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# Darden Restaurants, Inc. (DRI) — Narrative, Fiscal 2027 First Quarter Darden's fiscal year is a 52/53-week year ending on the last Sunday in May. Fiscal 2026 ended May 31, 2026 and had 53 weeks; fiscal 2027 ends May 30, 2027 and will have 52 weeks. The first quarter of fiscal 2027 ran from June 1, 2026 to August 30, 2026. ## Business *From the fiscal 2026 Form 10-K (accession 0000940944-26-000025).* Darden is a full-service restaurant company: it owns and operates casual and fine dining restaurants in the United States and earns its revenue principally from food and beverage sales to guests in those restaurants. At May 31, 2026 it owned and operated 2,202 restaurants in the U.S. under eleven brands. A further 167 restaurants were run by franchisees (87 in the U.S., including Puerto Rico and Guam, and 80 abroad in Latin America, Canada, Asia, the Middle East, the Caribbean and Europe), and four Ruth's Chris locations were operated under contractual agreements, for a system of 2,373 restaurants. Franchise royalties and fees, management fees and the licensing of retail products such as Olive Garden dressings are each described as immaterial to the consolidated results. No single customer matters, and customers and long-lived assets are predominantly in the U.S. The company reports four segments. Fiscal 2026 sales of $13.21 billion split as follows: - **Olive Garden** — $5.59 billion (about 42% of sales), 949 restaurants. The largest full-service Italian restaurant operator in the U.S.; most dinner entrées run $12.50 to $24.00 with unlimited salad or soup and breadsticks, and the average check was about $25.00 per person. - **LongHorn Steakhouse** — $3.42 billion (about 26%), 618 restaurants, mostly in the eastern U.S.; average check about $28.50. - **Fine Dining** — $1.38 billion (about 10%): Ruth's Chris Steak House (83), The Capital Grille (74) and Eddie V's Prime Seafood (31), with average checks of roughly $104, $107 and $126 per person respectively. - **Other Business** — $2.82 billion (about 21%): Cheddar's Scratch Kitchen (184), Chuy's (110), Yard House (93), Seasons 52 (44), Bahama Breeze (13 at fiscal year-end), The Capital Burger (3), plus franchise royalties and fees from managed locations. Restaurants are overwhelmingly leased: 2,104 of the 2,202 company-owned restaurants sit on leased sites (1,150 land-only leases, 655 ground-and-building leases, 299 space/in-line/other leases) and only 98 on owned sites. The company sources from more than 1,400 suppliers whose products originate in more than 30 countries, and owns its food and supplies inventory through its subsidiary Darden Direct Distribution, Inc., with delivery handled by third-party national distributors under long-term agreements. It employed 209,931 team members at the end of fiscal 2026, 198,111 of them hourly; none are covered by a collective bargaining agreement. Hourly turnover was 67% in fiscal 2026 and restaurant-management turnover 15%. The strategy is growth through scale across a portfolio of distinct brands: same-restaurant sales growth, new units, and acquisitions of brands that can be expanded. Darden added 43 net new restaurants in fiscal 2026 (72 openings, 8 Olive Garden Canada restaurants sold, 21 closings, 15 of them Bahama Breeze) and plans 75 to 80 openings in fiscal 2027, led by 22–26 Olive Gardens and 26–30 LongHorns. The 10-K gives a prototype Olive Garden a capital cost of $4.4 million to $6.3 million and a LongHorn $3.8 million to $5.2 million, both on land-only leases. Three portfolio moves shaped the current footprint: - **Chuy's** — acquired on October 11, 2024 for $649.1 million in total consideration ($613.7 million net of $35.4 million of acquired cash), producing $267.2 million of goodwill. The company says Chuy's operations were fully integrated by May 31, 2026; integration expenses were $9.5 million in fiscal 2026 after $44.6 million in fiscal 2025. - **Olive Garden Canada** — on July 14, 2025 Darden sold its eight Canadian Olive Garden restaurants to Recipe Unlimited Corporation, which now operates them and any new Canadian Olive Gardens under area development and franchise agreements, paying royalties for the trade name. The gain is recorded in impairments and disposal of assets. - **Bahama Breeze wind-down** — after a strategic review that began in June 2025 (when the brand had 28 company-owned restaurants and one franchise), Darden announced on February 3, 2026 that it would permanently close about half the restaurants, completed on or about April 5, 2026, and convert the rest to other Darden brands over the next 12 to 18 months. The fiscal 2027 first-quarter Form 10-Q (accession 0000940944-26-000042) adds that the assets of the 14 closed restaurants were impaired in the third and fourth quarters of fiscal 2026. Darden became an independent public company in 1995 when General Mills spun it off; its operating subsidiary GMRI, Inc. was originally incorporated in 1968 as Red Lobster Inns of America. Red Lobster was disposed of in fiscal 2015, and Darden still guarantees certain leases assigned in that sale (see Risk factors). ## Risk factors *From Item 1A of the fiscal 2026 Form 10-K (accession 0000940944-26-000025). The fiscal 2027 first-quarter Form 10-Q (accession 0000940944-26-000042) reports no material changes.