DARDEN RESTAURANTS INC Q3 FY2025 earnings call

• Rick Cardenas was pleased with Q3 performance, noting same-store sales were positive across segments when excluding weather. Olive Garden launched updated menu, brought back Buy One, Take One, and rolled out Uber Direct. LongHorn focused on quality, with an all-time high steak correctly score. Chuy's integration is underway. Darden Foundation awarded scholarships. - Raj Vennam reported Q3 results in line with expectations, adjusted same-store sales 2.6%, total sales $3.2 billion (6% higher), adjusted diluted net earnings per share $2.80 (6.9% higher). Adjusted margin analysis: food/beverage expenses lower, labor flat, restaurant expenses higher, marketing expenses on plan. Fiscal 2025 guidance updated with diluted shares and EPS, Q4 guidance: total sales $3.23 billion to $3.26 billion, same-store sales >3%, EPS $2.88 to $2.95. Fiscal 2026 plans: 60-65 new restaurants, capital spend, effective tax rate 13%-13.5%, 53rd week impact.

Olive Garden: Total sales increased 1.5% driven by same restaurant sales growth of 0.6%, segment profit margin 23% (50 basis points higher than last year). LongHorn: Total sales increased 5.1% driven by same restaurant sales growth of 2.6% and 14 net new restaurants, segment profit margin 19.4% (70 basis points above last year). Fine Dining: Total sales increased 3.3%, same restaurant sales negative 0.8% for the quarter, but adjusted for holiday shift and weather impacts, same restaurant sales decreased approximately 1%, segment profit margin 22.3% (50 basis points better than last year). Other business segment: Sales increased 20.2% primarily driven by the acquisition of Chuy's, segment profit margin 15.4% (50 basis points better than last year).

• Fiscal 2025: Expect 118.3 million diluted average shares outstanding, adjusted diluted net earnings per share $9.45 to $9.52 (excluding ~$47 million pre-tax transaction and integration costs). - Q4: Total sales $3.23 billion to $3.26 billion, same-store sales growth above 3%, adjusted diluted net earnings per share between $2.88 and $2.95. - Fiscal 2026: Plan to open 60-65 new restaurants, spend $375 million to $400 million on new restaurants and $300 million to $325 million on ongoing maintenance, etc., effective tax rate 13% to 13.5%, 53rd week expected to contribute ~$0.20 in additional diluted net earnings per share.

• Tariffs and supply chain uncertainties. - Weather impacts on sales. - Fluctuations in consumer confidence and potential changes in consumer spending habits affecting restaurant sales.

Q: Jon Tower from Citi asked about improvement related to own brands vs industry and consumer visits.

A: Rick Cardenas responded that quarter-to-date, brands performed well, and adjusted for weather, all Darden brands were positive except below $50,000 income group.

Q: David Palmer from Evercore ISI asked about flu impact, casual dining resilience, and M&A plans.

A: Rick Cardenas said flu impact unclear, casual dining holds up due to dining out being a splurge category, and focus on integrating Chuy's for M&A.

Q: Eric Gonzalez from KeyBanc Capital Markets asked about Uber partnership advertising spend and subsidy duration.

A: Rick Cardenas said Uber funds part of advertising, lasting a few weeks, and Raj Vennam noted marketing spend within guidance range.

Q: Brian Bittner from Oppenheimer asked about EPS guidance and Olive Garden delivery learnings.

A: Raj Vennam explained inflation dynamics affecting EPS, and Rick Cardenas updated on Olive Garden delivery growth and operator satisfaction.

Q: Sara Senatore from Bank of America asked about Buy One, Take One return and new prototypes.

A: Rick Cardenas said Buy One, Take One fits brand filters, and new prototypes perform strongly with similar sales to larger ones.

Q: Brian Harbour from Morgan Stanley asked about Olive Garden sales drivers and inflation.

A: Rick Cardenas attributed Olive Garden growth to menu news, and Raj Vennam discussed commodity and labor inflation.

Q: Dennis Geiger from UBS asked about Uber incrementality and tariffs.

A: Rick Cardenas noted 40%-50% incrementality, and Raj Vennam discussed tariff exposure and sourcing plans.

Q: David Tarantino from Baird asked about tariffs and ingredient exposure.

A: Raj Vennam explained tariff exposure and supply chain mitigation plans.

Q: Jeffrey Bernstein from Barclays asked about consumer spending and Fine Dining performance.

A: Raj Vennam said Fine Dining performance was positively surprised but still soft, and Rick Cardenas discussed consumer sentiment and income impact.

Q: Tyler Klaus from Stephens asked about marketing change vs pre-COVID and tariff impact on equipment.

A: Rick Cardenas discussed marketing differences, and Raj Vennam noted building material and equipment cost impacts.

Q: Lauren Silberman from Deutsche Bank asked about Q4 same-store sales guide and LongHorn demand.

A: Raj Vennam said Q4 guide is on track, and Rick Cardenas discussed LongHorn's performance and demand drivers.

Q: Danilo Gargiulo from Bernstein asked about speed of service and Uber Direct selection for brands.

A: Rick Cardenas discussed speed of service as change management, and criteria for selecting brands for Uber Direct.

Q: Peter Saleh from BTIG asked about Uber Eats customer behavior and labor availability.

A: Rick Cardenas discussed delivery customer behavior and stable labor availability.

Q: Jeff Farmer from Gordon Haskett asked about average vs median segment performance and casual dining resilience.

A: Raj Vennam and Rick Cardenas discussed divergence due to outliers and casual dining resilience from income and cost dynamics.

Q: Patrick Johnson from JPMorgan asked about POS system pilot and new capabilities.

A: Rick Cardenas discussed POS pilot progress and benefits for teams.

Q: Jon Ivankoe from JPMorgan asked about personalized marketing and Olive Garden margins.

A: Rick Cardenas discussed personalized marketing approaches and Olive Garden margin focus on sales building over extreme margin hikes.

Q: Gregory Francfort from Guggenheim Partners asked about smaller box formats and unit growth.

A: Rick Cardenas said smaller box formats can return to historical unit growth trajectory.

Q: Jim Sanderson from Northcoast Research asked about sales mix and promotion pricing.

A: Raj Vennam discussed sales mix of promotions and confidence in pricing points.

Q: Brian Vaccaro from Raymond James asked about fiscal Q4 guidance and comparisons.

A: Rick Cardenas discussed Q4 comparisons and factors contributing to the above 3% same-store sales guide.

Q: Christine Cho from Goldman Sachs asked about Buy One, Take One impact and future rollout.

A: Rick Cardenas discussed past Buy One, Take One performance and criteria for rolling out in other brands.