 165 locations throughout 28 states. In a press release, Darden noted that Cheddar’s has significant growth opportunities in new and existing markets, and an average annual restaurant volume of $4.4 million.

Highlights of the acquisition deal include:

  • Net of certain tax benefits estimated at approximately $30 million, with the purchase price representing a 10.4x multiple of trailing twelve month adjusted EBITDA ending December 2016.
  • Darden expects between $20 and $25 million of annualized pre-tax run rate synergies by fiscal 2019.
  • Total acquisition and integration-related expenses are expected to be approximately $25 to $35 million.
  • Darden will also pay $10 million for certain Cheddar's transaction-related tax attributes and reimburse its equityholders for pre-closing capital expenditures on new restaurants under development.

Cheddar’s President and CEO Ian Baines will remain with the company and report directly to Lee.

Ian Baines, President and CEO, Cheddar’s Scratch Kitchen"We are excited about the opportunity to be a part of Darden,” noted Baines. “Our operating philosophy and values are similar and we believe this transaction provides a great opportunity for our team members to continue to grow and develop in their careers. Additionally, Darden's expertise will enable us to further capitalize on our growth potential."

The acquisition is expected to be completed during Darden’s fiscal 2017 fourth quarter.

The company also announced solid third quarter financial results Tuesday morning. According to a CNBC report, the announced acquisition and strong numbers sent the restaurant group’s stock soaring more than six percent Tuesday morning.

Highlights from the company’s third quarter results include:

  • Total sales from continuing operations increased 1.7% to $1.88 billion.
  • Reported diluted net earnings per share from continuing operations increased 57.1% to $1.32, and increased 9.1% from last year's adjusted diluted net earnings per share.
  • Same-restaurant sales increased 0.9% for the quarter.

"We continued to gain market share as we outperformed industry same-restaurant sales by a considerable margin again this quarter," said Lee, in the company's financial statement. "Our teams remain incredibly focused on driving strong operating fundamentals, and I'm very proud of the work they are doing to create memorable experiences for our guests."

Darden also revised its 2017 outlooks—raising expected earnings per share from $3.87-$3.97 to $3.95-$4.00—reflecting an updated outlook for same-restaurant sales of approximately 1.5%.

For more on this and other important goings-on in the greater dairy, deli, and bakery industries, stay tuned to Deli Market News.

Darden Restaurants