* The 10-K groups its risks under inflation and the economy, human capital, health and safety, technology, the restaurant industry, the business model, and general risks. These are the ones with the most bearing on the business: - **Cost inflation and pricing limits.** Margins depend on beef, pork, chicken, seafood, cheese, butter and produce prices, on utilities, and on wages. Tariffs and trade disputes on imported foods such as produce and seafood could raise costs or disrupt supply. The company states that its ability to offset inflation with menu prices is limited by competition and guest price sensitivity, and that pricing which deters traffic would compress margins. - **Consumer spending.** Full-service dining is discretionary. Recession, unemployment, higher energy prices, rising interest rates and retaliatory tariffs have affected guest behavior and could cut visit frequency or spend per visit. - **Labor.** Minimum wages well above the federal level in many states, a competitive labor market, and changes in immigration law and enforcement that could shrink the pool of authorized workers all raise labor costs and staffing risk. Unionization is named as a possible result of team member dissatisfaction. Workers' compensation and general liability claims carry high per-claim deductibles. - **Food safety and disease.** A food-borne illness incident, whether real or alleged and whether at Darden or a competitor, can hurt sales across a brand, and social media accelerates the damage. - **Technology and data.** The business relies on point-of-sale, e-commerce, supply-chain and marketing systems, some run by third parties. A breach or outage could disrupt operations and bring liability under privacy laws and the SEC's cyber-disclosure rules. The company says AI adoption may increase cyber risk. It reports no cybersecurity incident to date that has had a material impact. - **Regulation.** Operations are subject to zoning, health, liquor licensing, menu labeling, wage-and-hour, ADA and environmental rules, and a patchwork of conflicting state and local employment laws. - **Competition.** Rivals include national and regional chains, local restaurants, grocery prepared-meal offerings and delivery aggregators. The company warns that aggregators "may form a closer relationship with our customers and increase costs to us." Restaurant expenses in fiscal 2026 already included a 0.2-point impact from Uber Direct fees. - **Long-term leases.** With 2,104 of 2,202 restaurants on leased sites, closing an underperforming unit generally leaves the rent obligation in place for the rest of the lease term, and renewals may cost more or be unavailable. - **Growth execution.** New restaurants depend on sites, permits, construction costs and staffing, and can cannibalize existing units. The company warns that acquired brands may not be as profitable as existing ones. - **Supply concentration.** Darden has a limited number of suppliers and distributors for certain products. Animal disease, weather, tariffs or a vendor failure could cause shortages that force menu removals or price increases. - **Equity hedges and stock volatility.** Equity forwards hedging stock-based compensation settle in cash quarterly, so stock-price swings can require unpredictable cash payments. - **Goodwill and trademarks.** At May 31, 2026 the balance sheet carried $1,658.2 million of goodwill and $1,346.4 million of trademarks, largely from acquisitions. Weaker brand cash flows or a sustained fall in the share price could force impairments. - **Credit markets.** Refinancing, including the $500.0 million of 3.850% notes due May 2027, depends on access to credit markets. Turmoil there could also weaken suppliers and landlords. - **Other named risks:** climate and severe weather (including hurricane exposure at the single Orlando support center), franchisee and international partner performance, protection of trademarks, ESG scrutiny from both directions, litigation (wage-and-hour, discrimination, dram-shop and food-safety claims), unfavorable publicity, tax law changes, and internal-control failures. ## Management's discussion — fiscal 2026 *From Item 7 of the fiscal 2026 Form 10-K (accession 0000940944-26-000025), with adjusted figures and the fiscal 2027 per-share outlook from the fourth-quarter fiscal 2026 earnings release furnished on Form 8-K (accession 0000940944-26-000016).* **Results.