Darden Restaurants, Inc. (DRI) Earnings Call Transcript & Summary

Thanks, Kevin. Hello, everyone, and I appreciate your joining us on today's call. With me are Rick Cardenas, who serves as President and CEO of Darden, along with Raj Vennam, our CFO. I want to remind you that remarks on this call will contain forward-looking statements, as outlined in the Private Securities Litigation Reform Act of 1995; such statements carry risks and uncertainties that might lead actual results to diverge materially from what we expect and project. Those risks are laid out in the company's press release, sent out this morning, as well as in our filings with the Securities and Exchange Commission. At the same time, we're webcasting a presentation alongside this call, and you can find it under the Financials tab within the Investors section at darden.com. Today's conversation and the presentation incorporate certain non-GAAP metrics, and reconciliations for those metrics appear in the presentation. Turning to what's next, we intend to report fiscal 2026 third-quarter earnings on Thursday, March 19th, prior to the market opening, with a conference call to follow. On this call, whenever we mention industry results, we're referring to the Black Box Intelligence casual dining benchmark, with Darden excluded. In our fiscal second quarter, the industry's average same restaurant sales rose 1.3%, while average same restaurant guest counts fell 0.4%. On top of that, the industry's median same restaurant sales increased 1.9%, and median same restaurant guest counts declined 0.5%. This morning, Rick will offer a few brief remarks about the quarter. Raj will walk through our second quarter financial performance in detail and share our updated fiscal 2026 financial outlook. After that, Rick will wrap up with some closing comments; I'll now hand the call over to Rick.

Thanks, Courtney, and good morning to all of you. It was a solid quarter for us, one that came in ahead of what we expected on sales, with every one of our segments posting positive same restaurant sales. On the commodity side, the pressure turned out to be bigger than we'd modeled, since beef prices stayed at levels that are historically high for the entire quarter. Our restaurant teams executed really well — brilliant with the basics, as we like to say — which pushed guest satisfaction scores to record or near-record levels across every brand we operate. At the Darden level, we keep putting our four competitive advantages to work so that our brands can compete effectively and keep delivering strong value to the people who dine with us. Because of the power of our scale, we're able to hold pricing under inflation over the long term rather than passing every cost along to our guests, and because our portfolio is so broad, our brands can stay true to their strategy even when a single commodity hits them especially hard. During the quarter we opened 17 new restaurants, and we're on track to beat our planned openings for the full fiscal year; those new restaurants came online ahead of schedule, which together added 40 extra operating weeks compared with what we had planned for the quarter; that speaks to the terrific work Todd Burrows and the whole development team, under Mark Braun's leadership, have done to build up our pipeline. During the quarter, Olive Garden's same restaurant sales increased 4.7%, driven by the strong performance of the Never Ending Pasta Bowl promotion, first-party delivery, and solid operational execution that yielded record-high guest satisfaction scores. For a fourth year running, the Never Ending Pasta Bowl starting price was $13.99. Preference ran high, and refill rates reached an all-time peak, demonstrating that in the current environment guests continue to find abundance and meaningful value at Olive Garden. Our first-party delivery, operated through the Uber Direct partnership, keeps delivering strong results. This channel attracts younger, wealthier guests who desire Olive Garden at home, appreciate convenience, and place orders more frequently. The average amount spent by these visitors is larger compared to what in-restaurant diners spend. For this quarter, Uber Direct transactions accounted for 4% of overall sales, with about 50% of that amount being incremental. During recent calls, we've mentioned that throughout the portfolio, we're placing more focus on growing sales and reinvesting