Darden Restaurants, Inc. (DRI) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive sentiment with strong financial performance, optimistic guidance, and strategic growth initiatives. Despite some concerns about margin pressures and potential wage policy changes, management's confidence in their strategies and investments in marketing and delivery promotions suggest a focus on growth. The positive response to promotions like the Never Ending Pasta Bowl and robust performance in other business segments further support this sentiment. Overall, the company's proactive approach and strong market position indicate a likely positive stock price movement.
Key Financial Performance
Total Sales $3 billion, 10% higher than last year, driven by same-restaurant sales growth of 4.7%, the acquisition of 103 Chuy's restaurants, and the addition of 22 net new restaurants.
Adjusted Diluted Net Earnings Per Share $1.97, 12.6% higher than last year, attributed to strong top-line sales growth and significant scale.
Adjusted EBITDA $439 million, reasons for change not explicitly mentioned.
Shareholder Returns $358 million returned to shareholders, including $175 million in dividends and $183 million in share repurchases.
Food and Beverage Expenses 20 basis points lower, driven by pricing leverage as commodities inflation was approximately 1.5% for the quarter.
Restaurant Labor 20 basis points unfavorable due to high performance-based compensation expense, including a higher 401(k) match for restaurant teams. Total labor inflation of 3.1% was fully offset by pricing of 2.2% and productivity improvements.
Restaurant-Level EBITDA 18.9%, 10 basis points lower than last year, due to Uber Direct fees and brand mix with the addition of Chuy's.
Adjusted G&A Expenses 30 basis points favorable, driven by synergies from the acquisition and leverage from sales growth, partially offset by unfavorable mark-to-market expense on deferred compensation.
Interest Expense Increased 10 basis points due to financing expenses related to the Chuy's acquisition.
Adjusted Effective Tax Rate 10.5%, helped by mark-to-market hedge. Without this impact, it would have been approximately 12.5%.
Olive Garden Total Sales Increased by 7.6%, driven by strong same-restaurant sales and traffic growth, and the addition of 18 new restaurants. Segment profit margin was 20.6%, 10 basis points below last year due to investments in affordability and delivery fees.
LongHorn Steakhouse Total Sales Increased 8.8%, driven by same-restaurant sales growth of 5.5% and the addition of 18 new restaurants. Segment profit margin was 17.4%, 60 basis points below last year due to higher-than-expected beef costs and pricing below total inflation of approximately 100 basis points.
Fine Dining Segment Total Sales Increased 2.7%, driven by the addition of 5 net new restaurants. Same-restaurant sales were slightly negative, but a limited-time offer at Ruth's Chris helped offset challenges. Segment profit margin was lower than last year.
Other Business Segment Total Sales Increased 22.5%, driven by the acquisition of Chuy's and positive same-restaurant sales of 3.3%. Segment profit margin was 16.1%, 90 basis points higher than last year due to positive sales momentum and productivity improvements.
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Operating Highlights
Olive Garden's new menu items: Introduced Spicy 3-Meat Sauce and Bucatini pasta starting at $12.99, and Calabrian Steak and Shrimp Bucatini as a limited-time offering, which became a top 10 guest favorite.
Delivery expansion: First-party delivery through Uber Direct captured younger, affluent guests, doubling weekly deliveries during a campaign and maintaining 40% higher delivery volume post-campaign.
Menu affordability: Tested lighter portion menu with reduced prices, increasing affordability scores by 15 percentage points.
Cheddar's new offering: Introduced Hawaiian sirloin with sides and croissant for $16.49, leveraging Darden's purchasing power.
Expansion in Canada: Sold 8 Olive Garden locations in Canada to Recipe Unlimited and entered an agreement to open 30 more locations over 10 years, with 5 already approved.
Franchise growth: Currently operates 163 franchise locations globally, including 63 in the U.S. and 100 outside the U.S.
Same-restaurant sales growth: Achieved 4.7% growth in same-restaurant sales, with Olive Garden and LongHorn Steakhouse leading the performance.