** Fiscal 2026 sales rose 9.4% to $13,210.9 million from $12,076.7 million. The 53rd week added 2.1 points, blended same-restaurant sales rose 4.5%, and 43 net new restaurants contributed the rest. Operating income rose 16.2% to $1,582.8 million, a 12.0% margin against 11.3%. Earnings from continuing operations rose 15.5% to $1,213.7 million, and diluted EPS from continuing operations rose 17.6% to $10.44 from $8.88. The extra week contributed $0.25 of that. Including a $7.0 million discontinued-operations loss, diluted net EPS was $10.38. On the company's adjusted basis, which excludes closures and impairments, tax items, Chuy's integration and the Olive Garden Canada gain, diluted EPS from continuing operations was $10.64, up 11.4%. That is a non-GAAP measure. **Segments.** Same-restaurant sales and segment profit margins moved differently by brand group: - Olive Garden: sales up 7.3%. Same-restaurant sales rose 4.0%, from a 2.9% higher average check (including 0.9 points from off-premise catering) and 1.0% more guests. Margin rose 20 bp to 22.5% on lower food, labor and marketing costs. - LongHorn Steakhouse: sales up 13.1%. Same-restaurant sales rose 7.2%, with check up 3.4% and guests up 3.7%. Margin fell 70 bp to 18.6% on higher food and beverage and marketing costs. - Fine Dining: sales up 5.4%. Same-restaurant sales rose 1.2%, with check up 1.4% and guests down 0.2%. Margin fell 90 bp to 17.7% on higher labor and food costs. - Other Business: sales up 11.2%, helped by a full year of Chuy's. Same-restaurant sales rose 3.9%, with check up 3.3% and guests up 0.6%. Margin rose 20 bp to 15.9% on lower food and beverage costs. **Costs.** Food and beverage rose to 30.6% of sales from 30.3%: 1.2 points of inflation were partly offset by 0.9 points of pricing leverage. Restaurant labor held at 31.7% because sales leverage offset 1.0 point of wage inflation. G&A fell to 3.9% of sales from 4.3% on 0.4 points of sales leverage and 0.4 points from lapping fiscal 2025's Chuy's acquisition and integration costs, partly offset by inflation, higher performance-based compensation, and 0.2 points of Bahama Breeze closure and Chuy's integration costs. Impairments and disposal of assets were a net $10.7 million gain, against a $49.2 million charge in fiscal 2025. The Olive Garden Canada gain more than offset $23.0 million of restaurant impairments tied to the Bahama Breeze closures and conversions. The effective tax rate rose to 12.6% from 11.5%. Management says inflation in recent years has been led by food and beverage and labor, and that vendor cost increases include tariffs. **Cash and capital.** Operating cash flow from continuing operations was $1.85 billion. Capital expenditures were $734.0 million, against $644.6 million the year before. Darden paid $693.0 million of dividends and repurchased $671.7 million of stock, partly funded by $194.0 million of new commercial paper. Dividends declared rose to $6.00 per share from $5.60. **Balance sheet and debt.** At May 31, 2026, long-term debt comprised seven series of unsecured senior notes. In order of maturity: - $500.0 million at 3.850% due May 2027, now classified as current, which management expects to meet from cash, cash flow, commercial paper, the credit facility or refinancing - $400.0 million at 4.350% due October 2027 - $350.0 million at 4.550% due October 2029 - $500.0 million at 6.300% due October 2033 - $96.3 million at 6.000% due August 2035 - $42.8 million at 6.800% due October 2037 - $300.0 million at 4.550% due February 2048 The $1.25 billion revolving credit facility matures October 23, 2028. It was undrawn at year-end and backed the $194.0 million of commercial paper, leaving $1.06 billion of capacity. Its covenant caps the adjusted debt to adjusted EBITDAR ratio at 3.50x, and the company reported 2.0x, counting leases at six times minimum rent. The notes are rated Baa2/BBB/BBB and commercial paper P-2/A-2/F-2. Total contractual obligations were $7.02 billion: $2.92 billion of debt service, $2.86 billion of leases and $849.8 million of purchase obligations. Lease guarantees on properties assigned to third parties, mainly from the Red Lobster disposition and the Olive Garden Canada sale, totaled $83.3 million. **Fiscal 2027 outlook (as issued in June 2026).** The company guided to: - sales of $13.60 billion to $13.75 billion - same-restaurant sales growth of 2.5% to 3.5%, excluding Bahama Breeze - 75 to 80 new restaurants - capital spending of about $875 million - total inflation of about 3.0% - an effective tax rate of about 13.5% - diluted EPS from continuing operations of $11.10 to $11.35, on about 114 million diluted shares ## Current quarter — fiscal 2027 first quarter (ended August 30, 2026) *From the Form 10-Q for the quarter ended August 30, 2026 (accession 0000940944-26-000042) and the first-quarter earnings release furnished on Form 8-K (accession 0000940944-26-000032).* **Sales grew; reported earnings fell against a one-time gain a year earlier.