to support long-term achievement. Over at Olive Garden, first-party delivery's strong performance is providing funds for initiatives such as the addition of the lighter portion section on their menu, offering seven current items in a reduced size at a reduced cost; the purpose of this section is to provide diners with additional options, and it's available alongside Olive Garden's standard portion sizes. Guests who choose from the lighter portions menu at Olive Garden are reporting affordability perceptions that have climbed by double digits, and how often those guests visit has also gone up — something that ought to support growing traffic down the road. This menu was available at 40% of restaurants in the quarter, and an additional 20% of locations were brought on board early in the third quarter. Olive Garden's goal is to complete the system-wide rollout in January. Now that the third quarter is underway, the Olive Garden team is set up to continue building on its momentum. For a limited time, two dishes that fans love are on offer: Ravioli di Portobello and Braised Beef Tortelloni. A huge number of Olive Garden fans wanted these famous menu items brought back, and some even started online petitions pushing for their return. Switching over to LongHorn Steakhouse now — the group kept following its approach, built around quality, simplicity, and culture, and that kept driving strong results at the top line, lifted by a 5.9% increase in same restaurant sales. Their relentless focus on making every dish on the menu meet their strict standards came through in a Steak's World Correctly score that hit an all-time high for the quarter. What allows them to deliver at this level so reliably is having one of the most experienced teams anywhere in the business. LongHorn actually improved on its already strong retention, setting a new low for team member turnover in the quarter. Guest loyalty has been built up by the money LongHorn invests in food quality along with its grilling expertise. To extend its food quality leadership even further, LongHorn brought back a holiday guest favorite — the 14-ounce, seven-pepper-crusted New York strip with brown butter sauce — and it earned rave reviews from guests and social media influencers. Same-restaurant sales in our other business segment climbed 3.1% for the quarter, driven by strong results at Yard House. This past quarter marked the fifth consecutive year for Yard House's Oktoberfest promotion, which continued to strengthen how guests connect with the brand and generated strong performance by way of limited-time menu items that highlight what sets Yard House apart — a lively, social bar atmosphere paired with unique food that has wide appeal. A refillable beer stein priced at $5 was part of the event as well, and it proved so popular that all of them were gone within just a couple of weeks. Additionally, over the same quarter, Yard House began introducing first-party delivery, which we're doing alongside Uber Direct. Although the effect on overall revenue will be smaller than what Olive Garden has experienced, the team likes what it's seeing so far and intends to keep expanding the test to more locations during Q3. For the quarter, same-restaurant sales in the fine dining division rose 0.8%, fueled by solid results at Ruth's Chris Steak House and better momentum at The Capital Grille. With diners still looking for predictable pricing, Ruth's Chris reintroduced its limited-time promotion, which includes a three-course meal priced at $55. That offer played a major role in boosting both sales and traffic, and it showcased a new eight-ounce prime thick-cut strip along with two guest favorites: stuffed chicken and salmon and shrimp. Every main dish included a choice of soup or salad, a side selected for one person, and something sweet to finish. During this period, The Capital Grille brought back its Wagyu and Wine promotion, which let guests pick either a Dave Phinney wine or a Wagyu burger, priced at $35. Throughout the entire quarter, sales at The Capital Grille kept gaining momentum, and guests responded very favorably to that event. Looking ahead to the back half of our fiscal year, our results so far leave me feeling pleased. Our brand teams have the correct strategies in place, and Darden's underlying strength positions us well to win despite competitive pressure. With that, I'll turn the discussion over to Raj.

