Darden Restaurants, Inc. (DRI) Earnings Call Transcript

Thanks, Kevin. Hello, everyone, and I appreciate you being with us on today's call. With me are Rick Cardenas, who serves as Darden's President and CEO, and Raj Vennam, our CFO. Just a reminder that what we say during this call will contain forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995. Such statements carry risks and uncertainties that might make actual results differ materially from what we expect and project. Those risks get described in the company's press release, sent out this morning, along with its filings with the Securities and Exchange Commission; at the same time, we are broadcasting a presentation during this call, and it's available in the Investor Relations section of our website at darden.com. Today's discussion and presentation contain certain non-GAAP measurements, and reconciliations for those measurements appear in the presentation. Turning to what's next, we intend to report fiscal 2026 second quarter earnings on Thursday, December 18th, ahead of the market opening, with a conference call to follow. On today's call, whenever we mention the industry results, that means the Black Box Intelligence Casual Dining Benchmark excluding Darden. In our fiscal first quarter, the industry's average same restaurant sales rose 5%, while average same restaurant guest counts rose 2.6%. Also, because average and median results keep diverging, we want to share that the industry's median same restaurant sales rose 3.3%, and median same restaurant guest counts rose 1.3%. This morning, Rick will offer a few brief remarks about the quarter, and Raj will walk through details of our first quarter and share our updated fiscal 2026 financial outlook; I'll now hand the call over to Rick.

