Darden Restaurants, Inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Quarter Performance: Strong quarter with all segments delivering positive same restaurant sales. Commodity headwinds from high beef prices were a challenge. Restaurant teams achieved record guest satisfaction scores.
• Olive Garden: Positive same restaurant sales of 4.7% due to Never Ending Pasta Bowl promotion, first-party delivery, and all-time high guest satisfaction. Rolled out lighter portion menu section, seeing increased affordability perceptions and frequency.
• LongHorn Steakhouse: Drove strong top-line momentum with 5.9% same restaurant sales growth, all-time high Steaks Road Correctly score, and record low team member turnover.
• Yard House: Oktoberfest event drove results, and began rolling out first-party delivery through Uber Direct.
• Fine Dining: Ruth's Chris and Capital Grille performed well; Ruth's Chris brought back three-course $55 offer, Capital Grille's Wagyu and Wine event drove sales momentum.
• New Restaurants: Opened 17 new restaurants during the quarter, on pace to exceed full-year openings.

Segment Performance

• Olive Garden: Total sales increased by 5.4%, driven by 4.7% same restaurant sales growth, traffic growth, and 11 net new restaurants. Segment profit margin was 21.8%, 30 basis points above last year. Uber Direct sales were 4% of total sales, half incremental.
• LongHorn Steakhouse: Total sales increased by 9.3%, driven by 5.9% same restaurant sales growth and 21 new restaurants. Segment profit margin was 16.2%.
• Fine Dining Segment: Total sales increased 3.3%, driven by positive same restaurant sales at Ruth's Chris and improving trends at Capital Grille. Segment profit margin was 14.8%, 280 basis points lower than last year.
• Other Business Segment: Sales increased 11.3%, driven by 3.1% same restaurant sales and acquisition of Chewy's. Segment profit margin was 13.4%, 60 basis points lower than last year.

Guidance

• Fiscal 2026 Outlook: Updated guidance includes total sales growth 8.5%-9.3%, same restaurant sales growth 3.5%-4.3%, 65-70 new restaurant openings, total capital spending $750M-$775M, total inflation ~3.5%, commodities inflation 4%-5%, and adjusted diluted net earnings per share $10.60-$10.70. Expect earnings per share growth in third and fourth quarters to sequentially improve.

Risks

• Commodity Pressures: Elevated beef prices remained a significant headwind, likely to continue into third quarter with some relief in fourth quarter.
• Labor Market Dynamics: While labor inflation is lower, potential regional differences in labor markets and consumer spending behavior could impact performance.
• Third-Party Delivery Concerns: Concerns about data sharing, tip sharing, and ability to throttle third-party delivery services remain.

Question and Answer

Q: On lighter portions menu and strategy for Olive Garden A: Impact on internal metrics like value perception, affordability. Long-term impact includes higher frequency from guests ordering lighter portions. Short-term has check mix impact, but offset by other factors like delivery growth.

Q: On labor and margins A: Labor margin deleverage at total Darden level due to brand mix and acquisition of Chewy's. Comparable restaurants show labor leveraging due to productivity improvements offsetting underpricing inflation.

Q: On Olive Garden comps and fiscal stimulus A: Same restaurant sales guidance implies back half growth. Fiscal stimulus could benefit all brands, especially those with higher mix of lower income guests.

Q: On beef prices and outlook A: Beef prices peaked in Q2, started improving, with coverage in place for back half. Expect prices to ease as production increases.

Q: On first-party delivery and brand rollout A: Olive Garden's first-party delivery at 4% of sales, tracking with broader off-premise business. Yard House's delivery not expected to be as impactful. LongHorn's potential for 1P delivery under consideration.