Cost management: Pricing was kept 30 basis points below inflation, and productivity improvements offset labor inflation of 3.1%.
Focus on long-term growth: Reinvesting in menu affordability and delivery to drive sustained growth.
Leadership engagement: Held an annual leadership conference to align on 5-year business plans and operational priorities.
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Risk or Challenges
Fine Dining Segment Performance: Same-restaurant sales for the Fine Dining segment were slightly negative for the quarter, indicating challenges in this category. Despite efforts like limited-time offers, the segment faced continued softness, impacting overall performance.
Beef Cost Inflation: Higher-than-expected beef costs towards the end of the quarter created cost pressures, particularly for LongHorn Steakhouse, which saw a 60 basis point decline in segment profit margin.
Delivery Fees Impact: Delivery fees, particularly from partnerships like Uber Direct, have impacted profit margins, as seen in Olive Garden's segment profit margin, which was 10 basis points below last year despite strong sales.
Commodities Inflation: Commodities inflation of approximately 3% to 4% is expected for the fiscal year, with beef costs being a significant driver. This inflation poses a challenge to maintaining profit margins.
Labor Costs: Labor inflation of 3.1% was reported, with higher performance-based compensation expenses, including a higher 401(k) match, adding to cost pressures.
Canadian Operations: The sale of 8 Olive Garden locations in Canada and the refranchising agreement may pose risks in terms of operational consistency and brand control in the Canadian market.
Fine Dining Price Sensitivity: In the current environment, more guests in the Fine Dining segment are seeking price certainty, which could limit pricing flexibility and impact revenue growth.
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Guidance & Outlook
Fiscal 2026 Financial Outlook: Total sales growth expected to be 7.5% to 8.5%. Same-restaurant sales growth projected at 2.5% to 3.5%. Approximately 65 new restaurant openings planned. Total inflation anticipated at 3% to 3.5%, with commodities inflation of 3% to 4%. Adjusted diluted net earnings per share guidance remains between $10.50 and $10.70.
Second Quarter Fiscal 2026: Lowest year-over-year EPS growth expected due to significant increase in beef costs. Pricing for the second quarter anticipated to be approximately 100 basis points below total inflation.
Olive Garden Initiatives: Focus on strengthening affordability with lighter portion menu options, currently in 40% of restaurants, showing positive guest response. Continued promotion of first-party delivery, which has shown sustained order volume increase post-campaign.
LongHorn Steakhouse: Sustained sales and traffic outperformance expected, with pricing below total inflation by approximately 100 basis points.
Fine Dining Segment: Actions being taken to address softness in the segment, including limited-time offers like a 3-course menu at Ruth's Chris Steakhouse, which has shown positive guest preference and sales lift.
Franchising and Global Expansion: Plan to open 30 new Olive Garden locations in Canada over the next 10 years under an area development agreement with Recipe Unlimited.
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Shareholder Return Plan
Dividends Paid: $175 million in dividends were paid during the first quarter.
Share Repurchase: $183 million worth of shares were repurchased during the first quarter.
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Key Q&A
Q:Could you talk about contracting through the balance of the year and what gives you visibility on food cost outcomes?
A:The company has less than typical coverage, especially in beef, with only about 25% coverage for the next 6 months. Beef costs have spiked significantly, particularly tenders and rebuys, but management believes these price levels are unsustainable. Seafood inflation, driven by shrimp tariffs, is another factor. Inflation guidance has been raised from 2.5% to 3%-4%, but the situation remains fluid.
Q:Are the new portion sizes at Olive Garden a traffic driver or check dilutive?
A:It is too early to tell definitively, but management believes the new portion sizes will be a long-term traffic driver. While it may dilute checks if guests trade down to smaller portions, early indications show a slight increase in frequency, though not necessarily attracting new guests.
Q:Can you speak to the cost impact of the affordability pivot and Uber Eats amplification during the quarter?
A:These initiatives were planned and accounted for, with segment profit margins only down 10 basis points, remaining above 20%. Olive Garden's pricing was 1.9%, below total inflation. The affordability pivot and Uber Eats each impacted margins by about 20 basis points, but management believes these are the right long-term decisions.
