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RBC Capital Markets, LLC
David Palmer (Analyst)
(212) 905-5998
david.palmer@rbccm.com
Eric Gonzalez (Associate)
(212) 905-5970
eric.gonzalez@rbccm.com
Jack Kindregan, CFA
(Associate)
(212) 618-7716
jack.kindregan@rbccm.com
Sector Perform
NYSE: DRI; USD 44.92
Price Target USD 50.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
Downside
Scenario
35.00
17%
Current
Price
44.92
Price
Target
50.00
16%
Upside
Scenario
62.00
43%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 132.6
Dividend: 2.20
Float (MM): 121.0
Debt to Cap: 58%
Market Cap (MM): 5,956
Yield: 4.9%
Tr. 12 ROE: 22.00%
3-Yr. Est. EPS Growth: NA
RBC Estimates
FY May 2013A 2014A 2015E 2016E
Revenue 5,921.0 6,285.7 6,689.8 6,785.0
EPS, Ops Diluted 1.80 1.71 2.23 2.47
P/E 25.0x 26.3x 20.1x 18.2x
Revenue Q1 Q2 Q3 Q4
2014 1,531.5A 1,485.6A 1,618.5A 1,650.1A
2015 1,617.2E 1,558.8E 1,676.7E 1,837.1E
2016 1,647.5E 1,613.1E 1,733.0E 1,764.1E
EPS, Ops Diluted
2014 0.32A 0.10A 0.70A 0.59A
2015 0.37E 0.27E 0.82E 0.77E
2016 0.54E 0.30E 0.88E 0.75E
Revenue: *Restated from FY13 to exclude Red Lobster from continuing
operations
All values in USD unless otherwise noted.
July 29, 2014
Darden Restaurants, Inc.
Darden offers an olive branch
Our view: We believe the proposed changes likely mean that current
sales trends remain troubled. However, an end to this battle could help
accelerate the CEO search and minimize distraction inside the company.
Key points:
Darden announces leadership succession plan and proposed board
changes: Darden restaurants announced that Chairman and CEO Clarence
Otis is stepping down. Mr. Otis will continue to serve as CEO until
the earlier of his successor or 12/31/14. In addition, the company has
announced the separation of the roles of Chairman and CEO and has
chosen to nominate 9 of 12 director candidates for election, ensuring that
at least three of the nominees proposed by Starboard Value would be
elected at the September meeting of shareholders.
Implications of proposed changes: We believe that Darden's proposals
likely mean that: 1) current sales trends remain troubledsomething that
should come to light during next quarter earnings, which is ahead of the
shareholder meeting; 2) an end to this battle could help accelerate the
CEO search and minimize distraction inside the company; 3) Starboard's
suggestions are more likely to be implemented at Darden. These include
cost cutting, the sale of real estate, and a breakup of the company.
Analyzing a Darden breakup; sum of the parts analysis suggests SRG is
richly valued: With the changes to management and the board, a Darden
breakup scenario may be back on the table, particularly if Starboard's
board nominees are brought inside the circle of trust. However, after
assigning peer-like multiples to Olive Garden and LongHorn of ~10x CY15E
EBITDA, our sum of the parts analysis (see page 3) suggests that the
Specialty Restaurant Group (SRG) is richly valued at Darden's current stock
price. SRG's implied valuation is 13x CY15E EBITDA, a large premium to
the 11x average of peer growth-oriented casual dining chains.
Tax-efficient sale of real estate may be difficult to achieve, in our view:
While there is a possibility that Darden could find a tax-efficient buyer for
its remaining real estate holdings, we do not see this as a likely scenario.
We believe Darden has previously executed a search of potential buyers
without success. A more traditional sale of real estate assets would likely
trigger both tax costs and debt modification costs.
Do these announcements foreshadow current trends? While SSS growth
at Olive Garden improved to flat during the first three weeks of FY15,
we have little reason to believe that Olive Garden has sustained this
improvement. Despite significantly easier YOY comparisons, current
trends in the casual dining industry remain in the low-single-digit negative
range through the first half of Darden's F1Q. Over time, we believe an Olive
Garden turn can occur slowly with a shift to digital/targeted marketing,
reinvestment in food value, and more effective reimaging.
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Conflicts Disclosures, see Page 6.
Target/Upside/Downside Scenarios
Exhibit 1: Darden Restaurants, Inc.