Courtney, thank you, and good morning everyone. We posted a strong quarter, as both same restaurant sales and earnings growth exceeded our expectations. In Q1, three out of our four segments produced gains in same restaurant sales as well as traffic. What these results show is the sheer strength of our strategy. Across our entire portfolio, restaurant teams remain focused on nailing the basics — culinary innovation and execution, attentive service, and an engaging atmosphere — all of which our people make possible. Across Darden as a whole, we continue to build on and make the most of the four advantages that set us apart from competitors: our considerable size, our deep well of data and insights, our disciplined approach to strategy, and the caliber of our team members. Doing so helps us better prepare each of our brands for success over the long haul. At Olive Garden, same restaurant sales climbed 5.9%, driven by strong food-related messaging and ongoing expansion of delivery handled by the brand itself. During the early part of the quarter, the chain's marketing efforts centered on the build-your-own pasta offering that anchors its core menu. A newly introduced spicy sauce with three meats, along with bucatini pasta priced from $12.99, appeared in its television advertisements. Our newly launched sauce speaks to what diners increasingly want — bolder, richer options — and the response was positive, lifting preference for the create-your-own pasta platform by a meaningful amount. Building on that spicy, bold-flavor energy, Olive Garden rolled out Calabrian Steak and Shrimp Bucatini as a limited-time item in the quarter. Guest reaction beat what we expected, and it turned into a fast favorite, landing inside the top 10 entrees by preference. By working with Uber Direct on first-party delivery, we're drawing in younger and more affluent diners who want ease and have a real appetite for Olive Garden. For the brand, this is a sizable incremental chance, since those diners spend more per visit and generally aren't coming to Olive Garden for a sit-down meal. The Olive Garden ad campaign that offered 1 million free deliveries wrapped up during the first quarter, and every one of those free deliveries was claimed. During the campaign, average weekly deliveries were twice as high. After it ended, delivery order volume has stayed roughly 40% higher than the average before the campaign. The team will keep pushing delivery through a variety of channels. During our previous call, we talked about focusing more on sales growth and reinvesting in order to drive long-term growth. At Olive Garden, a key part of our approach involves making the menu more affordable so that guests can enjoy greater variety at prices that feel within reach. In the quarter, Olive Garden started a test of a lighter portion area of the menu, which includes seven entrees they already offer, served in smaller sizes at a lower price. Available during dinner as well as throughout the day on weekends, these items still provide generous portions and include Olive Garden's never-ending first course: unlimited breadsticks plus unlimited soup or salad. Right now, 40% of Olive Garden locations serve this menu, and early feedback from guests has been positive, with affordability scores up 15% and strong satisfaction regarding portion size. I'm optimistic about the plans Olive Garden has set for this year, as well as the five-year road map the brand has put together for sustained expansion and success down the line. Over at LongHorn Steakhouse, comparable restaurant sales increased 5.5%, driven by the team's continued dedication to a strategy rooted in quality, simplicity, and culture. That group is constantly raising expectations around how good the food is, delivering every menu item consistently to hit the high standards they've set. This shows up in the fact that LongHorn holds the top spot among major casual dining brands in Technomic's industry tracking tool across food quality, service, atmosphere, and value. I take real pride in how consistent LongHorn's operations are and in what the team is doing to keep their momentum going. For our other business segment, same restaurant sales climbed 3.3% in the quarter, fueled by strong results at Yard House, Cheddar's Scratch Kitchen, and Seasons 52. In the quarter, Yard House bolstered its competitive edge in distinctive culinary offerings with wide appeal by upgrading its taco platform with better ingredients and additional choices for guests. Just as they've seen with comparable investments in their burger and pizza platforms, that led to greater preference and guest satisfaction. During the quarter, Yard House held its third annual Best on Tap competition, which helped reinforce its standing as a bar with social energy. Originally designed to evaluate knowledge and hospitality abilities, this event has grown into a fundamental part of the Yard House culture, and all bartenders participate. We congratulate Michelle Yanez, this year's champion, who works at the Yard House located at City Center in Houston, Texas. By leveraging the scale of Darden's buying power, the Cheddar's team provides excellent food at an attractive price. This quarter, they introduced a Hawaiian sirloin—a center-cut top sirloin topped with pineapple and a sweet Hawaiian glaze—with a starting price of $16.49. For that price, the promotion included a honey butter croissant along with two sides. When Technomic ran its latest survey, Cheddar's came in at number one for casual dining brands on both price and affordability. The quarter also brought solid growth in off-premise sales for Cheddar's, which first-party delivery drove. During the quarter, off-premise sales rose 15%, and the Cheddar's team will continue pushing delivery through owned and digital channels, plus in-restaurant. For the fine dining segment, same restaurant sales came in slightly negative this quarter, though I'm encouraged by what each of our fine dining brands is doing to tackle the softness. Take the present climate, for example — diners increasingly want to know exactly what they'll pay. That's why Ruth's Chris Steak House introduced a limited-time promotion running five weeks, built around a three-course menu, and it lifted comparable sales during the quarter. Priced at $55, the deal let customers pick from three entrée options and also included either soup or salad, a side for one person, and a dessert. Response to the offer was strong, with guests showing clear preference for it and sales rising. Turning now to a brief update on those eight Olive Garden restaurants in Canada I brought up on our previous call: the transaction with Recipe Unlimited — the largest full-service operator in Canada — closed on July 14. That same day, we signed an area development agreement with Recipe Unlimited calling for 30 additional Olive Gardens to be opened across the coming 10 years, and 5 of those are already approved. Growing our footprint around the world is what our franchising team is concentrating on. As of today, we count 163 franchised locations: 63 sit in the continental United States, while 100 are located outside it. Our annual leadership conference took place last month, and it gives us a strong means of connecting with each General Manager and Managing Partner throughout our brands, honoring what they've achieved, and getting everyone on the same page about operational priorities; it also let these restaurant leaders find out about their brand's five-year business plan and grasp what's required of them to win now and through 2030. Spending time with this gifted group of operators ranks among the year's best moments. I left feeling energized by how engaged and passionate everyone was, which confirmed once more what our latest engagement survey showed — a new all-time high for Darden. All in all, our new fiscal year is off to a strong start and that pleases me. Our strategy is delivering, letting us build sales and capture market share even as we make significant investments in the business and give capital back to shareholders. On top of that, Darden has a broader mission: to nourish and delight everyone we serve. Fighting hunger is one way we pursue it. This year, once again, Darden is assisting Feeding America in adding refrigerated trucks for nine member food banks. Thanks to these new trucks, the Darden Foundation, backed by our partner Penske Truck Leasing, has now funded over 50 vehicles to serve the rising need for food assistance in the communities where we do business. None of our charitable work would happen without our 200,000 team members and their dedication to nourishing and delighting our guests and communities. Thank you for everything you do. I'll now hand things over to Raj.

