Darden (DRI) Q1 FY2027: LongHorn Margin Expands Again as Olive Garden Slows

Darden Restaurants (DRI) reported fiscal 2027 first-quarter results on September 24, 2026, in a results release and earnings call covering June 1 to August 30, 2026. The quarter matched company guidance, and LongHorn Steakhouse extended its segment margin expansion to a second quarter [1][2]. Earlier research on Darden focused on three questions: whether LongHorn's steak-driven traffic could also restore margin, whether Olive Garden's traffic recovery would last, and whether roughly $875 million of capital spending on faster unit growth would pay for itself [3]. This quarter LongHorn's margin rose again, Olive Garden slowed, and the return on new units cannot yet be tested. Total sales rose 5.1% to $3,200.3 million, comparable-calendar same-restaurant sales rose 3.2%, restaurant-level EBITDA margin held at 18.8%, adjusted diluted EPS rose 4.1% to $2.05, and the company reaffirmed every part of its full-year outlook [1][2].

Darden is a US full-service restaurant operator. At May 31, 2026, it owned and operated 2,202 US restaurants under brands including Olive Garden, LongHorn Steakhouse and Yard House [4]. The company earns money from food and beverage sales in its own restaurants, and its profit depends on food, labor and restaurant costs as a share of sales. Olive Garden is the largest brand, at about 42% of fiscal 2026 sales [5].

LongHorn margin expanded for a second straight quarter

LongHorn widened its segment margin again while same-restaurant sales kept growing quickly. Comparable-calendar same-restaurant sales rose 6.8%, and total sales rose 10.9% to $860.9 million with 29 net new restaurants [1][2]. Segment profit rose to $154.6 million from $134.9 million, a margin of about 18.0%, which management described as 60 basis points above last year [1][2].

This result answers the earlier concern. LongHorn's fiscal 2026 segment margin was 18.6%, down 70 basis points, which raised the worry that beef costs would keep compressing margin [6]. The margin already rose 110 basis points year over year in the fiscal 2026 fourth quarter [5], and it rose about 60 basis points this quarter, so traffic growth and margin recovery have now occurred together for two consecutive quarters.

Management attributed the improvement to traffic spreading fixed costs and to easing commodity inflation, but it did not disclose how much each contributed [2]. LongHorn's segment profit rose $19.7 million year over year, the largest increase of any segment [1].

Whether the gain lasts is still unproven. Darden did not disclose a numeric LongHorn guest count for the quarter and said only that traffic momentum was strong [2]. The year-over-year decline in retail steak volume narrowed from the roughly 8.5% cited a quarter earlier to about 4% in August, so the boost from consumers moving steak purchases to restaurants is weakening [5][2]. New menu items in the second quarter will also add investment [2].

Olive Garden slowed, and the payoff from new units is not yet visible

Olive Garden was weaker than in the prior fiscal year, though by a limited amount. The company had expected the brand to land near the low end of its 2.5% to 3.5% full-year same-restaurant sales range, with flat to positive margin [7]. This quarter its comparable-calendar same-restaurant sales rose 1.0%, below the fiscal 2026 rate of 4.0% [1][3]. Segment margin was about 20.4%, down 20 basis points, including about 30 basis points of investment in smaller-portion dishes [2]. Management estimated that the World Cup and consumer concerns about lettuce reduced guest counts by 150 to 200 basis points, and said traffic accelerated further in September, without giving a figure [2].

The cost and return of new units are both at an early stage. Pre-opening expense rose to $8.5 million from $5.9 million, and capital spending of $175.3 million was about 20% of the full-year guidance [1][3]. Operating income fell to $319.3 million from $339.2 million because the prior-year quarter included a $42.0 million gain on the sale of the Olive Garden Canada restaurants; on the company's adjusted basis, operating margin was about 10.0% in both periods [1].

Conclusion

The quarter did not change Darden's profit conversion or the pace of its full-year guidance, but growth now relies more on LongHorn and on Yard House, whose same-restaurant sales rose about 10%, offsetting Olive Garden's slowdown [1][2]. Operating cash flow fell to $279.0 million on working-capital changes, and dividends and buybacks were partly funded with short-term borrowing, as in the prior-year quarter [1]. The second quarter carries an approximately 1% sales headwind from the Thanksgiving calendar shift, which the company said is included in its full-year guidance [2]. LongHorn guest count data, its margin once beef costs ease, and whether Olive Garden can turn September's improvement into quarterly results will strengthen or weaken this assessment.

Sources

[1] DRI 8-K Exhibit 99.1 fiscal 2027 first quarter results, 2026-09-24, Darden, 8-K Exhibit 99.1, https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000940944&type=8-K [2] DRI fiscal 2027 first quarter earnings call 2026-09-24, 2026-09-24, Darden, earnings call, https://investor.darden.com/ [3] DRI 8-K Exhibit 99.1 fiscal 2026 fourth quarter and full year results, 2026-06-25, Darden, 8-K Exhibit 99.1, https://www.sec.gov/Archives/edgar/data/0000940944/000094094426000016/exhibit991-q4fy26.htm [4] DRI 10-K FY2026 overview of operations, 2026-07-24, Darden, 10-K, https://www.sec.gov/Archives/edgar/data/0000940944/000094094426000025/dri-20260531.htm [5] DRI fiscal 2026 fourth quarter earnings call risks and segments, 2026-06-25, Darden, earnings call, https://www.sec.gov/Archives/edgar/data/0000940944/000094094426000016/exhibit991-q4fy26.htm [6] DRI 10-K FY2026 LongHorn segment results, 2026-07-24, Darden, 10-K, https://www.sec.gov/Archives/edgar/data/0000940944/000094094426000025/dri-20260531.htm [7] DRI fiscal 2026 fourth quarter earnings call guidance, 2026-06-25, Darden, earnings call, https://www.sec.gov/Archives/edgar/data/0000940944/000094094426000016/exhibit991-q4fy26.htm