Darden Restaurants Q1 Earnings Call Highlights

Key Points

• Darden reported a solid fiscal 2027 first quarter: Sales increased 5.1% to $3.2 billion, comparable same-restaurant sales rose 3.2%, and adjusted diluted EPS grew 4.1% to $2.05. The company reaffirmed its full-year EPS outlook of $11.10 to $11.35.
• LongHorn Steakhouse led brand performance with 6.8% comparable sales growth and an 18% segment profit margin, while Yard House posted 10% comparable growth and surpassed $1 billion in trailing annual sales. Olive Garden grew more modestly but benefited from strong two-year comparisons and better-than-expected early results from its Never-Ending Pasta Bowl promotion.
• Darden plans to pursue growth through new restaurant openings and brand initiatives, including expanded weekday-lunch offerings at Olive Garden and further expansion of Yard House, Cheddar’s and Chuy’s. Management cited resilient consumer behavior but expects pricing to moderate and commodity inflation to remain near 3% for the fiscal year.

Darden Restaurants NYSE: DRI reported fiscal 2027 first-quarter results that management said met expectations, supported by positive same-restaurant sales across each of its business segments, sales growth from new units and continued strength at LongHorn Steakhouse and Yard House.

Total sales rose 5.1% year over year to $3.2 billion, driven by 3.2% comparable-calendar same-restaurant sales growth and the addition of 53 net new restaurants. Diluted earnings per share from continuing operations increased 4.1% from the prior year's adjusted result to $2.05. The company generated $464 million in EBITDA and returned $406 million to shareholders through $184 million in dividends and $222 million in share repurchases.

“The first quarter was a solid start to fiscal 2027,” President and CEO Rick Cardenas said. He said restaurant teams maintained a focus on operations and guest satisfaction, with scores at or near record levels across the company’s brands.

Brand Performance

LongHorn Steakhouse led the portfolio with 6.8% comparable-calendar same-restaurant sales growth and a 10.9% increase in total sales, including 29 net new restaurants. The brand recorded its 22nd consecutive quarter of positive same-restaurant sales, according to CFO Raj Vennam. LongHorn’s segment profit margin rose 60 basis points to 18%.

Olive Garden posted 1% same-restaurant sales growth and 2.2% total sales growth, including 20 net new restaurants. Vennam said guest counts at the Italian dining chain were affected by the World Cup and consumer concerns around lettuce, which together reduced traffic by an estimated 150 to 200 basis points. A lighter-portion section of the menu also created a 50-basis-point mix headwind to average check.

Olive Garden’s performance also faced difficult comparisons from the prior year, when its results included an Uber Direct promotion offering 1 million free deliveries and a week of Never-Ending Pasta Bowl in the comparable calendar period. Still, Olive Garden’s same-restaurant sales were up 7% on a two-year basis. Its segment profit margin was 20.4%, down 20 basis points year over year, including about 30 basis points of margin investment related to the lighter-portion menu.

Cardenas said Olive Garden’s Never-Ending Pasta Bowl, which launched at the beginning of the second quarter, has started better than expected. The offering includes new Spicy Alfredo sauce and crispy Shrimp Fritta as a protein option. The company held the price for unlimited protein add-ons at $4.99, while increasing the base price of the promotion after keeping it at $13.99 for nearly five years, Vennam said.

The company also brought back its Never-Ending Pasta Pass after a six-year hiatus. Darden said 3 million devices logged in during the sale and all 10,000 passes sold out immediately.

Fine Dining segment sales increased 6.2%, supported by 1% comparable-calendar same-restaurant sales growth and six net new restaurants. Segment profit margin declined 50 basis points from the prior year. Vennam said traffic in fine dining remains below pre-pandemic levels, although declines have moderated, while business spending remains soft. He said the company has seen growth in private dining.

The other business segment posted 4.5% same-restaurant sales growth and 3.6% total sales growth. Yard House delivered 10% same-restaurant sales growth, benefiting from group occasions tied to the World Cup. The tournament contributed approximately 180 basis points to Yard House’s same-restaurant sales, but negatively affected the company’s other brands, producing an estimated net 80-basis-point headwind to Darden’s same-restaurant sales.

Yard House reached $1 billion in trailing 52-week sales, becoming Darden’s third billion-dollar brand. The company plans to open 13 Yard House locations during the fiscal year, including five conversions from Bahama Breeze restaurants. About half of the remaining openings will use the brand’s smaller prototype, which management said should lower construction costs while supporting the brand’s $10.5 million average unit volume.

Margins, Costs and Outlook

Restaurant-level EBITDA margin was 18.8%, unchanged from the prior year. Food and beverage expense increased 30 basis points as brand sales mix shifted toward concepts with above-average food costs. Restaurant labor expense fell 30 basis points, reflecting productivity improvements and sales mix. Restaurant expenses and marketing expenses were flat as pricing and savings from prior initiatives offset inflation and incremental marketing activity.

Pricing during the quarter was 3.7%, broadly in line with 3.5% commodity inflation. Vennam said pricing is expected to moderate through the year, reaching the low-to-mid-2% range by the fourth quarter. The company continues to expect roughly 3% commodity inflation for the full fiscal year, with second-quarter inflation anticipated in a range of 2.5% to 3%.

Darden reaffirmed its fiscal 2027 financial outlook, including diluted earnings per share of $11.10 to $11.35. Management expects a calendar shift involving Thanksgiving to create an approximately 1% sales headwind in the fiscal second quarter, with an offsetting benefit in the third quarter.

Growth Priorities

Management identified weekday lunch as a meaningful opportunity for Olive Garden. Cardenas said weekday lunch has weakened more than other dayparts since the end of the pandemic, while Vennam said it represents roughly 20% of the brand’s traffic from Monday through Friday. Olive Garden plans to market its unlimited soup, salad and breadsticks lunch offer later in the current quarter and test a new lunch platform with added variety and a value-oriented proposition.

Cardenas also discussed expansion opportunities for Yard House, Cheddar’s and Chuy’s. He said Yard House is targeting high-single-digit unit growth over the long term, while Cheddar’s could reach mid-single-digit growth as operations improve. For Chuy’s, which Darden acquired nearly two years ago, Cardenas said the brand delivered positive same-restaurant sales in its first full fiscal year under Darden ownership and is expected to grow at a mid- to high-single-digit rate over time.

Management said consumer behavior remained resilient during the quarter despite weaker consumer sentiment indicators. “If the consumer is wavering, we’re not seeing it,” Cardenas said, adding that Darden remains focused on restaurant execution, guest experience and value.

About Darden Restaurants (NYSE:DRI)

Darden Restaurants, Inc NYSE: DRI is a full-service restaurant company headquartered in Orlando, Florida. It operates and franchises a portfolio of dining brands serving a range of cuisines, price points and occasions, with restaurants primarily located in the United States and select international markets.

Its restaurant portfolio includes Olive Garden, an Italian-American dining chain; LongHorn Steakhouse; Cheddar's Scratch Kitchen; Yard House; The Capital Grille; Seasons 52; Bahama Breeze; Eddie V's; Ruth's Chris Steak House; and Chuy's.

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