** Sales rose 5.1% to $3,200.3 million from $3,044.7 million, driven by 53 net new restaurants and a 3.1% increase in blended same-restaurant sales. Because fiscal 2026 had 53 weeks, this quarter's calendar is one week out of step with last year's fiscal quarter. On a calendar-aligned comparison the company reports same-restaurant sales up 3.2%. Operating income fell 5.9% to $319.3 million and earnings from continuing operations fell 9.2% to $234.3 million. Diluted EPS from continuing operations fell 6.4% to $2.05 from $2.19. The decline reflects the prior-year quarter's $42.0 million pre-tax gain on the Olive Garden Canada sale, worth $0.26 per share. The company's adjusted prior-year EPS, which excludes that gain and $0.04 of Chuy's integration and closure costs, was $1.97, so the release presents $2.05 as a 4.1% increase. Net earnings were $233.4 million after a $0.9 million discontinued-operations loss. **Every segment posted positive same-restaurant sales, but only LongHorn grew guest counts.** Results by segment, with fiscal-calendar same-restaurant sales: - **Olive Garden** — sales $1,329.8 million, up 2.2%. Same-restaurant sales rose 1.1%: check up 3.4%, including 0.5 points from off-premise catering, while guest counts fell 2.2%. Segment margin was 20.4%, down 20 bp on higher restaurant expenses. - **LongHorn Steakhouse** — sales $860.9 million, up 10.9%. Same-restaurant sales rose 6.2%, with check up 4.5% and guests up 1.6%. Margin was 18.0%, up 60 bp on lower food, labor and restaurant expenses as a share of sales. - **Fine Dining** — sales $304.2 million, up 6.2%, mainly from new restaurants. Same-restaurant sales rose 1.6%, with check up 3.7% and guests down 2.0%. Margin was 13.0%, down 50 bp on higher restaurant expenses and labor. - **Other Business** — sales $705.4 million, up 3.6%. Same-restaurant sales rose 3.8%, with check up 5.7% and guests down 1.8%. Margin was 15.8%, down 30 bp on higher food and labor costs. **Cost drivers.** Food and beverage rose to 30.8% of sales from 30.5%: 1.0 point of inflation and 0.4 points of brand mix outweighed 1.1 points of pricing leverage. Labor fell to 32.2% from 32.4%, as sales leverage and mix outweighed 1.0 point of wage inflation. Marketing rose to 1.7% of sales on more media activity. Depreciation rose to 4.5% with new openings. G&A fell to $134.8 million because the prior year carried Chuy's integration and closed-restaurant costs. Net interest rose 10.8% to $50.3 million on higher short-term borrowings. The tax rate rose to 12.9% from 12.2%, which the company attributes to mark-to-market effects on hedges of deferred compensation. **Footprint.** Company-owned restaurants rose to 2,218 from 2,202 at fiscal year-end: - Olive Garden +4 to 953 - LongHorn +6 to 624 - Cheddar's +3 to 187 - Chuy's +2 to 112 - Yard House +2 to 95 - The Capital Grille +1 to 75 - Eddie V's +1 to 32 - Bahama Breeze −3 to 10 Two Bahama Breeze restaurants had been converted to other Darden brands by quarter-end. The company expects all remaining Bahama Breeze locations to be closed or converted by the fourth quarter of fiscal 2027. **Cash flow and capital return.** Operating cash flow fell to $279.0 million from $342.5 million, which the company attributes to working capital. Capital expenditures were $175.3 million. The quarter's dividends ($184.2 million) and buybacks ($220.8 million in cash) exceeded operating cash flow after capex. The gap was largely funded with $285.9 million of net commercial paper borrowing. Commercial paper outstanding rose to $480.0 million from $194.0 million, and short-term debt including the May 2027 notes reached $979.7 million. After commercial paper and letters of credit, $770 million remained available under the revolving credit facility. The 1,075,059 shares bought back in the quarter cost an average $205.41, and $1,335.6 million of the $1.5 billion authorization approved in June 2026 remained. Shareholders' equity fell to $2,068.4 million from $2,207.5 million. On August 18, 2026 Darden settled its interest rate swap designated as a fair value hedge for $38.6 million. The related basis adjustment will be amortized to interest expense over the remaining life of the hedged notes. **Outlook.** On September 24, 2026 the company reaffirmed every element of its fiscal 2027 outlook, including diluted EPS from continuing operations of $11.10 to $11.35. The 10-Q restates the sales range of $13.60 billion to $13.75 billion, same-restaurant sales growth of 2.5% to 3.5%, 75 to 80 openings, capital spending of about $875 million and a tax rate of about 13.5%. Management continues to describe its liquidity sources as sufficient to fund capital spending and debt maturities through fiscal 2027. ## Subsequent events *From Note 13 of the Form 10-Q for the quarter ended August 30, 2026 (accession 0000940944-26-000042).* The 10-Q's subsequent-events note discloses one item, a dividend. It reports no acquisitions, divestitures, financings or litigation outcomes after quarter-end. - **Dividend.** On September 23, 2026 the board declared a quarterly cash dividend of $1.62 per share. It is payable November 2, 2026 to shareholders of record at the close of business on October 9, 2026. The company had 113,143,224 shares outstanding on September 21, 2026, according to the 10-Q cover.