Thank you, Rick, and good morning to all of you. For Darden, the first quarter proved to be another robust one. Our sales and earnings growth came in above what we had anticipated, since the sales momentum we carried out of the fourth quarter persisted into the first quarter; this robust growth on the top line, together with our considerable scale, gives us the chance to maintain a long-term view and keep putting money into our business. Beyond the menu investments that Rick discussed, the biggest investment we have made across the last several years involves pricing below total inflation. Our pricing during the first quarter sat 30 basis points under inflation. We brought in $3 billion of total sales, which was 10% greater than a year ago, propelled by same restaurant sales growth of 4.7%, our acquisition of 103 Chuy's restaurants, and 22 net new restaurants added. For the quarter, both our same restaurant sales and our same restaurant guest counts landed in the industry's top quartile. Adjusted diluted net earnings per share from continuing operations came to $1.97, which was 12.6% above last year. We produced $439 million of adjusted EBITDA and gave back $358 million to our shareholders during the quarter through $175 million in dividends paid and $183 million in shares repurchased. Now, turning to our adjusted margin analysis versus last year, food and beverage expenses came in 20 basis points lower, which was driven by pricing leverage since commodity inflation ran approximately 1.5% for the quarter. Restaurant labor was 20 basis points unfavorable, caused by high performance-based compensation expense, including a higher 401(k) match for our restaurant teams. Total labor inflation of 3.1% was completely offset by pricing of 2.2% along with productivity improvements. Restaurant expenses came in 10 basis points higher, since sales leverage was more than offset by Uber Direct fees and the brand mix resulting from adding Chuy's. Marketing expenses were flat, as cost savings in marketing helped fund additional marketing activity during the quarter. This produced restaurant-level EBITDA of 18.9%, which was 10 basis points below last year. Adjusted G&A expenses came in 30 basis points favorable. Synergies from the acquisition and leverage from sales growth were partially offset by unfavorable mark-to-market expense on our deferred compensation. Because of how we hedge mark-to-market expense, this unfavorability is completely offset within the tax line. Interest expense rose 10 basis points because of the financing expenses tied to the Chuy's acquisition. Our adjusted effective tax rate for the quarter was 10.5%, aided by the mark-to-market hedge I mentioned earlier. Without this impact, our effective tax rate would have been approximately 12.5%. Altogether, we generated $231 million in adjusted earnings from continuing operations, which amounted to 7.6% of sales. Turning to our segments for the quarter, total sales for Olive Garden rose by 7.6%, driven by strong same restaurant sales and traffic growth. Sales from the addition of 18 new restaurants more than offset the sales loss from refranchising eight Canadian restaurants. Same-restaurant sales stayed in the industry's top decile, carrying over the sales momentum seen in the previous quarter, and beat the industry benchmark by 90 basis points. At Olive Garden, the quarter's segment profit margin came in at a solid 20.6%, just 10 basis points under last year, despite affordability investments and delivery fee effects. LongHorn's total sales rose 8.8%, fueled by 5.5% same-restaurant sales growth plus 18 new restaurants. Thanks to sustained sales and traffic outperformance, same-restaurant sales landed in the industry's top quartile for a 13th straight quarter, and this quarter ranked in the top decile. The LongHorn team deserves credit for keeping their strategy front and center and sustaining business momentum even with ongoing cost pressures. Beef costs that ran above expectations late in the quarter, combined with pricing roughly 100 basis points under total inflation, produced a segment profit margin of 17.4%, 60 basis points beneath last year. Fine dining segment total sales grew 2.7%, lifted by five net new restaurants. Same-restaurant sales for the segment were slightly negative, though Ruth's Chris Steak House's strong limited-time offer performance helped counter persistent fine dining category challenges. All told, segment profit margin trailed last year. Other business segment sales climbed 22.5% with the Chuy's acquisition and positive same-restaurant sales of 3.3%. Positive sales momentum plus ongoing productivity gains across several brands in the segment yielded a segment profit margin of 16.1%, 90 basis points above last year; moving now to our fiscal 2026 financial outlook, this morning we adjusted a handful of guidance items, factoring in year-to-date actual performance and the shifting commodities outlook for the rest of the fiscal year. We are raising expected total sales growth and narrowing the same-restaurant sales range to reflect first quarter outperformance, a faster new unit pipeline, and any incremental pricing we may take to partially offset added commodities cost. For the year, we now expect total sales growth of 7.5% to 8.5%, same-restaurant sales growth of 2.5% to 3.5%, roughly 65 new restaurant openings, and total inflation of 3% to 3.5%, with commodities inflation of 3% to 4%. Every other part of our guidance stays the same, including adjusted diluted net earnings per share between $10.50 and $10.70. Although we are reiterating full-year earnings per share guidance, we expect the weakest year-over-year EPS growth in the second quarter, caused by the major step up in beef costs and our measured approach to pricing for those costs. For the second quarter, we expect pricing to be approximately 100 basis points below total inflation. Higher expenses are something we've shown we can handle well over time, and our approach will stay disciplined going forward so that this business remains healthy for years to come. Our strategy, we're convinced, is still the correct path for us. At this point, we're ready for your questions.