Thanks, Rick, and hello everyone. Rick mentioned it already, but Darden's second quarter delivered another round of robust sales, and our top-line momentum actually exceeded our expectations. Beef-driven commodity costs ran high and created a meaningful drag this quarter, yet because we're dedicated to giving our guests great value, our pricing sat 130 basis points under inflation. That sizable decision to price beneath inflation pushed restaurant-level margins down versus a year ago. Beef expenses near record levels have persisted longer than we had projected and should remain high through the third quarter, with some easing expected once we reach the fourth quarter. For Q2, total revenue reached $3.1 billion, an increase of 7% versus the prior year. That gain came from a 4.3% rise in same restaurant sales, 30 net new restaurants opening, and the Chuy's acquisition completed in October of last year. In this quarter as well, our same restaurant sales and same restaurant guest counts both ranked within the industry's top decile. Same restaurant sales exceeded the industry benchmark by 300 basis points, and that favorable gap kept expanding as the quarter progressed. Adjusted diluted net earnings per share from continuing operations was $2.08, which was 2.5% above last year's figure. During this quarter, our Adjusted EBITDA reached $466 million, and we delivered $396 million back to shareholders. That came through $174 million in dividend payments plus $222 million of share buybacks. Moving on to adjusted margins versus the prior year, food and beverage expenses ran 90 basis points greater, largely since higher beef prices pushed overall commodity inflation to roughly 5.5% across the quarter. Restaurant labor rose 10 basis points, as total labor inflation hit 3.3%. Within our comparable restaurants, restaurant labor improved relative to last year, thanks to productivity gains that outweighed pricing that trailed labor inflation. On restaurant expenses, we saw a 10 basis point increase. Sales leverage helped, but it wasn't enough to counter Uber Direct fees and brand mix from bringing Chuy's on board. Marketing expenses decreased by 10 basis points, thanks to sales leverage. During the quarter, we did run some additional marketing, though it was covered by cost savings. All of this gave us restaurant-level EBITDA of 18.7%. Adjusted G&A expenses were favorable by 60 basis points, which came from leverage on sales growth, a lower incentive compensation accrual, and favorable mark-to-market expense on our deferred compensation. Because of how we hedge mark-to-market expense, that favorability gets completely offset in the tax line. For the quarter, our adjusted effective tax rate came in at 13.2%. Adjusted earnings from continuing operations totaled $243 million, representing 7.8% of sales. Turning to our segments, each one posted sales growth for the quarter, fueled by positive same restaurant sales. Rising beef costs weighed on segment profit margins across all of our segments with the exception of Olive Garden. At Olive Garden, total sales rose 5.4%, powered by robust same restaurant sales and traffic growth along with 11 net new restaurants. The sales momentum we saw in earlier quarters continued, with same restaurant sales finishing in the industry's top decile and surpassing the industry benchmark by 340 basis points. During this quarter, Olive Garden delivered a healthy segment profit margin of 21.8%. That's up 30 basis points versus the prior year, even with about 20 basis points of margin pressure from the lighter portions menu and the continuing impact of delivery fees. Turning to LongHorn, total sales climbed 9.3%, driven by a 5.9% increase in same restaurant sales plus 21 new restaurants. Once again this quarter, that sustained strength in sales and traffic landed same restaurant sales and traffic in the top decile. The LongHorn team deserves credit for keeping their focus on the strategy and sustaining momentum even with beef costs running high. At LongHorn, we took a restrained stance on price increases relative to inflation, holding our pricing 320 basis points beneath it, and that produced a segment profit margin of 16.2%. In the fine dining segment, total sales rose 3.3%, helped by gains in same-restaurant sales and three net new openings. Beef expenses ran high across this segment's brands as well, weighing heavily and bringing segment profit margin to 14.8%, a decline of 280 basis points from a year ago. Sales in the other business segment climbed 11.3%, reflecting same-restaurant sales growth of 3.1% and a partial-quarter contribution from the Chuy's acquisition. Even though sales rose and several brands in this segment kept getting more productive, those gains couldn't completely counter the higher beef commodity costs and the hit from delivery fees. As a result, the segment's profit margin came in at 13.4%, down 60 basis points from a year ago. For fiscal 2026, we've revised our outlook to account for how we've performed so far this year, shifts in the commodities landscape, and what we anticipate for the remaining two quarters. Our current projections are as follows: overall sales growth of 8.5%-9.3%, growth in same restaurant sales of 3.5%-4.3%, 65 to 70 new restaurants opened, capital expenditures totaling $750 million-$775 million, inflation overall of roughly 3.5%, with commodities inflation running 4%-5%, and diluted average shares outstanding of about 116.5 million. Everything else in our guidance stays the same, including adjusted diluted net earnings per share of $10.50-$10.70, with approximately $0.20 of that tied to the extra 53rd week. For Q3 and Q4, we anticipate EPS growth will get better from one quarter to the next, since the difference between what we charge and overall inflation should shrink during the latter half of the year. Looking just at Q3, our projection is EPS growth in the mid-single digits versus the same period a year ago. To wrap up, we're happy with how strongly our top line did and with the fact that we kept beating the industry this quarter. Although the way we've set prices while commodity costs remain high has squeezed margins for now, we're confident this is the correct path for our success over the long term. Looking ahead to the remainder of this fiscal year, our confidence stays strong that we can expand sales, keep expenses in check, and create value for both our guests and our shareholders; at this point I'll hand things back over to Rick.

