Darden Restaurants, Inc. (DRI) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call showed mixed results: strong sales growth and improved margins, but concerns about labor costs and vague management responses in the Q&A. Despite positive guidance and strategic initiatives like Olive Garden's Uber Direct pilot, uncertainties remain, such as the impact of advertising spend and inflation. The market's response is likely to be neutral, as positive financial results are balanced by unclear guidance and potential cost pressures.
Key Financial Performance
Total Sales $3.2 billion, 6% higher than last year, driven by same restaurant sales growth of 0.7%, acquisition of 103 Chuy's restaurants, and addition of 40 net new restaurants.
Same Restaurant Sales 2.6%, a sequential improvement from prior quarters, negatively impacted by weather and holiday shifts.
Adjusted Diluted Net Earnings per Share $2.80, 6.9% higher than last year.
Adjusted EBITDA $559 million.
Dividends Paid $164 million.
Share Repurchases $53 million.
Restaurant Level EBITDA Margin 21.1%, 50 basis points higher than last year.
Olive Garden Total Sales Increased by 1.5%, driven by same restaurant sales growth of 0.6%.
Olive Garden 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 addition of 14 net new restaurants.
LongHorn Segment Profit Margin 19.4%, 70 basis points above last year.
Fine Dining Total Sales Increased 3.3%, same restaurant sales were negative 0.8% for the quarter.
Fine Dining Segment Profit Margin 22.3%, improved 50 basis points from last year.
Other Business Segment Sales Increased 20.2%, primarily driven by the acquisition of Chuy's.
Other Business Segment Profit Margin 15.4%, 50 basis points better than last year.
Adjusted Effective Tax Rate 13.4%.
Adjusted Earnings from Continuing Operations $330 million, which was 10.5% of sales.
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Operating Highlights
New Menu Launch: Olive Garden launched an updated menu featuring fan favorites, including Steak Gorgonzola Alfredo and Stuffed Chicken Marsala, which significantly improved traffic and sales trends.
Delivery Service Expansion: Olive Garden completed the rollout of Uber Direct for delivery in all restaurants, enhancing customer convenience and sales opportunities.
Limited Time Offer: Olive Garden is bringing back the Buy One, Take One offer, which has historically driven high traffic.
New Restaurant Prototypes: Darden is testing smaller restaurant prototypes that are 20% smaller and cost 15% less to build, facilitating new restaurant openings.
Market Positioning: Olive Garden's same restaurant sales outperformed industry benchmarks significantly after the launch of fan favorites.
Acquisition Impact: The acquisition of 103 Chuy's restaurants contributed to total sales growth.
Operational Efficiency: Integration of Chuy's into Darden's HR platform is underway, improving operational efficiency.
Sales Growth: Darden generated $3.2 billion in total sales, a 6% increase from last year, with same restaurant sales growth of 0.7%.
Strategic Shift: Darden plans to open 60 to 65 new restaurants in fiscal 2026, indicating a focus on expansion.
Cost Management: Darden is focusing on lowering construction costs through new restaurant prototypes.
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Risk or Challenges
Weather Impact: Unfavorable weather conditions negatively impacted same restaurant sales by approximately 100 basis points in the third quarter.
Competitive Pressures: The casual dining industry is experiencing a significant divergence between average and median results, with median same restaurant sales decreasing by 2.3% and guest counts down by 4.2%.
Supply Chain Transition: Integration of Chuy's involves a phased supply chain transition starting in June, which poses operational challenges.
Economic Factors: The company is navigating a challenging economic environment, with inflationary pressures affecting food and labor costs.
Acquisition Costs: The acquisition of Chuy's has incurred approximately $47 million in pre-tax transaction and integration-related costs.
Labor Costs: Restaurant labor inflation is approximately 3.5%, which could impact profitability despite productivity improvements.
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Guidance & Outlook
New Restaurant Openings: Darden plans to open between 60 and 65 new restaurants in fiscal 2026.
Capital Expenditure: Expected capital expenditure for new restaurants is between $375 million to $400 million, with an additional $300 million to $325 million for ongoing maintenance and technology.
Integration of Chuy's: The integration of Chuy's is underway, with the human resources platform conversion completed and supply chain transitions planned for June.
Delivery Expansion: Olive Garden has successfully rolled out Uber Direct for delivery, with plans for a broader marketing campaign by the end of the fiscal year.