Morning, everyone. Perhaps we could start with that final item, Raj — would you mind explaining the way contraction is expected to play out over the rest of the year, and what makes you confident that you've captured the full spectrum of possible food cost results?

Sure, Brian. I'd say that if you check what came out from us this morning, the coverage we hold is below what's usual, particularly for beef. At present, just about 25% of our beef needs are covered for the coming six months. Among the areas where pressure is heaviest, that stands out as one of the largest openings we have. As I'm sure all of you are aware, beef costs have jumped considerably of late, with tenders and rib eyes hit especially hard. Our view is that such price levels can't last, which explains why our coverage isn't as extensive. That factors into it. Because prices have climbed so much, we're beginning to observe some demand destruction at retail. Honestly, when you step back, beef represents the largest unknown in this picture. Another area where inflation is running hotter is seafood, mostly because of tariffs applied to shrimp. Our people are working to determine ways to offset a portion of that. That's essentially why our inflation expectation has been raised, moving from 2.5% when the year started to 3%- 4% now. Things remain quite fluid at this stage.

All right, got it. Thank you. Rick, I want to follow up on what you said regarding the fresh portion sizes over at Olive Garden. Are you noticing a distinct type of diner who’s requesting that? Do you actually think this serves as something that brings in more visits for Olive Garden? Then again, could it be diluting the check in a way? How are customers truly responding to it, and what observations have you made?

Yes, Brian, we’re still at an early stage. Over time, we’re confident this will bring in more visits. If diners switch from an item with a bigger portion to one with a smaller portion, our check will drop somewhat. We think that’s the amount those customers are looking for. From what we can tell so far, there’s slightly more frequency; these aren’t really new customers, since we haven’t promoted it; we simply added it to locations with no announcement at all. Customers are just drawn to it; it’s not a major preference pulling them toward it, but some preference is shifting that way.

Right, thank you for taking my questions. Perhaps along similar lines, regarding the affordability shift we made this quarter, plus the Uber Direct expansion or addition during the period, could you discuss how that affected the cost line? I observed that clearly with restaurant margin, you didn't get as much leverage on a fairly strong comp for the period. Maybe, Raj, if you could address those expenses during the period and what you anticipate moving forward as well.

Yeah, Jon, allow me to begin by noting these are items we anticipated and included in our plan. I believe we mentioned, you know, that's the reason we stated we are in fact surpassing our plan. It's actually, you know, the reality that segment profit margin has declined just 10%, still above 20%, demonstrates the robustness of the business model at Olive Garden; having said that, let me provide a bit more detail. To begin, we continued to price under overall inflation. Olive Garden's pricing was merely 1.9%. That's quite a low price in this climate, considering the overall inflation. Next, regarding those two specific items, they were approximately at the margin. If you simply examine the margin percentage effect, each was likely around 20 basis points. If you add that back, I mean, we would have been up 30, correct? That's, once more, even with pricing under inflation. I think that's the other crucial metric we must consider since we believe over the long term, these are the appropriate choices we're making. I think any business would be envious of a 20+ segment profit margin.