Oh, no, no. Sorry.

Oh, sorry. Okay, Rick.

Sorry about that — I hadn't switched my microphone on. When I look back at what we've accomplished, what stands out to me is the sheer strength of the platform we've built up over the years, along with our ability to take on anything that gets thrown our way. From where we sit, three core attributes of this business are what make Darden simultaneously an excellent company and an excellent stock. The first is a strategy that wins — built on our four competitive advantages and on our commitment to operating with a long-term perspective — which has delivered an extended track record of success. If you look back at any decade during the 30 years we've been publicly traded, Darden's annualized total shareholder return—stock price gains plus dividends—has come in at 10% or better. Next, we have a well-defined plan for expanding our collection of iconic brands: two that dominate their categories, three with strong growth potential, and a handful of balanced brands that rank as leaders in their segments. And finally, because we're firmly dedicated to disciplined capital stewardship, we can give capital back to shareholders even as we invest appropriately in the business to succeed over the long term. The results we keep producing for shareholders make me very proud, and our dedication to carrying out the strategy—creating shareholder value today and for future generations—hasn't wavered. Before wrapping up, I'd like to recognize that Darden's inaugural CEO, Joe Lee, passed away recently. As a leader with great vision, Joe played a part in shaping not just Darden but the whole casual dining sector. Having had the chance to work alongside Joe, what I'll always remember most was how much he cared for and showed compassion toward the people around him. His guiding principle was that looking after your employees means they'll look after your customers. That philosophy still sits at the heart of Darden's culture, and it carries particular weight this time of year. Our restaurants are currently in their peak season, and I feel enormous pride in the 200,000 people on our team who excel at feeding and bringing joy to each person they serve. From all of us in leadership and everyone on the Darden Board of Directors, we appreciate our team members for all their efforts. May you and your loved ones enjoy a wonderful holiday season; at this point, we're ready for your questions.

Morning, and happy holidays to everyone — congrats on those strong top-line numbers. My first question concerns the lighter portions menu and your plan for taking it to all Olive Garden locations across the system in January. Judging by what you've observed up to now, how big an effect do you expect that to have on sales? Will we on the outside actually be able to spot it, or does it show up more in internal measures such as how guests perceive value and so on?

Hi, Brian. It does affect internal measures — value perception, affordability, and getting the portion size right. That said, sales will feel some effect in a couple of ways. Over the long term, as we've told you, the guests ordering it come in more often than those who don't; and those who don't are also coming in more often; so that's a nice tailwind on top. Near term, there will be a modest amount of check mix. So, as Raj said, during the second quarter we saw roughly 20 basis points of mix coming from 20 or 30 basis points of mix tied to the lighter portion. Once we've rolled it out to additional locations, the mix effect will grow somewhat, though strong delivery performance and other factors counterbalance that. Perhaps not in terms of mix offset, but in overall sales. So we're convinced this is the correct move for our guests both near term and over the long term, which is exactly why we've sped up the rollout.

Thank you for that; my next question concerns labor and the margins associated with it. During the past two quarters, labor margins have deleveraged somewhat even though same-store sales rose by more than 4% in each of those periods. What would you say is behind that? Historically, on comparable sales like these, you were able to get better leverage out of labor margins. Are there particular labor investments or mix problems among the brands that deserve mention? And going forward, how do you view the potential to improve labor margin leverage?

Hi, Brian. Raj here. Regarding labor margin, as I mentioned during my prepared remarks, when you look at our comparable restaurants — the ones with identical restaurant sales growth — labor is in fact leveraging. Labor did get better versus the prior year, even though our pricing sat below inflation. Labor inflation came in at roughly 3.3%, while our pricing was 2.6%. That allowed us to counter that below-inflation pricing and generate labor leverage via productivity gains. What keeps you from seeing this at the total Darden level is last year's growth plus the Chuy's acquisition; therefore, that's what you need to focus on — brand mix along with certain nuances. So I'd characterize it as idiosyncratic rather than systematic. We genuinely believe that as we move through the back half, labor ought to begin acting more like a good guy.

Thank you, and congratulations on this — especially the Olive Garden same-store sales figure for the quarter, since that ought to ease worries about that brand facing a tough lap. A difficult comparison is ahead in Q4, though I'd like to know what your guidance broadly assumes for Olive Garden comps as we head into that period. Are you building in any upside from fiscal stimulus? And more broadly, what do you expect you'll be doing to improve the odds of sustaining positive comps through those challenging comparisons? I also have one quick follow-up.

Yes, David, I appreciate those remarks. On the same-restaurant sales side, our guidance, as we discussed, was 3.5%-4.3% for the entire year, which basically works out to about 2.5%-4% across the back half, and at the midpoint of that band that would suggest essentially flat traffic. I'd rather not drill down to individual brands, but here's our thinking on the total picture. Taking into account the first half of the year, a certain amount of macro uncertainty, yet possible gains in consumer spending tied to fiscal stimulus in early 2026, plus the fact that we have multiple initiatives at the brand levels aimed at driving sales, we believe the outlook we gave is sensible. So that's really everything I can offer on that topic. Thank you.

Something else I'd like to understand is your approach to menu pricing relative to where beef and steak inflation is heading, and obviously, I believe you mentioned that your pricing was running behind inflation by 3 points or more. I'm not sure I fully heard that part regarding LongHorn, so I'm wondering whether your guidance assumes there will be more pricing taken at LongHorn for the remainder of the year. Do you have any perspective on that? Thanks.