Q:Can you provide more information on the delivery business at Olive Garden, including guest frequency and seasonality?
A:Delivery guests have higher frequency than in-dining guests. While seasonality typically causes delivery orders to decline in summer, this was not observed. Management is optimistic about delivery growth and is using the additional guest count and margin to invest in the business.
Q:Why is the casual dining segment performing strongly, and how will Olive Garden maintain momentum against difficult comparisons?
A:Casual dining benefits from lower pricing compared to other dining segments, offering value and a place for guests to connect with friends and family. Olive Garden plans to maintain momentum with affordability items and lighter portion sizes, which may drive traffic over time. The team is prepared to adapt to sales trends.
Q:What is the comp split between traffic and ticket at LongHorn, and how will pricing versus inflation trend?
A:LongHorn's traffic was up 3.2%, same-restaurant sales were 5.5%, and check was 2.3%. Pricing was 2.5%, with a slight negative mix impact. Pricing is expected to remain about 100 basis points below inflation for the year, with the gap narrowing in the second half.
Q:Will the value-focused menu expansion at Olive Garden be implemented at LongHorn?
A:Currently, the focus is on Olive Garden. Other brands may consider implementing similar initiatives based on Olive Garden's learnings, but no immediate plans exist for LongHorn.
Q:What trends are you seeing among income groups, and are you gaining share among lower-income consumers?
A:All income groups showed increased visits to casual dining, with higher-income groups showing the most growth. This could indicate trade-down from higher-income consumers or trade-up from lower-income groups. Guests are gravitating towards price certainty and perceived value.
Q:What are the implications of current commodity prices for store-level margins, and is margin expansion still achievable?
A:Management refers to their long-term framework, targeting flat to modest margin growth. Despite higher commodity costs, the focus remains on achieving earnings after tax targets by investing in the guest experience.
Q:What is your view on the overall health of the consumer spending environment?
A:Management sees no dramatic change in consumer spending compared to the start of the year. August retail sales were strong, and the company is ahead of its plan.
Q:Why is the inflation versus pricing gap expected to narrow in the second half of the year?
A:The gap will narrow primarily due to higher pricing as the year progresses. Management also expects some near-term pressures, particularly in beef, to subside as prices are unsustainable.
Q:How are you investing in growing the top line, and what role does marketing play?
A:Marketing activity has increased, with more TRPs and digital initiatives. Delivery promotions, such as free delivery, also play a role. Management is focused on driving traffic without deep discounting.
Q:How are GLP-1 drugs and changing consumer behaviors impacting dining patterns?
A:GLP-1 drugs may lead to smaller portions or less frequent dining, but casual dining remains a preferred choice for those on these medications. Broader consumer trends include a focus on health and value.
Q:What gives you confidence in raising fiscal '26 guidance despite macro concerns?
A:Confidence stems from strong unit development and a solid start to the second quarter. Management expects the back half of the year to be softer but remains optimistic about meeting guidance.
Q:What is the status of the Uber partnership, and will other brands adopt first-party delivery?
A:First-party delivery is performing well at Olive Garden and Cheddar's, with another brand expected to join in Q3. Management remains cautious about third-party delivery due to model challenges.
Q:How should we think about unit growth acceleration and construction costs?
A:Unit growth is expected to ramp up, with new prototypes being smaller, more efficient, and cost-effective. Construction costs are within budget, and tariffs have minimal impact.
Q:What is the mix of delivery sales, and will there be similar promotions in the future?
A:Delivery sales were about 5% in Q1, exiting at 4% post-promotion. Management is undecided on repeating the free delivery promotion but will utilize marketing funds from Uber.
Q:How is the Never Ending Pasta Bowl promotion performing?
A:The promotion is off to a good start, with increased preference and refill rates compared to last year. Performance is in line with guidance.
Q:What is driving the recent spike in beef costs, and how will you respond if prices remain high?