Understood, and thanks for that. Perhaps we could dig a bit deeper into how things are going with delivery at Olive Garden. Rick, you brought up that you're happy with the fact that, clearly, younger diners are coming in, along with wealthier ones. Could you share anything further regarding how often those customers visit? Do they show up more frequently than what you observe among in-store patrons, and in what ways are they engaging with it? Clearly, it's not been 12 months yet, but when it comes to seasonal patterns, how might they be utilizing that option versus coming into the restaurant?

Yes, Jon, like we've mentioned previously, the frequency we see from delivery customers exceeds what we get from those who dine in. It's still early days. As you pointed out, we haven't reached a full year of offering delivery. Regarding seasonality, Uber shared one insight with us: typically during the summer months, delivery volume tends to decline somewhat, yet we hadn't really observed that happening. We'll have a clearer picture of delivery's seasonal trends once we get past 12 months, or perhaps even 24 months, since it keeps expanding for us. Even so, we're quite enthusiastic about the way delivery is performing. As Raj said before, we're directing a portion of that added customer traffic and additional margin toward investments that benefit every guest. We feel very confident about that over the long haul.

Understood. I appreciate you fielding these.

Thank you, and good morning. Beyond the question about beef costs, I'd say there are likely two subjects people are especially eager to hear about, and I'm definitely one of them. First, the casual dining segment is performing strongly, and that's growing more and more atypical now that fast casual has decelerated across the year, including midway through this year. Second, with Olive Garden facing tougher year-over-year comparisons in the latter part of your fiscal year, how will it perform, and what are you preparing to go up against? Those are my two questions. What do you think explains casual dining's strong results, and do you expect that to keep going? Then, on a separate note, Olive Garden is launching a fairly sizable test involving smaller portions — what's your thinking there, and what are you setting up to sustain the momentum as you approach lapping some of the positive things you've done over the last three or four months? Thank you.

Yes, David. In my view, what's powering the strength in casual dining is that pricing has generally been lower than in other dining segments — lower for casual dining as a category. Among the bigger casual dining operators, pricing is even below that of casual dining overall. Customers are beginning to recognize the value casual dining offers; as you're aware, we've observed this for a few years now. It's simply that others are somewhat catching up. We see that guests recognize the value. Additionally, when they decide how to spend their money, they choose places where they can bond and spend time with friends and family. There might be less snacking happening and less nibbling. When people dine out, they go somewhere they feel they'll get an excellent meal at an excellent value and enjoy time with their friends. As for Olive Garden in the second half of the year, we intend to keep the momentum going. We recognize that the comparisons become somewhat harder. The Olive Garden team is developing initiatives we could implement during the back half of the year. We have a solid plan; we genuinely believe that in time, the affordability items on the menu are the lighter portion. I don't want to label them affordability. They represent the appropriate portion size at the appropriate price for a set of diners that will ultimately generate additional traffic. It may not generate it during the back half of the year, since we aren't discussing it yet. Even so, we might begin discussing it during the back half of the year. There are numerous things we intend to do. Our team is excellent, and whatever direction Olive Garden's sales patterns take, we'll respond accordingly and proceed from that point.

Thanks.

Morning, and thanks for the chance to ask. Could you walk us through LongHorn — specifically, how same-restaurant sales split between guest counts and average check? And on top of that, has there been any pickup in how consumers are engaging? You noted pricing running 100 basis points under inflation. Should we anticipate a similar spread persisting across the year, or do you have any view on how pricing will move? Thanks.

Sure. Let's begin with guest counts at LongHorn. For the quarter, traffic rose roughly 3.2%. Same-restaurant sales came in at 5.5%, which puts the check at 2.3%. Pricing there was 2.5%, and mix was slightly negative — mostly alcohol — at 20 basis points. On the pricing-to-inflation relationship at LongHorn, as we mentioned, beef costs spiked more sharply; that caught us somewhat off guard late in the quarter. We had also intended to hold some gap versus pricing, so by quarter's end it had widened somewhat further, I'd say. Looking ahead across the year, at the Darden level — and I won't drill into segment specifics here — we anticipate pricing roughly 100 basis points under inflation at Darden overall, and we see that spread contracting as the year unfolds. You'd expect margin pressure to track along those same lines, correct? Q2 likely brings the widest gap, perhaps halved by Q3, then we'll aim to shrink it more by Q4. True to our approach, pricing for the entire year will likely land beneath inflation. Will it be 30 or 50? I can't say; we're still figuring that out. I believe we've consistently been very deliberate about which costs we actually price for. Pricing for temporary costs isn't something we want to do. Over time, we want to price for them by finding other ways to address these incremental costs. That's where our team's attention is.