Prototype Testing: New smaller restaurant prototypes are being tested, which are 20% smaller and cost 15% less to build than legacy designs.
Adjusted Diluted Net Earnings Per Share: For fiscal 2025, adjusted diluted net earnings per share is projected to be between $9.45 and $9.52.
Fourth Quarter Sales Guidance: Total sales for the fourth quarter are expected to be between $3.23 billion and $3.26 billion, with same restaurant sales growth above 3%.
Effective Tax Rate: Anticipated effective tax rate for fiscal 2026 is between 13% and 13.5%.
53rd Week Contribution: Fiscal 2026 will include a 53rd week, contributing approximately $0.20 in additional diluted net earnings per share.
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Shareholder Return Plan
Dividends Paid: $164 million in dividends were paid to shareholders during the third quarter.
Share Repurchases: $53 million was spent on share repurchases during the third quarter.
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Key Q&A
Q:Could you speak to whether the improvement you're seeing is more related to your own brands or the industry?
A:Quarter-to-date, I'm really pleased with the performance of our brands. Olive Garden and LongHorn have continued to perform well, and the rest of our brands are continuing to improve their performance without commenting directly on what's going on with the rest of the industry.
Q:To what degree do you think there was a flu impact in the quarter?
A:Flu impact, we don't really necessarily do a lot of work on checking on weather. I can't tell you if flu had a big impact or not. Maybe it did. That said, I think our bigger impact was weather versus prior year.
Q:Can you level set our expectations on whether we should expect a meaningful uptick in advertising spend?
A:We're funding more of the total spend for that advertising that Uber is, but Uber is funding quite a bit of it. I wouldn't say it's hugely meaningful impact on advertising for the quarter.
Q:Can you unpack the operating margins in the fourth quarter for us a little bit more?
A:The big dynamic here is that Q4, our inflation, overall inflation is going to be, we expect it to be about 3%. If you look at the first three quarters, our overall inflation was in the low-2s.
Q:Can you update us on any additional learnings and/or surprises regarding Olive Garden delivery?
A:It's still early in our delivery kind of lifespan, very early, but we're really pleased with our pilot and the rollout.
Q:Is there anything you can tell us about ‘26 and the implications there?
A:I think we're still early for ’26. I think what we said, if we go back to the comments we made along the way with respect to marketing over time, we would expect it to grow, but at a measured pace.
Q:Can you give us some comments on improvement of speed of service?
A:All of this is change management, to be honest with you, because it's changing the way people do things that they've been doing for years.
Q:What would you need to see in order to potentially consider the Uber platform as a marketplace?
A:We're focused right now on first party, because it solves the major issues that we have with third-party.
Q:Can you comment on the labor side, if you've seen any changes in availability?
A:Nothing's changed on that front. We've got a great employment proposition and people want to come to work for us.
Q:What gives you confidence that the $14.99 is the right price point for that promotion?
A:Last year, we didn't -- we weren't promoting anything with limited time or a price point.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the flu impact on performance, stating they don't track flu specifically and could not determine its effect. Additionally, there was a lack of clarity on the specifics of the advertising spend increase, with vague language used to describe its impact.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America Brian
Bank Jeff
Brian Harbour
Brian Vaccaro
CFO Securities
Cheddar
Christine Cho
Darden Foundation
Darden President
Darden Restaurants
Darden member
Darden restaurant
Direct Olive
Director Finance
Finance Investor
Monday
New
Olive Garden
Senior Director
activity
adherence
awareness
course
culture
delivery
entree
fan favorite
item
member family
offer
order
phase
prototype
quality
rollout Direct
scholarship
transition
week
DRI Transcript
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.
Darden Restaurants, Inc. (DRI) Q4 2025 Earnings Call Transcript
Positive6-20
The earnings call reveals strong financial performance with a 10.6% sales increase and improved margins. The optimistic guidance, increased dividend, and share repurchases are positive indicators. The Q&A highlights strategic growth plans and a positive market outlook, despite some uncertainties around Uber Direct's impact and promotional strategies. Overall, the positive financials and shareholder returns outweigh the risks, suggesting a positive stock price movement.
Darden Restaurants, Inc. (DRI) Q3 2025 Earnings Call Transcript
Neutral3-20
DRI Slides
DRI Report
Frequently Asked Questions
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