Hey, David; sure, when it comes to pricing, allow me to begin with the broader picture and then address LongHorn in particular; at the Darden level, our price for the quarter came in roughly 130 basis points under inflation. And our expectation is that gap will be reduced by half by the time we reach third quarter and will actually match inflation by the time we get to fourth quarter, mainly for two reasons: first, we are implementing some pricing, and second, we anticipate inflation will decline, particularly as we enter the fourth quarter. And when it comes to LongHorn specifically, yes, I don't anticipate LongHorn continuing to underprice by 320 basis points going forward; we will implement some modest price increases. But look, that's what the portfolio gives you, correct? Rick brought this up in his prepared remarks, as we've discussed, that whenever one of the commodities faces some near-term pressure, having the portfolio offers the air cover needed to handle this in the near term. Having said all that, look, our inclination is to keep pricing as low as possible, and we'll act in whatever way we believe is right to safeguard the guest, even if that results in some margin erosion in the near term. We're mainly referring to second and third quarter since we anticipate margin growth once we get into the fourth quarter.

Thanks.

Yeah, thanks. Good morning, everyone. Raj, could you expand a bit on the beef situation and what makes you confident it begins to decline by the fourth quarter?

Yeah, Brian, perhaps I should begin with what took place during the second quarter, how we are moving through this, and what our outlook is. Beef prices reached their high point in our fiscal second quarter, and they were far beyond typical seasonal patterns because of supply limitations resulting from packer cutbacks and Mexican cattle imports being halted due to the screw worm outbreak; retail demand destruction has accelerated over the last few months, and we believe November saw steak demand volume fall roughly 14%. In recent weeks prices have begun to get better, and we have managed to secure some coverage for the back half. This morning, I think we indicated coverage of approximately 45% for the back half. And in fact, right now our team is obtaining somewhat more coverage; so the prices at which we are securing that coverage align with our revised expectations, and our guidance takes all of it into account. Regarding the near term, prices should moderate slightly as beef production actually rose to close to prior year levels over the last couple of weeks, pushed by packer profitability and cheaper cattle prices. Now, there is sufficient inventory on feedlot to sustain the recent production increase.

All right. Yeah, that helps. Thanks. Regarding first-party delivery — it accounts for 4% of sales. Is that roughly where you figured you'd be right now? Or, I suppose, what other things do you believe could keep driving it upward, assuming you actually want that? Are you still observing something like step-by-step gains in the delivery mix?

Yeah, Brian, 4% makes us quite happy. As you remember, we ran no marketing at all. You weren't aware of that, but during Q2 we did zero marketing, and we're sitting at 4%. My sense is the way it would grow is by doing additional marketing and drawing more people in; even so, it's moving fairly near our overall-to-go business, and we're feeling good about that given the incrementality we're seeing. That said, should we choose to push it higher, we've got a few levers available on the marketing front.

Thanks.

Hello, good morning. I'd like to ask about delivery at Olive Garden. You mentioned that roughly half of that 4% came from incremental business. As delivery expands, though, should we expect that incremental portion to remain steady, or will cannibalization rise along with penetration? And what operational steps are you taking to protect that incremental benefit?

Jacob, my guess is that as delivery gets bigger, the incremental piece will either hold at its current level or improve, since the people using delivery order more often, tend to be somewhat younger, and are more affluent. So if it keeps expanding, we'd anticipate slightly more incrementality, until it eventually overlaps with itself, at which point it diminishes somewhat.

And then, in a bigger-picture sense, you've mentioned how guests switch among channels based on value or the occasion. Have you noticed any significant changes in the role full-service or casual dining plays within the overall mix of food spending?

Yes. When you look at how our sales are doing and at the casual dining sector as a whole, my view is that this sector has expanded at a quicker pace than other segments, and our growth has outpaced the sector. So what I'd say is that we keep gaining share from casual, and we're also picking up some share from limited service.

Thanks.

Excellent, I appreciate you fielding my question. First thing I wanted to ask about was marketing — during the second quarter, marketing measured against sales slipped somewhat. In the first quarter, my sense is it was more or less level. What's your outlook for the full year? Does the 10 to 20 basis points figure still hold, and wouldn't that suggest some pickup? If you could verify that, that would be great, and then I've got another question coming.