All right. You brought up the value-oriented menu additions at Olive Garden. Could we perhaps see something like that on a smaller scale over at LongHorn too, possibly centered on starters or smaller dishes? At this point, is it only Olive Garden that's doing this?

Yes, this is something we're trying over at Olive Garden to find out how it performs. Should other brands feel it's a good fit for them and pick up what Olive Garden learns, they might roll it out. For now, Olive Garden is where the attention is, and the Olive Garden team is the one pushing it forward. Like I mentioned, we'll watch and see what happens. LongHorn could potentially do certain things down the road, or other brands could down the road, but those calls will be made when those moments arrive.

Excellent. That's helpful perspective from everyone. I appreciate it. Thank you.

Hello. I appreciate you fielding my question. Only a handful of quarters back, you mentioned there was some momentum with consumers earning less. Clearly, the majority of companies you compete with, especially in the quick-service space, are describing softness within that same income bracket. Could you perhaps share what you're observing when it comes to income levels — are you picking up share with shoppers who earn less? Would you say that piece of the picture is in fact keeping your sales elevated compared with competitors? And are you noticing any migration into the category by wealthier individuals, especially within casual dining?

Yes, Eric, when it comes to casual dining specifically, every one of our casual dining brands experienced a rise in visits compared with the prior year from patrons in every income tier, especially the upper-income tiers. One might assume that reflected some trading down, though it's equally possible it's trading up from those earning less toward strong value in casual dining. We're noticing a handful of behavioral changes, and diners are gravitating toward knowing their price ahead of time, meaning they're aware of what they'll be charged prior to arriving, or toward stronger perceived value, regardless of whether an item carries a hefty price tag. Consider the Calabrian Steak and Shrimp offered at Olive Garden — strong preference, strong perceived value. It carried the highest price of anything on that menu; as I mentioned, across our casual dining brands, we're seeing gains within every income tier.

Great. To wrap up what we were saying about commodities, given current prices and the positions you've taken, I realize you're somewhat underweight on beef. How do you expect that to affect margins at the store level, and what does the guidance assume? Previously, you mentioned slight margin improvement. Given your Q1 performance and the positions you've secured, do you still believe that's achievable?

Eric, I'd point you to the long-term framework we've shared, which calls for earnings after tax growth of 0 to 20 basis points. Looking at our guidance, even at the bottom end, we're essentially holding margin flat or increasing it at the EAT level. We prefer not to fixate on any single line item; ultimately, for us, if we can deliver on that long-term framework and hit the targets we're aiming for by putting more into the guest experience, that's what we want. Should that result in segment profit margins declining year over year, that doesn't worry us. I believe our real focus is at the EAT level, on earnings after tax — are we keeping margins flat or growing them? We feel we remain on track to accomplish that.

Thanks a lot, that's helpful.

Hey there, good morning. Rick, I wanted to ask you something regarding how you see the general wellness of the consumer spending backdrop. Obviously, you just posted a fantastic quarter, but I suppose across the past several months, there have been quite a few mixed signals tied to employment data revisions and similar things. I'd just like to hear your perspective on the current situation with consumer spending, and whether in your view anything has shifted lately compared with how you saw things back when the year began.

Yes, David, I wouldn't say anything has moved in a major way versus what we observed as the year got underway. We're running ahead of our earlier expectations for this point. There's plenty of discussion around those job revisions, yet those positions never existed; that's what folks were actually doing, and we're focused on what truly took place, not on what was assumed to be taking place. My understanding is that August retail sales rose quite substantially, and our own August was quite strong as well. I don't perceive any major shift in our view of the consumer.

Excellent, that's useful. Raj, I just want a fast clarification on something. You said the gap between inflation and pricing should shrink once we reach, say, the latter half of the year. Does that happen because pricing is climbing, or because inflation is easing? Could you walk us through how that would play out?