30m
20m
10m
M A M J J A S O N
2012
D J F M A M J J A S O N
2013
D J F M A M J
2014
J
UPSIDE
62.00
TARGET
50.00
CURRENT
44.92
DOWNSIDE
35.00
Jul 2015
60
55
50
45
40
35
30
125 Weeks 06MAR12 - 28JUL14
DRI Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/ base case
Our price target of $50 is based on two methods: 1) DCF
analysis, which yields a $50 value based on a terminal growth
rate of 1.5% and a weighted average cost of capital of 7.7%;
and 2) comparable peer analysis, which takes into account
Dardens earnings growth and dividend yield. Our FY15 and
FY16 EPS estimates are $2.23 (-30% Y/Y) and $2.47 (+11% Y/Y).
Our one-year $50 price target equates to ~20x our FY16 EPS
estimate.
Upside scenario
In our upside case, we assume ~2% FY15 SSS growth
for Darden, which implies modest industry improvement.
We also assume profitable growth within the specialty
restaurant group. We assume Darden reduces overhead,
better leverages its scale, and finds more creative ways to
reach its core consumer. Our upside case also assumes Darden
can successfully execute a mobile-payment or customer-
loyalty program in the coming years. Our upside valuation of
$62 equates to 22x our upside case FY15 EPS estimate of $2.89
(+13% Y/Y), implying a dividend yield of 3.5%.
Downside scenario
In our downside case, we assume that Dardens large chains
continue to underperform an industry that itself continues
to decelerate. We assume FY15 flat blended SSS growth.
Our downside case assumes industry SSS growth remains in
the low-single-digit negative range. Our $35 downside case
valuation equates to 17x our downside case FY16 EPS estimate
of $2.00 (flat Y/Y), implying a dividend yield of ~6%.
Investment summary
We see only modest upside in Darden's stock. While there is
reason to expect modest near-term sales improvement, we
see a more significant sales and earnings turn in late FY15 at
the earliest. Fixing value perceptions in a low-growth industry
likely will be a multi-year project. While we do not see a "silver
bullet", we do believe Darden has long-term opportunities in
overhead, productivity, and media efficiency.
On the path to efficiency, but execution questions
remain: We believe Darden intends to pursue strategic
initiatives aimed at optimizing restaurant-level cost structure,
particularly at Olive Garden, and maximizing overall return
on invested capital. That said, many questions remain as to
how the company will deliver on its stated targets of low- to
mid-teens operating growth for the "remain-co." Moreover,
industry trends remain a concern and could continue to weigh
on the value of both companies.
Darden's inefficiencies could turn into higher returns and
cash flow over time. Darden may have opportunities to drive
efficiencies in operating margins and free cash flow to boost
ROIC, which was 12pp below Brinker in FY13. We believe
Darden to be an under-earner relative to its peers and see
room for the company to reduce its overhead. In addition,
capital expenditures do not seem to be generating sufficient
incremental returns. Furthermore, Darden's TV advertising is
seemingly generating questionable returns as Millennials turn
away from live television viewing.
Risks to our investment thesis: Potential risks include but not
limited to: 1) slowing economic activity; 2) food safety, quality,
and value; 3) food and labor inflation; and 4) competitor menu
and marketing moves.
Darden Restaurants, Inc.
July 29, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 2

Exhibit 2: DRI sum of the parts analysis
CY14e
EBITDA
Implied
Multiple
Current
Enterprise
Value
CY15e
EBITDA
Target
Multiple
Target
Enterprise
Value
SRG 165 13.5x 2,228 182 13.0x 2,360
OG+LH 477 10.5x 4,987 577 9.6x 5,553
Total Company 642 11.2x 7,215 759 10.4x 7,912
minus: Net Debt 1384 1,384
Market Value 5,831 6,528
Diluted Shares 131 131
Valuation $44.66 $50.00

Source: Company documents; RBC Capital Markets estimates


Exhibit 3: DRI peer analysis
DRI BLMN EAT DIN Average CAKE TXRH BJRI IRG CHUY Average
Price $45.0 $20.1 $45.5 $77.9 $43.3 $25.0 $34.96 $12.49 $28.49
Market Cap 5,955 2,532 2,955 1,495 2,164 1,747 995 326 468
+Net Debt 2,573 1,206 748 1,274 4 -48.7 -31 131 1
EV 8,528 3,737 3,704 2,770 2,169 1,698 964 457 469
CY14e EBITDA 642 466 436 268 247 193 85 46 30
EV/EBITDA 13.3x 8.0x 8.5x 10.3x 9.0x 8.8x 8.8x 11.3x 9.9x 15.8x 10.9x
CY14e EPS $1.93 $1.22 $2.86 $4.39 $2.22 $1.29 $0.77 $0.35 $0.81
P/E 23.3x 16.4x 15.9x 17.8x 16.7x 19.5x 19.5x 45.5x 35.9x 35.4x 31.1x
Mature Casual Dining High Growth Casual Dining

Source: Company documents; RBC Capital Markets estimates

Darden Restaurants, Inc.