Hi, Jake. As you may remember, during the prior quarter we mentioned — I believe it came up on a call — that we realized savings of approximately $20 million on marketing, thanks to the excellent efforts of our teams in revisiting the way we deploy each dollar. Taking that into account, it allowed us to boost marketing activity, despite the fact that the dollars stayed essentially unchanged versus the prior year. Looking ahead to the entire year, we're likely nearer to an increase of about 10 basis points compared with last year. Should anything shift, we'll bring you up to date when we speak again next quarter.

Alright. For my follow-up, I wanted to ask about the broader economic backdrop. I'm not certain whether I caught your comments regarding what you're observing on the consumer side, specifically among lower income folks, and whether any softness there is starting to show up among middle income households. What's the underlying macro assumption behind the sales guidance for the back half?

Yeah. I'd say we're looking at the same reports that you are. We've mentioned that previously. That said, the consumer continues to hold up. They're proceeding carefully. As we've noted on several occasions, weaker consumer sentiment doesn't always mean people cut back on spending. In the quarter — so this reflects what's going on across our brands — in the quarter, our casual brand experienced a year-over-year rise in visits from guests in the middle to higher income brackets. So for us, it hasn't really shifted upward into the middle income groups, though the biggest growth came from households in the higher income range. We also saw solid traffic gains from guests aged 55 and up, so on the demographic front. However, there was a slight pullback among those making under 50,000 in the casual brands; but I'll wrap up the way we always frame it. We recognize casual dining ranks as the top category where consumers plan to treat themselves and indulge. And when they're considering where to put their hard-earned money, they want to visit a place offering great value and a good experience at a great price. So we'll keep concentrating on providing an excellent experience and delivering value to every guest who decides to dine with us.

Thanks for that. I appreciate it.

Wonderful, thank you. Raj, I'm just wondering — now that the same-restaurant sales guidance has been revised, is any additional pricing baked into it? You mentioned the raised inflation projection and the fact that you won't offset all of that inflation through pricing. I'm just wondering whether a bigger pricing component is being assumed under the new guidance.

Correct, Andrew. We are seeing a slight uptick in price. As I mentioned, our expectation is that pricing will land nearer to the mid-threes during the back half, putting the full year at approximately 3%. So when you consider our starting point for the year, I believe we were at 2.2% in Q1 and 2.6% in Q2; that represents a modest bump which we have baked into our guidance.

All right, thank you. So Rick, previously you've described the concerns you had about putting Olive Garden onto third-party delivery platforms; I'd like to know whether some of those elements you mentioned before — for instance data sharing, tip sharing, and being able to turn it on and off — do you think they can be handled more effectively now as you eventually weigh the choice of bringing Olive Garden onto third-party delivery?

Yeah, Andrew. I'd say both of the major third-party delivery companies are aware of what worries us regarding third-party, and if we can reach a resolution on those worries, then we'd consider it. It wouldn't be logical for us to ignore it, but we genuinely have certain worries, and they're aware of what those are.

Sounds good, thanks.

Excellent, I appreciate it. To start off, I want to ask about what you said regarding comps. Raj, if I heard you correctly, you noted that during fiscal 2Q, the positive difference versus the industry got bigger. What I'd like to know is whether your assumption is that this trend keeps going. Perhaps you already have some figures for the third quarter so far, but I'm curious about what you're projecting for the remaining half of the year — specifically, could that gap widen even more? I also have another question after that.

Hi there, Jeff. Here's the thing — our performance did improve, and as we've noted over the years, whenever the industry cools off somewhat, that's when the gap between us and everyone else gets wider. That said, when we think about the second half, our starting point isn't really the industry figures. What we focus on instead is largely the macro picture, plus everything I brought up regarding the brand initiatives, since industry data captures only part of the story, not the whole thing. That's why our approach is different, and for that reason I'd rather not offer any prediction about where that gap goes from here.

Got it. Now for my follow-up, I want to ask about the Uber addition. From what I'm hearing, Yard House comes next — third in the lineup — which puts it after Olive Garden and Cheddar's. I believe you said it probably won't contribute as much, since it's more of a bar-focused idea. Still, I'm curious how LongHorn fits in, or where its leadership team stands on this — though I realize you don't make that call. It seems like that brand would be the next major one capable of delivering a bigger contribution. On the other hand, I recall it's often said their food may not hold up as well when it travels. So I'd like your latest perspective on whether LongHorn might introduce off-premise delivery. Thanks.