Yes, of course, David. The main reason is that we're gradually pushing through somewhat more price over the course of the year. We said this back at the start of the year, correct? We came in fairly low during Q1. For the entire year, our expectation is to land somewhere between the mid and high 2%. Beginning at 2.2%, as you can observe, that figure rises somewhat as the months go by. We also anticipate certain short-term pressures, since, as I noted in the commentary regarding beef, we don't believe such steep prices can last. I mean, they hit the consumer quite hard, and our effort to shield them is why we aren't setting prices to cover that.

That tracks. Thanks a lot.

Wonderful, thanks. I'd like to ask about this notion of investing and expanding the top line — you know, more of a growth algorithm powered by the top line. You brought up pricing that sits below inflation, and clearly affordability is a quality your brands are recognized for when it comes to value for the money. I suppose one could also describe marketing as a method for doing that, or maybe even covering part of delivery fees. I was simply wondering, when you consider the various types of investments, is marketing one of them? I know you said you had some leverage, so marketing spend came in higher, though maybe somewhat under what we'd anticipated. You brought up delivery fees as possibly a source of margin pressure. I wasn't certain whether that's since you aren't fully recovering them through what you bill your customers. Maybe you could, and I know delivery is free during this quarter, so maybe that's an outlier. Perhaps you could say a bit about, when you think about putting money behind the top line, these other potential approaches to accomplishing that. I also have one more quick follow-up.

Yes, Sara, we certainly think marketing can be a traffic driver. Even though our marketing as a percent of sales didn't appear to increase, I believe Raj said during prepared remarks that we found some cost saves in marketing that offset our actual marketing growth. We genuinely had more TRPs running. Our other brands that aren't on linear TV are trying out connected television plus other digital aspects. Cheddar's has its first ever 30-second commercial on a connected television; we are ramping up our marketing activity since we believe that will drive some traffic, but we aren't doing it through deep discounting the way we had done it previously. I think you already answered your own question regarding the delivery fees. There are additional ways we can do things to drive delivery, but during this quarter, the million free deliveries campaign did affect the margin a little bit.

Great, thanks. To build on that, Rick, I believe you brought up the idea of less snacking or munching. What I wanted to know is whether that's a nod to GLP-1, in the sense of how eating habits are shifting, or whether it's more that folks are willing to forgo certain convenience or impulse occasions and instead put their money toward truly great experiences, the kind they'd have at Olive Garden or LongHorn or your other brands?

Yeah, absolutely. I'd say it's partly one and partly the other. Some GLP-1 users, based on what the research tells you about them, consume smaller portions or dine out somewhat less often. When they do dine out, they actually do so more often in casual dining, so that element exists to some degree. I think it could even be a consumer who says, "I'm simply attempting to be healthier or eat a bit less." Perhaps there's slightly less snacking. As for the lower-end consumer, they likely lack as much in the way of resources to go out as frequently as before. It's probably hitting another category harder than it's hitting us.

Excellent. Many thanks.

Wonderful. Thanks a lot. Rick, when it comes to fiscal 2026, you bumped up your comp guidance a little. Obviously, that comes even though plenty of folks anticipate a somewhat harder macro backdrop and worry about a deceleration. We're aware of the stiffer comparisons. I believe you said the first quarter landed slightly ahead of your plan. Nicole, perhaps you can speak to how confident you are in lifting that guidance. When we consider the present fiscal second quarter, the comparisons are certainly far more difficult. Last quarter, you were ready to outline roughly what you anticipated for this quarter relative to your full-year guide, so I'm curious whether you believe the fiscal second quarter will land above or below that fresh range. I had one follow-up.

Yes, Jeff, I'll begin by noting that we wouldn't have raised our guidance unless we felt sure about it. When we examine our same restaurant sales along with our total sales, one factor behind lifting our total sales is that we have real confidence in our unit count in development. We boosted the count of restaurants, we removed the bottom end of our development range, and we now state we're approximately 65, largely since most of those restaurants are either constructed, under construction, or already open. A number of them are arriving sooner than anticipated. We feel quite positive about our development pipeline. I'll have Raj discuss the cadence of our comp for the second quarter and past that.