A:Beef costs are driven by supply constraints, including packer cutbacks, Mexican cattle import halts, and Brazilian tariffs. Management believes these prices are unsustainable and will consider price increases if demand remains strong.
Q:What are you seeing in retail beef demand, and is there evidence of demand destruction?
A:Recent data shows a low single-digit year-over-year decline in retail beef demand, indicating potential demand destruction.
Q:How are smaller portion sizes and price breadth being received at Olive Garden?
A:Smaller portions are designed to offer price breadth and appeal to a specific consumer group. Early results show no significant negative mix impact, as higher-priced items offset smaller portion sales.
Q:What is driving the strength in the Other Businesses segment?
A:Cheddar's had the highest comp growth, followed by Yard House and Seasons 52.
Q:What trends are you seeing among younger cohorts, particularly Gen Z?
A:Younger cohorts, including Gen Z, are performing similarly to other consumer groups.
Q:What is the impact of eliminating the tip wage on the business?
A:Management believes the policy environment should reflect industry diversity. They are prepared to adapt to any changes and remain confident in their business model.
Q:What is the breakdown of Olive Garden's comp growth, and will check continue to exceed pricing?
A:Olive Garden's comp growth was 5.9%, with traffic at 3.6% (including catering) and pricing at 1.9%. Check is expected to continue exceeding pricing due to delivery fees.
Q:How are you investing in labor to enhance the guest experience?
A:Labor investments focus on improving speed of service and productivity. Despite higher traffic, labor productivity has improved year-over-year.
Q:What is driving the strength in the Other Businesses segment?
A:Cheddar's had the highest comp growth, followed by Yard House and Seasons 52.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether smaller portion sizes at Olive Garden would significantly impact check averages or traffic in the short term. They also did not provide specific details on how they plan to address potential challenges if beef prices remain high or if the tip wage is eliminated.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America truck
Benchmark restaurant
Breadsticks soup
Butter Croissant
CFO Securities
Calabrian Steak
Canada closing
Canada sale
Casual Dining
Center
Continental
Fine Dining
Garden restaurant
Olive Garden
Pasta platform
Raj
Recipe
Technomic
community
course
culture bar
dish
engagement
food quality
offering
party delivery
passion
power
preference
premise sale
salad
satisfaction
service atmosphere
sirloin
survey
term success
DRI Transcript
Darden Restaurants, Inc. (DRI) Q4 2026 Earnings Call Transcript
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Darden Restaurants, Inc. (DRI) Q3 2026 Earnings Call Transcript
Positive3-19
The earnings call reflects a positive outlook with strong sales growth across segments, strategic initiatives like first-party delivery and menu expansion, and effective cost management. Despite elevated beef costs, margins are improving, and the lighter portion menu is successful. The Q&A highlights confidence in pricing strategies and minimal concern over gas prices. While some uncertainty exists regarding future pricing and potential closures, the overall sentiment is positive, with initiatives poised to drive growth. The stock is likely to see a positive movement in the next two weeks.
Darden Restaurants, Inc. (DRI) Q2 2026 Earnings Call Transcript
Positive12-18
The earnings call summary and Q&A highlight strong sales growth across segments, optimistic future guidance, and strategic initiatives like lighter portions and delivery expansion. Despite some margin pressures and management's reluctance to provide specifics, the overall sentiment is positive with expectations of improvement in labor margins and beef costs. The market is likely to react positively to the strong sales performance and strategic growth plans, especially with the optimistic guidance and new initiatives.
Darden Restaurants, Inc. (DRI) Q1 2026 Earnings Call Transcript
Positive9-18
The earnings call reflects a positive sentiment with strong financial performance, optimistic guidance, and strategic growth initiatives. Despite some concerns about margin pressures and potential wage policy changes, management's confidence in their strategies and investments in marketing and delivery promotions suggest a focus on growth. The positive response to promotions like the Never Ending Pasta Bowl and robust performance in other business segments further support this sentiment. Overall, the company's proactive approach and strong market position indicate a likely positive stock price movement.
DRI Slides
DRI Report
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