Dear Fellow Shareholders

Darden has been on an incredible journey, and this year we were able to accomplish great things by delivering outstanding experiences every day, in every restaurant.

We know that when we focus on creating memorable moments for our guests, we can grow our business. That’s why everything we do is rooted in our mission – to be financially successful through great people consistently delivering outstanding food, drinks and service in an inviting atmosphere, making every guest loyal.

We bring our mission to life every day through our 150,000 team members in more than 1,500 restaurants across the country who carry out the four pillars of our Back-to-Basics operating philosophy – culinary innovation and execution, attentive service, engaging atmospheres and integrated marketing. To many, this may all sound simple, but consistently doing the little things well to create memorable moments for our guests is extremely difficult.

We continued to leverage our four competitive advantages that are key to helping our businesses drive sales growth and expand margins. They are:

The significant scale of our Company
The breadth and depth of our data and consumer insights
Our commitment to rigorous strategic planning
Our results-oriented, people culture

At a time when our industry faced considerable headwinds – including increased and more diverse competition – we are proud of the progress we have made. Our businesses outperformed the industry¹, creating significant value for our shareholders, our guests, our team members and the communities we serve.

Delivering Value to Shareholders

In fiscal 2016, we grew total sales by 4.4 percent² driven by same-restaurant sales growth of 3.3 percent – exceeding the industry by more than 400 basis points¹ while further simplifying our operations to reduce non-guest-facing costs by approximately $95 million. Our sales growth and cost management efforts resulted in a 37.9 percent increase in adjusted diluted net earnings per share to $3.53.³ On a reported basis, diluted net earnings per share from continuing operations increased 84.1 percent to $2.78 in fiscal 2016.

During the year, we completed a thorough review of our strategic options to improve shareholder return resulting in a transaction that was highly successful on many fronts. We meaningfully improved our capital structure by completing our comprehensive real estate strategy – which included a tax-free spinoff of certain real estate and restaurant assets into a new public company, Four Corners Property Trust (FCPT). This strategy enabled us to reduce our debt by approximately $1 billion while preserving the Company’s investment-grade credit profile. Given the current trading multiples of both companies, we believe we have created significant value for shareholders.

1 Total Sales in fiscal 2015 adjusted to exclude $125 million in sales due to the 53rd week.
2 Adjusted for special items and the 53rd week. A reconciliation of reported to adjusted numbers can be found here.

Continuing our commitment to enhancing shareholder value, we returned more than $450 million through dividends ($265 million) and share repurchases ($185 million). As of the end of the fiscal year, we had $315 million remaining of the $500 million of share repurchases the Board authorized in December. This June, we increased our quarterly dividend to $0.56 per share. With this increase, the Darden dividend after the real estate spinoff will be greater than the Darden dividend before the real estate transaction was completed.

We continued to leverage our scale through aggressive cost management programs and supply chain optimization. This, combined with operational simplification and better overall cost management at the restaurants, enabled us to deliver $130 million in annual savings since fiscal 2015. We also simplified our organizational structure to become more decentralized and operations-focused, with clearer leadership accountability. And across our portfolio, we increased the sharing of data and insights on our guests’ needs and preferences to increase guest traffic, drive in-restaurant behavior, enhance the guest experience and improve financial returns.

In December, we introduced our value-creation framework. Our goal over time is to deliver long-term earnings after tax growth of 7 to 10 percent, derived from:

Same-restaurant sales growth of 1 to 3 percent
New restaurant growth of 2 to 3 percent
EBIT margin expansion of 10 to 40 basis points

We expect to pay out approximately 50 to 60 percent of our earnings after tax as dividends and repurchase $100 million to $200 million of our shares annually, leading to a long-term Total Shareholder Return of 10 to 15 percent — composed of EPS growth and dividend yield.

In summary, we have a value-creating business model that generates significant and durable cash flow to fund future growth and return capital to shareholders.

Delivering Value to Our Guests

Our strategy and positioning for each business enabled us to build momentum and identify new ways to exceed the expectations of our guests. In fiscal 2016, we successfully delivered against our mission as we grew total sales to $6.9 billion with same-restaurant sales growth at each of our businesses.

For the second consecutive year, Olive Garden delivered positive same-restaurant sales growth — at 3.1 percent in fiscal 2016. The continued success of Olive Garden is rooted in our laser focus on enhancing the guest experience at every touchpoint. We boosted culinary innovation by leveraging brand equities and flavor profiles that loyal guests enjoy the most, and we complemented this innovation with an expanded menu that offers guests a variety of choices that span a wide range of prices. To further improve the guest experience, we simplified our operations and ensured our restaurants were properly staffed.