Yeah, Jeff, I'd put it this way: going into the year, we figured the second half wouldn't match the first half when it came to comps. Now that the year's moving along, we're picking up more information. We feel genuinely good about how even the second quarter kicked off, and all of that factors in as we put together this guidance. In the end, the pattern should hold: we still anticipate that the back half comes in below the first half.

Got it. As a quick follow-up regarding your partnership with Uber, I realize it's still early days, but it appears that with the 1P, you're achieving good results at Olive Garden and Cheddar's. First, I'm curious whether you might look at another brand to adopt that 1P Uber delivery, and whether there are any fresh views on the possibility of leveraging Uber for the order aggregation side of things, rather than only delivery. Thank you.

Yes, Jeff, at both Olive Garden and Cheddar's we're happy with our first-party delivery; for us it keeps expanding. There's actually one more brand that wants to adopt it, and we'd anticipate that brand joining the platform at some point in Q3. I'm not going to reveal which brand that is, but they're extremely eager to get into first-party delivery. As for marketplace or third party, be it Uber or anybody else, the model still presents some difficulties for us; our current focus is first party, and we've discussed what we dislike about third party. Should a provider be able to deliver every solution that we have for third party, or address the reasons we don't like it, then we would certainly look at it. At present, we're quite comfortable and quite happy with how first-party delivery is performing.

Thanks.

Hello there. Morning to everyone. My first question goes back to how unit growth speeds up across the medium to long term. I realize the bottom end was removed. With some fresh prototypes, faster movement in Canada, and a few other shifting pieces, how are we meant to view that ramp?

Sure — that development sits within our owned restaurants, meaning 65 of them. Everything in Canada is franchised, so none of it factors into our unit growth. Royalties from there are substantial and welcome, yet for us it isn't a unit. As for the ramp, our five-year plan places us firmly inside the long-term framework where 3%- 4% of sales growth comes from new units. On a year-over-year basis, you'd expect that unit growth percentage to climb somewhat.

Great. On that point, I'm aware there were a few prototypes of the smaller variety, and a few competitors claim they're encountering elevated construction expenses, some imported materials. Do you have anything to say about that?

Yeah, we have a few brands. In fact, every one of our brands, Olive Garden and LongHorn in particular, have spent years getting the prototype size right. Yard House and Cheddar's just launched new prototypes that are smaller and far more efficient, and the expense involved is less than what building our restaurants at the existing prototype size would run. A handful of these have opened, they're performing very well, and in general they can produce the sales our current prototypes produce. As for costs, ours come in much nearer to, and at times even below, the amounts we budgeted, which is quite a change from the past. When it comes to tariff effects, we don't think they're too dramatic for construction costs. Our pipeline gives us real confidence, and we're able to build at a very good return for us.

Thanks.

Hey, thanks for fielding my question. First thing I want to ask about is delivery. Could you give us a sense of how delivery was mixed in Q1, and what the exit rate looked like once the promotion ended? And do you think we'll see comparable promotions down the road in 2026? Then I've got another question after that.

Sure, Jake, I'll address Olive Garden in particular, since I believe that's the one you mean. At Olive Garden, delivery represented roughly 5% during the first quarter. When we came out of it, the figure was around 4%. Like we said before, after ending the million free deliveries promotion, our exit point came in somewhat below the peak, yet it remained 40% higher than the level we had prior to launching that campaign. That, I believe, addresses what you asked.

So that’s what was being asked. Oh, and also whether you anticipate running something along the lines of that promotion offering one million free deliveries.

Yeah, I’m not sure whether we’ll do another one million free deliveries. I can’t say, but we do receive marketing money from Uber that’s tied to the volume we generate. We’re going to put those funds to use in some way. It could be one million free deliveries, or it could be something else, but those funds will get used.

Understood. Regarding the Never Ending Pasta Bowl promo, I believe the timing mirrors what we saw a year ago. You mentioned something about customers really being drawn to knowing what they'll pay, plus some positive movement in August. Can you share your expectations for how Never Ending Pasta Bowl will do this year compared to the prior one, and perhaps how it's currently doing — is it striking a chord with diners at the moment?