July 29, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 3
Valuation
Our price target of $50 is based on two methods: 1) DCF analysis, which yields a $50 value
based on a terminal growth rate of 1.5% and a weighted average cost of capital of 7.7%; and
2) comparable peer analysis, which takes into account Dardens earnings growth and dividend
yield. Our FY15 and FY16 EPS estimates are $2.23 (-30% Y/Y) and $2.47 (+11% Y/Y). Our one-
year $50 price target equates to ~20x our FY16 EPS estimate.
Price target impediments
Slowing economic activity: Restaurant meal occasions are highly discretionary in nature.
Thus, Dardens customers may be influenced by various macroeconomic factors (domestic
and international), including employment, gas prices, personal savings, discretionary income,
housing, consumer confidence, etc.
Food safety and quality: Darden spends a significant portion of its marketing budget on
national TV advertising promoting the companys food quality and menu offerings. As such,
any challenge to the perception of quality might cause immeasurable harm to the companys
reputation and value.
Food and labor inflation: While Darden typically will lock in its food costs three to six
months forward, a rapid increase in the price of key commodities would affect its future
earnings growth. Similarly, wage increaseswhether from statutory minimum wage increases
or voluntarywould affect store-level profitability.
Competitor menu and marketing moves: Dardens advertised price points on key menu items
is one of the companys key differentiators. Significant promotional pricing by casual dining
competitors could lead to traffic declines.
Company description
Darden Restaurants is the largest full-service restaurant company, generating more than $6.6
billion in sales during its latest fiscal year. The company operates over 1,500 casual and fine
dining restaurants across seven distinct brands. Dardens largest brands are Olive Garden (60%
of revenue) and LongHorn Steakhouse (22% of revenue). The companys Specialty Restaurant
Group (21% of revenue) comprises the remaining five brands: Capital Grille, Seasons 52,
Bahama Breeze, Eddie Vs, and Yard House. Darden owns and operates its entire restaurant
base in North America and licenses a small number of restaurants in select international
markets.
Darden Restaurants, Inc.
July 29, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 4
Darden Restaurants $1.80 $1.71 $0.37 $0.27 $0.82 $0.77 $2.23 $0.54 $0.30 $0.88 $0.75 $2.47
Income Statement $1.80 $1.71 $0.37 $0.27 $0.82 $0.77 $2.23 $0.54 $0.30 $0.88 $0.75 $2.47
David Palmer $1.80 $1.71 $0.37 $0.27 $0.82 $0.77 $2.23 $0.54 $0.30 $0.88 $0.75 $2.47
RBC Capital Markets
Group Columns for Annual I/S Post-Stock Options Post-Stock Options
Scenario: Base Case Full Year Full Year 2015E Full Year 2016E Full Year
(in millions, except per share data) 2013 2014 1Q15E 2Q15E 3Q15E 4Q15E 2015 1Q16E 2Q16E 3Q16E 4Q16E 2016
2013 2014 Aug-14 Nov-14 Feb-15 May-15 2015E Aug-15 Nov-15 Feb-16 May-16 2016E
Olive Garden 3,685.0 3,642.0 935.5 883.9 931.0 999.8 3,750.2 946.3 892.6 937.9 933.9 3,710.7