Hi, Jeff. Let me take the Yard House piece first. Our expectation is that the effect won't be as large, since Yard House is a smaller brand — and not only because it's a bar. They also generate somewhat less to-go business. Consider that when we rolled this out at Olive Garden and afterward at Cheddar's, the delivery percentage lined up quite closely with the to-go percentage. At present, Cheddar's, as I recall, runs roughly 15% off-premise. LongHorn runs roughly 15% off-premise. So off-premise is not a minor part of the business. We also recognize that when customers buy from LongHorn off-premise, the product mix differs. They purchase more chicken and seafood, and somewhat less steak, compared with what they choose in the dining room. So LongHorn is picking up lessons from the other brands to determine whether joining Uber Direct is a wise move for us. Should that prove true, we'll begin piloting it. At this moment, though, there's nothing we can share on that front.

Thank you.

Thank you. What caught my attention was the subject of value. It seems like that's connecting even in fine dining, actually. You brought up those kinds of combos and the $55 option at Ruth's. So I'm wondering, are you attracting different diners across the brands? I realize you said there might be some weakness below 50, but when I consider that pricing could be up low single digits, there's likely some negative mix, and the entry-level price points are lower across, it sounds like across perhaps every one of your brands. So are you noticing different customers arriving for that, or is it simply more frequent visits from the customers you already have as you provide these sorts of highly accessible price points?

Yes, Sara. The majority of our promotions truly benefit our core customers. We are observing a slight uptick in new customers, or customers who haven't visited in a while, when we run these. But we actually also see growth among our core. So it isn't aimed at new people; it's aimed at anyone. And we do notice a bit of a mix at Ruth's Chris when we offer the $55 prix fixe menu. That's because guests want certainty, and certainty on price. So that's what we're providing them; and it generates quite a bit of volume at Ruth's Chris, and it's a positive thing for us; it's a profitable deal for us.

Right. Right. Thank you. Got it; and then just following up, Raj, I believe you said beef demand dropped roughly 14% during November. I suppose, are there particular guidelines regarding what that would indicate for the cost of beef? As I consider it, it appears this is the first occasion we have genuinely observed retail demand retreat. So just attempting to grasp how that carries over into the market pricing for beef. Thanks.

Sara, I would say the past few months have differed from what we would have observed in the past. In the past, there was destruction of retail demand. You observed prices decline earlier. I won't dive too deep into all the moving pieces, but something is going on with the packers and the way they're operating. It looks as though supply is being held back somewhat. Still, it's tough for us to truly understand what's taking place. There could be additional difficulties. So really, whatever volume of production exists out there is what will drive this, correct? And with that, yeah, I'd say we lack a reliable crystal ball on the matter. That said, as I mentioned, we're noticing some green shoots, meaning our coverage is finally beginning to align more closely with what we anticipated.

Thank you.

Hi, Raj. Morning. Appreciate you taking our question. Raj, I'd like to begin by possibly asking whether you could share the comp components for Olive Garden, with particular breakout of mix and traffic. Then, as a follow-on, can you provide any information regarding the kind of consumer you're observing in the near term at Olive Garden, since it's a well-established brand, yet they now have far more avenues through which consumers can reach the brand? I'm curious whether that has led to any noticeable shifts in the type of guests, be it income level, age, group sizes, anything along those lines would be great?

Yeah. So in terms of an Olive Garden breakdown, same restaurant sales came in at 4.7%. Traffic, as we measured it, was -1.7%, but once you include the catering of 1.1%, that essentially amounts to traffic growth of 2.8%. Pricing was 2.6%. So there was some negative mix, though there was also some benefit from Uber Direct fees; but that's the mix of the traffic and the sales. On the guest side, I think Rick already covered it in the script or during his prepared remarks — we're seeing more increased growth across all income levels above 50K. And we're seeing a bit more growth as we move up the age spectrum. There's a slight pullback among the below 50K and lower, our younger folks. But that's really it.

All right. And if we could pivot somewhat regarding LongHorn — that ongoing outperformance, and I suppose value steak broadly. Is there a way we could connect that with how well fine dining has been doing too? Since plenty of folks figure value will keep performing, yet fine dining beating expectations caught us off guard. I'm not sure whether there's something to read into there — perhaps some aspirational diners who are now going to fine dining, or maybe we've simply gotten to the stage where enough time has passed and the sales base sits lower, so fine dining can return to positive.

