Darden Restaurants (NYSE:DRI) reported what management repeatedly described as a “very strong” fiscal 2026 third quarter, pointing to broad-based same-restaurant sales gains, continued outperformance versus the casual dining industry benchmark, and steady progress on brand-specific initiatives ranging from value messaging to menu and operations enhancements.
Quarterly sales growth and industry outperformance
For the fiscal third quarter, Darden generated $3.3 billion in total sales, up 5.9% year over year, driven by same-restaurant sales growth of 4.2% and the addition of net new restaurants. CFO Raj Vennam said Darden’s same-restaurant sales exceeded the Black Box Intelligence casual dining benchmark (excluding Darden) by 540 basis points during the quarter.
CEO Rick Cardenas also highlighted that each of Darden’s four largest brands exceeded the industry benchmark by more than 400 basis points and said all segments delivered positive same-restaurant sales, alongside what he described as “impressive guest satisfaction scores.” Cardenas attributed consistency in execution to “historically high” team member and manager retention across the business.
Earnings, margins, and cost trends
Darden reported adjusted diluted net earnings per share from continuing operations of $2.95, up 5.4% from the prior year. The company generated $579 million of adjusted EBITDA and returned $300 million to shareholders during the quarter through $173 million in dividends and $127 million in share repurchases.
On margin drivers, Vennam said:
- Food and beverage expense was 50 basis points higher, primarily due to elevated beef costs, contributing to total commodities inflation of about 5%.
- Restaurant labor was 20 basis points lower on productivity improvements; pricing was “in line” with total labor inflation of 3.3%.
- Marketing was 10 basis points higher due to incremental activity.
- Restaurant expenses were 10 basis points lower due to sales leverage.
Restaurant-level EBITDA margin was 21%, down 30 basis points from last year, which Vennam attributed in part to pricing running 40 basis points below inflation. Adjusted G&A was flat year over year, and the adjusted effective tax rate was 12.1%, down 130 basis points from last year due to mark-to-market dynamics that were offset in taxes, according to Vennam.
Brand performance and initiatives
Olive Garden posted same-restaurant sales growth of 3.2%. Cardenas said the brand’s teams emphasized core service behaviors, including ensuring guests are offered free refills on breadsticks and soup or salad, which he said drove an all-time high guest satisfaction score for service and matched an all-time high for overall satisfaction.
Management also emphasized value and choice initiatives at Olive Garden, including the rollout of a lighter portion menu section, which added additional dishes under $15. Cardenas said the platform is resonating with guests and teams and adds minimal operational complexity because the items already exist on the menu in regular portions. In Q&A, management said portion-size and value ratings for lighter portion items have increased significantly, and the company has seen a “significant increase” in frequency among guests ordering them. Management also said weekend lunch has been a notable usage occasion, particularly because Olive Garden does not have a separate lunch menu during that time.
Olive Garden also brought back limited-time offerings including Four-Cheese Manicotti starting at $12.99, plus the return of Ravioli di Portobello and Braised Beef Tortelloni. The company said it recently launched Buy One, Take One again, extended the offer by an additional week versus last year, and supported it with increased media.
LongHorn Steakhouse delivered same-restaurant sales growth of 7.2%. Cardenas cited execution tied to quality standards and culture, including recertifying every manager on culinary standards and hands-on culinary training for directors of operations. He also noted LongHorn’s recognition by Glassdoor as a best place to work and highlighted the “Grillmaster Legends” program for team members who have grilled more than 1 million steaks.
Fine Dining segment same-restaurant sales grew 2.1%, with management attributing strength to private dining sales growth at The Capital Grille and Eddie V’s, as well as continued performance of a three-course fixed price menu at Ruth’s Chris Steak House.
Other Business segment same-restaurant sales rose 3.9%, led by “very strong” results at Yard House and positive same-restaurant sales at Cheddar’s Scratch Kitchen and Seasons 52. Cardenas said more than half of Yard House restaurants set new daily sales records on Valentine’s Day. He also said Cheddar’s maintained its number one affordability ranking among major casual dining brands in Technomic’s tracking tool.
Guidance update and Bahama Breeze actions
For fiscal 2026, Darden updated its outlook, now expecting:
- Total sales growth of approximately 9.5%
- Same-restaurant sales growth of approximately 4.5%
- Approximately 70 new restaurant openings
- Commodities inflation of approximately 4%
- Effective tax rate of approximately 12.5%
- Adjusted diluted EPS of $10.57 to $10.67, including approximately $0.25 related to the addition of a 53rd week
For the fiscal fourth quarter, the company’s annual outlook implies total sales growth of 13% to 14.5% (including the extra fiscal week), same-restaurant sales growth of 3.5% to 5% (incorporating trends through the first three weeks of March), and adjusted diluted EPS of $3.59 to $3.69.
Management also provided an update on Bahama Breeze. Vennam said the company completed its review of strategic alternatives and decided that 14 locations will permanently close and the remaining 14 will be converted to other Darden brands over the next 12 to 18 months. He said the actions are not expected to have a material impact on financial results and emphasized team member placement, noting that a majority of impacted team members—including more than 70% of managers affected by permanent closures—have already been placed into new roles within the portfolio.
Looking to fiscal 2027, Darden said it expects to open 75 to 80 new restaurants and convert the 14 Bahama Breeze locations. Vennam also outlined expected capital spending of approximately $850 million, including about $475 million for new restaurants, $25 million for conversions, and $350 million for maintenance, refresh, and technology. The company anticipates an effective tax rate of about 13.5% and total interest expense of about $200 million in fiscal 2027.
Darden said it plans to release fiscal 2026 fourth quarter results on Thursday, June 25, before the market opens, followed by a conference call.
About Darden Restaurants (NYSE:DRI)
Darden Restaurants, Inc is a multi-brand, full-service restaurant company headquartered in Orlando, Florida. The company owns and operates a portfolio of casual and fine-dining concepts that together serve millions of guests through company-owned and franchised locations. Its well-known brands include Olive Garden and LongHorn Steakhouse, alongside other dining concepts that span Italian, American, steakhouse and upscale casual formats.
Darden’s restaurants provide a range of guest-facing services including dine-in, takeout, delivery and catering, and feature menus tailored to each brand’s positioning—Italian-American fare at Olive Garden, steaks and grilled items at LongHorn, and more premium steakhouse and chef-driven offerings at its upscale concepts.