Growth 2.9% -1.2% 1.9% 1.7% 0.2% 8.0% 3.0% 1.2% 1.0% 0.7% -6.6% -1.1%
LongHorn 1,231.0 1,384.0 352.7 343.8 384.2 425.1 1,505.9 369.4 360.0 402.7 414.9 1,547.0
Growth 10.3% 12.4% 8.5% 7.4% 5.8% 13.1% 8.8% 4.7% 4.7% 4.8% -2.4% 2.7%
Other 1,005.0 1,241.1 329.0 331.1 361.5 412.2 1,433.7 358.8 360.5 392.8 415.3 1,527.3
Growth 58.8% 23.5% 16.7% 13.8% 13.0% 18.4% 15.5% 9.0% 8.9% 8.7% 0.8% 6.5%
Sales 5,921.0 6,285.7 1,617.2 1,558.8 1,676.7 1,837.1 6,689.8 1,674.5 1,613.1 1,733.3 1,764.1 6,785.0
Growth -26.0% 6.2% 5.6% 4.9% 3.6% 11.3% 6.4% 3.5% 3.5% 3.4% -4.0% 1.4%
Cost of sales:
Food and beverage 1,743.5 1,892.1 480.3 469.8 503.8 563.8 2,017.7 498.2 486.2 520.8 541.4 2,046.5
Chg per dollar revenue -3% 2% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
YOY Change -29% 9% 6% 5% 4% 12% 7% 4% 3% 3% -4% 1%
% of company revenue 29.4% 30.1% 29.7% 30.1% 30.0% 30.7% 30.2% 29.8% 30.1% 30.0% 30.7% 30.2%
YOY change in cost of sales margin (132) bp 66 bp 5 bp 5 bp 5 bp 5 bp 6 bp 5 bp 0 bp 0 bp 0 bp 0 bp
Restaurant labor 1,892.7 2,017.5 517.3 513.3 529.5 587.0 2,147.2 535.2 530.5 546.6 562.4 2,174.7
Chg per company unit 2% 4% 1% 1% 1% 9% 3% 1% 1% 1% -6% -1%
Change -24% 7% 5% 4% 4% 12% 6% 3% 3% 3% -4% 1%
% of company revenue 32.0% 32.1% 32.0% 32.9% 31.6% 32.0% 32.1% 32.0% 32.9% 31.5% 31.9% 32.1%
YOY change in expense margin 69 bp 13 bp (10) bp (16) bp 14 bp 10 bp (0) bp (3) bp (4) bp (5) bp (7) bp (5) bp
Restaurant expenses 980.4 1,080.8 276.4 270.8 273.9 308.7 1,129.9 287.4 281.2 284.1 295.8 1,148.5
Chg per company unit 11% 7% 1% 0% -2% 6% 1% 1% 1% 1% -6% -1%
Change -18% 10% 5% 3% 1% 8% 5% 4% 4% 4% -4% 2%
% of company revenue 16.6% 17.2% 17.1% 17.4% 16.3% 16.8% 16.9% 17.2% 17.4% 16.4% 16.8% 16.9%
YOY change in expense margin 155 bp 64 bp (5) bp (26) bp (43) bp (46) bp (31) bp 7 bp 6 bp 6 bp (4) bp 4 bp
Total cost of sales $4,616.6 $4,990.4 $1,274.1 $1,253.9 $1,307.2 $1,459.5 $5,294.7 $1,320.7 $1,297.9 $1,351.5 $1,399.5 $5,369.7
78.0% 79.4%
Gross Profit $1,304.4 $1,295.3 $343.1 $304.9 $369.5 $377.5 $1,395.0 $353.7 $315.2 $381.8 $364.5 $1,415.3
Gross Margin 22.0% 20.6% 21.2% 19.6% 22.0% 20.6% 20.9% 21.1% 19.5% 22.0% 20.7% 20.9%
YOY change in gross margin (92) bp (142) bp 10 bp 37 bp 24 bp 30 bp 25 bp (9) bp (2) bp (1) bp 11 bp 1 bp
Selling, General and Administrative 626.3 612.2 175.9 172.8 147.0 157.5 653.2 177.1 175.6 152.0 151.2 656.0
% of sales 10.6% 9.7% 10.9% 11.1% 8.8% 8.6% 9.8% 10.6% 10.9% 8.8% 8.6% 9.7%
YOY Change -16% -2% 6% 5% 4% 13% 7% 1% 2% 3% -4% 0%
YOY change in G&A % of sales 124 bp (84) bp (0) bp 0 bp 0 bp 15 bp 3 bp (30) bp (20) bp 0 bp 0 bp (10) bp
Depreciation and amortization 278.3 304.3 79.2 77.2 82.2 90.0 328.6 82.0 79.8 86.7 87.9 336.4
% of sales 4.7% 4.8% 4.9% 5.0% 4.9% 4.9% 4.9% 4.9% 5.0% 5.0% 5.0% 5.0%
YOY Change -20% 9% 7% 2% 8% 15% 8% 4% 3% 5% -2% 2%
YOY change in D&A % of sales 34 bp 14 bp 6 bp (13) bp 19 bp 15 bp 7 bp 0 bp 0 bp 10 bp 8 bp 5 bp
Total operating costs and expenses $5,521.2 $5,906.9 $1,529.3 $1,503.9 $1,536.4 $1,707.0 $6,276.6 $1,579.9 $1,553.3 $1,590.2 $1,638.6 $6,362.1
