Darden Restaurants, Inc. (DRI) Earnings

Management highlights

### Overall Quarterly and Full-Year Performance - Darden delivered a strong fourth quarter closing out an excellent full fiscal year 2026, significantly outperforming the casual dining industry, with all brands delivering positive same-restaurant sales for the quarter. - Guest satisfaction remains at or near all-time highs, with several brands achieving record Mother's Day performance including all-time high traffic at Olive Garden and Longhorn Steakhouse. - 71 new restaurants were opened during fiscal 2026, 6 more than the initial annual plan, with a strong pipeline of sites supporting continued new restaurant growth. - International franchising progress: First locations opened with new partners in Spain and India during fiscal 2026, with the first Canadian location opening the following week. Fiscal 2027 is on track to have the most international openings in Darden's history. ### Portfolio and Competitive Advantage Strategy - Darden maintains a diversified portfolio of brands across multiple dining occasions, guest demographics, price points, geographies, and cuisine types, reducing reliance on any single segment, region, or brand. The portfolio has become significantly more balanced since 2019: Olive Garden's sales contribution fell from 50% to 42% and segment profit contribution from 55% to 47%, with the shift driven by growth at Longhorn and other portfolio brands. - Four core competitive advantages support performance: - Scale benefits: Darden's proprietary supply chain (direct sourcing, dedicated distribution network) creates cost advantages and ensures supply continuity; an integrated proprietary technology ecosystem improves operations and frees manager time for guest focus; cross-brand shared marketing learnings allow smaller brands to access sophisticated, cost-effective targeted digital marketing. - Data-driven insights: Inform continuous menu innovation across the portfolio to meet evolving guest expectations, such as Olive Garden's new lighter portions menu and protein-forward dishes, and Yardhouse's multi-year menu optimization that has improved execution and guest satisfaction. - Rigorous strategic planning: Enterprise-level planning aligns brand roles to maximize portfolio value and capture synergies, while brand-level planning cultivates differentiated positioning and clear strategic focus. 5-year brand business plans executed in the prior year continue to drive shareholder value. - People and talent development: Darden maintains industry-leading employee retention enabled by robust internal development opportunities across the broad portfolio. 1,375 hourly team members were promoted to management roles during fiscal 2026, and many senior leaders (including the CEO) began as hourly team members. ### Financial Discipline - Darden has achieved 10% or higher average annualized total shareholder return for any 10-fiscal-year period since its IPO 31 years ago. Consistent cash flow funds business maintenance, dividend growth, and new restaurant development, with excess cash returned to shareholders via share repurchases while maintaining a strong investment-grade balance sheet (adjusted debt-to-EBITDA of 2.1x at fiscal 2026 end, within the 2x-2.5x target range). - Pricing has been consistently disciplined: Darden has held pricing below inflation over time to preserve guest value and support long-term traffic growth.

Guidance

The following guidance is provided for fiscal 2027: - Total sales: $13.6 billion to $13.75 billion, driven by same-restaurant sales growth of 2.5% to 3.5% (implying flat to positive overall traffic, with check growth in the mid-to-high 2% range). - New restaurant activity: 75 to 80 gross new openings, plus 11 Bahama Breeze conversions, representing a ~20 unit year-over-year increase in opening activity that will create ~$15 million in incremental preopening costs and a $0.10 EPS drag for the year. - Capital spending: Approximately $875 million, with ~$25 million attributable to Bahama Breeze conversions, ~$350 million for maintenance and IT investments, and ~$500 million for new unit growth; some early pipeline costs for 2028 openings are included in 2027 spending. - Inflation: Total inflation of ~3% for the full year, consisting of ~3% commodity inflation and ~3.5% labor inflation. Commodity inflation will be ~4% in the first quarter (the highest for the year), falling to low single-digit full-year beef inflation with expected slight deflation in the second quarter. - Adjusted EBITDA: $2.26 billion to $2.29 billion; diluted net EPS: $11.10 to $11.35. - Annual effective tax rate: ~13.5%; diluted average shares outstanding: ~114 million. - The Board approved an 8% increase to the regular quarterly dividend to $1.62 per share, for an annual dividend of $6.48. - Brand-specific growth expectations: Olive Garden is expected to land near the lower end of the 2.5%-3.5% same-restaurant sales range, with flat to positive segment margins; Longhorn is expected to grow near the upper end of the range, with smaller brands growing at or above the 3%-4% long-term unit growth target, while fine dining grows opportunistically. - Management expects EPS growth to be low-to-mid single-digit in the first quarter of fiscal 2027, with fairly balanced growth for the remaining three quarters on a 52-week comparable basis.