Additionally, we continued to meet our guests’ growing demand for convenience through our successful OG To-Go platform and the national launch of large-party catering delivery. Finally, to tell our guests about what’s new in our restaurants, we’ve evolved our marketing to be more integrated, targeted and personally relevant. This focus on enhancing every touchpoint has improved the perceived value of Olive Garden and has resonated with guests as we outperformed the industry by 390 basis points.¹

The momentum at LongHorn Steakhouse continued with its third straight year of same-restaurant sales growth — at 3.5 percent in fiscal 2016. This success comes from an emphasis on building loyalty through culinary innovation and our relentless pursuit of delivering flawless guest experiences. Through culinary platforms like Peak Season and Chef Showcase, LongHorn continually introduced new menu offerings that were seasonally relevant and made with fresh, quality ingredients. In addition, we reduced the number of menu items, simplifying procedures to allow our restaurant teams to execute at a higher level. We also invested in team member training, which helped us defend our industry-leading retention. Finally, we continued to reach guests with impactful advertising, which was recognized by Ace Metrix when it named LongHorn the “Brand of the Year” for casual dining for the second year in a row. All of this resulted in LongHorn outperforming the industry by more than 400 basis points.¹

Seasons 52 had a strong year, growing same-restaurant sales 4.7 percent. As an on-trend concept — giving guests the opportunity to enjoy hand-crafted cuisine that is healthful without sacrificing taste or style — Seasons 52 is uniquely positioned to capitalize in a dining segment that is poised for continued growth. Our focus on enhancing operational execution and evolving the menu received an incredibly positive reaction from our guests, giving us momentum as we build the pipeline for value-creating new restaurants.

Bahama Breeze continued to significantly outperform the casual dining industry¹ with same-restaurant sales growth of 4.8 percent. Positioned as an island oasis from the everyday, Bahama Breeze paired culinary innovation with high-energy, in-restaurant events. These events created signature experiences that reinforced the business’ unique positioning while attracting more guests — particularly Millennials.

At Yard House, same-restaurant sales grew 2.3 percent, the third consecutive year of growth, as we continue to build a loyal guest base. It’s from this base that we know that our extensive beer selection, scratch kitchen and specially curated rock music continued to strike a chord across multiple demographics that joined us for lunch, happy hour, dinner and late-night happy hour. We are extremely excited about the growth we have planned for this business.

For the sixth consecutive year, The Capital Grille grew same-restaurant sales — growing 3.9 percent in fiscal 2016. The Capital Grille is the ultimate relationship brand, offering a welcoming and club-like dining experience. Delivering high-touch experiences is nothing new for us, and we continued to leverage technology to enable us to personally connect with more guests to create exclusively tailored visits.

Eddie V’s achieved same-restaurant sales growth of 1.8 percent. With its positioning as the destination for a glamorous night out, this fine-dining restaurant was able to capitalize on its ability to deliver unforgettable experiences — setting new sales records during key holidays throughout the year. Additionally, we were able to implement operational initiatives that simplified execution while preserving the high levels of food quality and service for which we’re known.

We have a strong and differentiated portfolio of businesses, each with anticipated growth ahead of them. Reflecting this growth opportunity, we are ramping up the development pipeline for future sites and anticipate opening 24 to 28 new restaurants in the coming fiscal year.

Delivering Value to Our Team Members and Communities

Everything we do starts with people: our 150,000 team members, the nearly one million guests we serve each day and the individuals who live in the communities that are home to our restaurants. That’s why we strive to provide meaningful and rewarding employment, deliver outstanding food and service to our guests and give back to our local communities.

For many of our team members, Darden is their first employer. This is a role we take great pride in – and a responsibility we take seriously. For some, a job in our restaurants is the start of a career path to management positions within the Company. In fact, half of our restaurant managers began their careers with us as hourly team members. For others, it enables them to further their education and eventually pursue a career elsewhere. Whatever the case, we know that the skills and experience we provide will help our team members grow and succeed within the Company – or wherever their career paths ultimately take them.

2016 Financial Highlights

Inclusion and diversity are woven into the fabric of our culture. Every day we leverage our differences to support the business strategy as we create an environment where all of our team members can reach their greatest potential. In fact, 52 percent of our team members are women, and 49 percent are minorities. Additionally, our team members span five generations – Matures, Baby Boomers, Generation X, Millennials and Centennials. We also maintain strong relationships with more than 25 organizations that have a mission to advance diverse communities. And we’re proud to have been recognized by the Human Rights Campaign Foundation for scoring 100 percent on the Corporate Equality Index.

We have a social responsibility to our guests and communities, which is why our approach to citizenship is a key component of how we fulfill our mission. We bring this to life through:

A commitment to our Food Principles – that great food starts with quality ingredients that are sustainably sourced
Our protection of the natural environment and resource conservation efforts in our restaurants
Connection and support for the vibrant communities where we live, work and serve

We invite you to read more about our commitment to citizenship at www.darden.com/citizenship.

We are doing what matters most for our guests – delivering memorable experiences that will bring them back time and time again. Fiscal 2016 was a great year for Darden, but there’s more work ahead.

With that in mind, we want to thank our dedicated team members for their commitment to excellence. They are the foundation of our success. We also want to express our appreciation to the Board of Directors for providing strategic guidance and their commitment to effective, transparent corporate governance. Finally, we want to thank you, our fellow shareholders, for your continued support of Darden and our vision. We look forward to rewarding that support through our ongoing commitment to value creation.

Charles M. Sonsteby
Chairman of the Board

Eugene I. Lee, Jr.
President and Chief Executive Officer