Operating Earnings $399.8 $378.8 $88.0 $54.9 $140.3 $130.0 $413.2 $94.5 $59.7 $143.2 $125.4 $422.9
YOY Change -46.0% -5.3% 6.5% 22.3% 4.3% 11.3% 9.1% 7.5% 8.8% 2.0% -3.5% 2.3%
EBIT Margin 6.8% 6.0% 5.4% 3.5% 8.4% 7.1% 6.2% 5.6% 3.7% 8.3% 7.1% 6.2%
Interest expense 125.9 134.4 32.9 16.7 19.4 20.4 89.5 17.3 17.4 19.6 20.7 75.1
Implied interest rate 5.5% 5.2% 5.1% 4.8% 5.2% 5.5% 4.5% 5.1% 4.8% 5.2% 5.5% 5.2%
Other Expense $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Pre-tax Income $273.9 $244.4 $55.0 $38.2 $120.9 $109.6 $323.7 $77.2 $42.3 $123.6 $104.7 $347.8
Taxes 36.7 16.0 6.6 4.6 14.5 13.2 38.8 9.7 5.3 15.4 13.1 43.5
Tax Rate 13.4% 6.6% 12.0% 12.0% 12.0% 12.0% 12.0% 12.5% 12.5% 12.5% 12.5% 12.5%
Net Income $237.2 $228.4 $48.4 $33.6 $106.4 $96.5 $284.9 $67.6 $37.0 $108.1 $91.6 $304.3
Extraordinary (0.10) - - -
EPS (Post Stock Options) $1.80 $1.71 $0.37 $0.27 $0.82 $0.77 $2.23 $0.54 $0.30 $0.88 $0.75 $2.47
Growth -49.8% -4.9% 16.3% 159.4% 16.7% 31.0% 30.2% 47.1% 11.6% 7.6% -3.5% 10.8%
Calendar EPS Post-Stock Options $1.7 $1.93 $1.9 $2.44 $2.44 $2.47
Growth -43.4% 15.4% 15.4% 26.2% 26.2% 1.5%
Diluted Shares Out 131.6 133.1 130.8 125.1 130.3 124.6 127.7 124.1 123.6 123.1 122.6 123.3
YOY Change -1.0% 1.1% -1.4% -5.8% -2.3% -6.9% -4.0% -5.2% -1.2% -5.6% -1.6% -3.4%
4.58%
Dividends per share $2.05 $2.20 $0.55 $0.55 $0.55 $0.55 $2.20 $0.61 $0.61 $0.61 $0.61 $2.42
Growth 14.5% 7.3% 0.0% 0.0% 0.0% 0.0% 0.0% 10.0% 10.0% 10.0% 10.0% 10.0%
EBITDA 793.9 683.2 167.2 132.1 222.5 220.0 741.8 176.6 139.6 229.8 213.3 759.3
LTM EBITDA 793.9 683.2 662.0 641.6 621.1 741.8 741.8 751.2 758.7 766.1 759.3 759.3
YOY Change -27.1% -13.9% -11.2% -13.4% -8.4% 121.6% 8.6% 5.6% 5.7% 3.3% -3.1% 2.4%
EBITDA Margin 13.4% 10.9% 10.3% 8.5% 13.3% 12.0% 11.1% 10.5% 8.7% 13.3% 12.1% 11.2%
YOY change margin (bps) -20 -254 -196 -179 -174 596 22 21 18 -1 11 10
Source: Company documents; RBC Capital Markets estimates
Darden Restaurants, Inc.
July 29, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 5
Required disclosures
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
RBC Capital Markets, LLC makes a market in the securities of Darden Restaurants, Inc..
The author is employed by RBC Capital Markets, LLC, a securities broker-dealer with principal offices located in New York, USA.
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An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
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Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
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As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects
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the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Jun-2014
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 845 53.24 299 35.38
HOLD [Sector Perform] 658 41.46 159 24.16
SELL [Underperform] 84 5.29 10 11.90

Darden Restaurants, Inc.
July 29, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 6
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