Darden Restaurants, Inc. Q1 FY2026 earnings call

• Olive Garden: Experienced 5.9% same-restaurant sales growth driven by culinary innovations like new sauces and pasta offerings, and growth in first-party delivery. Tested a lighter portion section of the menu with positive initial guest response.
• LongHorn Steakhouse: Achieved 5.5% same-restaurant sales growth, ranked #1 in Technomic for food quality, service, etc., and continued to follow its quality-focused strategy.
• Other Business segment: Powered by strong performance at Yard House, Cheddar's Scratch Kitchen, and Seasons 52. Yard House enhanced its taco platform and held a Best On Tap Competition. Cheddar's introduced a limited-time Hawaiian sirloin and saw strong off-premise sales growth.
• Fine Dining segment: Ruth's Chris Steakhouse launched a 3-course limited-time offer that drove positive comps.
• Darden-level: Strengthened competitive advantages such as scale, data insights, strategic planning, and employee quality. Closed the sale of 8 Olive Garden locations in Canada and entered an area development agreement. Held an annual leadership conference to engage with general managers and align on operational priorities.
• Philanthropy: Darden is assisting Feeding America in adding refrigerated trucks for food banks with support from Penske Truck Leasing.

For the first quarter, 3 out of Darden's 4 segments had positive same-restaurant sales and traffic growth. Olive Garden saw same-restaurant sales grow 5.9%, with total sales increasing by 7.6% due to food innovation and first-party delivery. LongHorn Steakhouse had same-restaurant sales growth of 5.5%, with total sales up 8.8% as it adhered to its quality-focused strategy. The Other Business segment's sales rose 22.5% thanks to the acquisition of Chuy's and 3.3% same-restaurant sales growth across multiple brands. The Fine Dining segment's total sales increased 2.7%, but same-restaurant sales were slightly negative. Olive Garden contributed significantly through its sales growth, LongHorn via its quality-driven performance, the Other Business segment from brand acquisitions and growth, and the Fine Dining segment with a successful limited-time offer at Ruth's Chris.

• Raised expected total sales growth for fiscal 2026 to 7.5% - 8.5%, tightened the same-restaurant sales range to 2.5% - 3.5%, anticipates ~65 new restaurant openings, and projects total inflation of 3% - 3.5% with commodities inflation of 3% - 4%.
• Adjusted diluted net earnings per share guidance remains between $10.50 and $10.70.
• Anticipates the lowest year-over-year EPS growth in the second quarter due to a significant step-up in beef costs and a measured pricing approach, with pricing expected to be approximately 100 basis points below total inflation in Q2, and the gap to narrow as the year progresses.
• Confident in the development pipeline with around 65 new restaurants expected, partly because some openings are earlier than anticipated.

• Commodity price volatility, especially in beef where supply constraints and tariffs have led to price spikes, potentially impacting margins.
• Potential demand disruption in retail due to high commodity prices, which could affect restaurant supply and costs.
• Policy changes related to the tip wage, which could have an impact on the business model and team member compensation.

Q: Could you discuss contracting through the rest of the year and visibility on food cost outcomes?

A: Rajesh Vennam stated there's about 25% coverage in beef for the next 6 months, with significant price spikes and uncertainty, and also mentioned seafood inflation due to tariffs.

Q: What are your observations regarding the consumer income perspective and gaining share among lower-income consumers?

A: Ricardo Cardenas said all casual dining brands saw increases in visits from guests across all income groups, including higher-income groups, with guests valuing price certainty and perceived value.

Q: What are your thoughts on the overall health of the consumer spending environment?

A: Ricardo Cardenas said there's no dramatic change from initial expectations, with August retail sales and Darden's performance indicating continued consumer spending.

Q: Can you comment on the Uber partnership and the potential for other brands to embrace first-party delivery?

A: Ricardo Cardenas said another brand is expected to embrace first-party delivery in Q3, and they are pleased with the current first-party delivery performance at Olive Garden and Cheddar's.

Q: Could you elaborate on the beef situation and the potential for price taking?

A: Rajesh Vennam talked about supply constraints in beef and the expectation that high prices may not be sustainable, and if prices remain high, they may take some price.