Segment performance

Fourth Quarter 2026: - Olive Garden: Total sales increased 11.4% year-over-year, with 2.4% same-restaurant sales growth and positive traffic. Segment profit margin was 24.3%, 50 basis points higher than last year, contributing 42% of Darden's total sales and 47% of total segment profit as of full-year fiscal 2026. - Longhorn Steakhouse: Total sales increased 21.9% year-over-year, with 9.5% same-restaurant sales growth and 4.2% traffic growth. Segment profit margin was 21.2%, 110 basis points higher than last year. - Fine Dining Segment (includes Ruth's Chris Steakhouse, The Capital Grille, Eddie V's, Seasons 52): Total sales increased 10.9% year-over-year, with 1.9% positive same-restaurant sales and 6 net new restaurants added. Reported segment profit margin was 20 basis points lower than last year (driven by Memorial Day falling in the quarter), but on a 13-week comparable basis, margin was 20 basis points higher year-over-year. - Other Business Segment (includes Yardhouse, Cheddar Scratch Kitchen, Chewy's, Bahama Breeze): Total sales increased 9.8% year-over-year, with 4.6% positive same-restaurant sales, partially offset by permanent closure of 15 Bahama Breeze locations. Segment profit margin was 17.9%, 40 basis points higher than last year. Full Year Fiscal 2026: - Total company sales grew 9.4% to over $13 billion, with 4.5% system-wide same-restaurant sales growth. Adjusted diluted EPS from continuing operations increased 11.4% to $10.64.

Risks & headwinds

- Broad macroeconomic uncertainty could impact consumer traffic and spending, with outcomes ranging from stronger-than-expected performance (if macro conditions improve) to lower-than-expected results (if conditions weaken). - Potential long-term disruption to beef supply chains could arise from state-level animal movement restrictions related to screwworm, though management assesses short-term supply and pricing risk as minimal. - Recent geopolitical disruption in the Gulf region created elevated fuel prices that are expected to add up to 50-60 basis points of COGS inflation in the first quarter of fiscal 2027, though this impact is expected to ease as fuel prices stabilize. - Softness in guest demand from consumers under 35 years old, partially linked to higher unemployment in this age cohort, which represents a smaller but still meaningful portion of Darden's business. - Sustained weak demand for beef at retail continues, with steak volume still down ~8.5% year-over-year (moderated from a peak 11% decline), though this has benefited demand for Darden's steak-focused brands like Longhorn Steakhouse.

Analyst Q&A

• Q: How has the consumer environment trended, including any impact from rising gas prices, and what is the cadence of EPS and comp growth expected for fiscal 2027? /

  A: Management reports consumer spending remains resilient, with cautious overall sentiment that has not translated to reduced spending. All income groups, including the bottom income quintile, saw year-over-year visit increases in casual brands, partially attributed to tax refunds, with only minor softness in under-35 guests. For fiscal 2027, EPS growth is expected to be low-to-mid single-digit in Q1 due to higher commodity inflation and one-time near-term costs, with fairly balanced growth across the remaining three quarters. The quarterly sales cadence in Q4 FY26 was consistent, and management declined to comment on early FY27 results due to calendar shifting from the 53rd week.

• Q: What has driven Longhorn Steakhouse's exceptional recent comp performance, and can these drivers be replicated at other Darden brands? /

  A: Longhorn's strong 9.5% Q4 comp is the result of years of sustained investment in food quality and improved service, which has built strong guest trust in high-quality steaks at a compelling relative value amid broad market beef inflation. A viral social media teaser for the return of seasonal lamb also drove significant incremental sales in the quarter. Cross-brand learnings are shared across the portfolio: for example, Longhorn's focus on protein has informed new protein-forward menu items at Olive Garden, though not all brands will match Longhorn's quarterly outperformance, and the portfolio framework is designed to deliver consistent long-term results.

• Q: Will Darden expand third-party delivery across more brands, and what is the expectation for marketing spending in fiscal 2027? /

  A: Darden currently remains focused on expanding first-party delivery at its existing enabled brands (Olive Garden, Cheddar's, Yardhouse). Three key issues must be resolved before broader adoption of third-party delivery: price transparency for guests, full control of guest data, and fair tip treatment for employees. Guidance does not currently include any material contribution from expanded third-party delivery. Marketing spending is expected to increase by ~$25 million year-over-year, or roughly 10 basis points as a percentage of sales, with only $5-6 million in incremental new costs, which is fully incorporated into fiscal 2027 guidance.

• Q: What is the outlook for international expansion, and when will it meaningfully contribute to EPS? /

  A: All international expansion is currently via franchising, and fiscal 2027 will see the most international openings in Darden's history. Recent large 30-40 unit development deals in India, Spain, and Canada have all delivered first openings within 12 months of signing, a milestone for Darden's international program, and the pipeline is expected to grow annual openings in coming years. However, international expansion will only contribute low single-digit pennies of incremental EPS per year for the foreseeable future, so it will not be a major driver of overall earnings growth.

• Q: What has driven the strong recent performance of the 'Other Business' segment, and is this momentum durable into fiscal 2027? /

  A: The segment, which includes Yardhouse, Cheddar's, Chewy's, and Seasons 52, saw broad-based positive performance, with particularly strong results from Yardhouse and Cheddar's. Yardhouse has delivered three years of successful menu optimization, improving burgers, tacos, and pizza platforms to boost execution and guest satisfaction. Cheddar's has also invested in food quality and service improvements, while Chewy's is nearly complete with integration and now focused on standardized recipe execution across locations. Management expects this momentum to continue into fiscal 2027, with this segment expected to deliver faster growth than in prior years as part of Darden's balanced portfolio strategy.