Yes, Jim. Let me begin with LongHorn. In my view, what's driving LongHorn's outperformance is years of their efforts — staying focused on their strategy, keeping prices slightly under inflation, putting money into their food, and preparing their steaks better. All of that has served them well. Right now, I suspect they might be gaining because beef costs so much that customers are choosing LongHorn rather than dining at home. Regarding the 50K consumer under 50K, I believe LongHorn expanded under 50,000. That's interesting. Their check is higher than Olive Garden's, yet they increased guest count within an under $50,000 range. Perhaps that's due to how wide the gap is between grocery store prices and restaurant prices, which might be fueling some of their traffic gains. Still, it's pressuring their margin. Turning to fine dining, let me wrap up with one more point about LongHorn. I continue to believe they could be capturing a bit of share from fine dining; even so, fine dining delivered a solid quarter this quarter. Trends are getting better. And perhaps we're nearing the point of kind of sweeping away everything that occurred during COVID. We're observing decent value and decent results at Ruth's Chris. Capital Grille had a solid quarter; but we're not done yet. We need to watch that persist for some time before we feel really great about it; we feel good about it; we only feel great about it. So when we consider what's going on in the industry, we keep saying that provided we do what we're meant to do — offer strong value, prepare food correctly, deliver a wonderful experience to our guests — they will keep coming back.

Great. I appreciate the color.

Great. Thank you, guys. Could you help break down what you observed regarding the cadence of actual comp as we progressed through the quarter? I realize there is significant volatility and noise within the industry, and then anything you might offer on what you are seeing quarter to date, plus any differences you could be observing across regions. Thank you.

Hey, Lauren. I would rather not dive into the quarterly cadence of comps, but I will simply say from an earnings perspective, I believe we sort of gave a high-level view of how we are thinking about it; and it is really more driven by pricing. As I mentioned, the pricing gap to inflation is expected to cut in half as we get into third quarter as we take a little bit more price. And inflation actually is probably closer to the Q2 level; but then as we get to the fourth quarter, we expect pricing to go up a little bit more and inflation to come down a little bit more. And so that is kind of why we talked about what we expect earnings growth to be more in the third quarter to be in the mid-single digits. But I do not want to get too much into the quarterly sales comp.

All right. And moving to stimulus—there's a fair amount of buzz regarding stimulus going into 2026. Looking back at earlier fiscal stimulus, which of your brands typically gain the most within your portfolio? And does that show up via guest counts or average check?

Yes, Lauren, I'd say every one of our brands gains from stimulus, though it depends on the form it takes. That said, consider the people who gain from no tax on tips and no tax on overtime—they might be median income and below; so that could assist brands of ours such as Olive Garden, Cheddar's, or Chuy's, which carry a somewhat higher mix in that area. Still, when stimulus puts more money in consumers' pockets, all of our brands gain.

Thanks a lot.

Excellent, appreciate you fielding this. I simply wanted to build on what was discussed regarding the promotional push behind Uber Direct. My understanding is that you said no advertising was done during this quarter. Could you explain the reasoning there, and what the strategy looks like for the remainder of the year? Do you intend to ramp up promotion for that initiative? Any perspective on this would be useful.

Hi Peter. We skipped putting any marketing behind Uber Direct during Q2 because we had already run some in Q1, and there were other priorities we wanted those marketing dollars going toward — most notably Never Ending Pasta Bowl. At Olive Garden, Never Ending Pasta Bowl is the strongest promotion we run, and I believe some other folks were worried about us winding that promotion down and what the outcome would look like. As Raj said, our gap versus the industry widened each month of the quarter, despite Never Ending Pasta Bowl approaching the close of its promotional window. So our view is that directing marketing spend toward Never Ending Pasta Bowl beat putting it toward delivery at that point in time. Whether we'll do it in Q3 or Q4 is not something I can speak to, but should we move forward, people will find out fairly soon.

Thanks; and then just building on what I asked before about tariffs, is there any kind of news regarding how they're affecting things — tariffs either on commodities or on development costs? I believe previously you said there might be a small effect on development costs stemming from tariffs. Any news on that side would be useful as well.

Peter, honestly, there isn't much to add. Look, right now, a portion of the inflation we're seeing on commodities reflects some of the effect from tariffs. As a percentage of sales, that comes to tens of basis points, matching what we told you previously. When it comes to construction cost, based on what the data shows us, I'd say we're still seeing an impact in the mid-single digits. That hasn't shifted. Thanks.

Thanks a lot.

Hey, excellent. Appreciate you fielding the question. Perhaps circling back to those small plates you're currently launching and finishing up by January. I'm just wondering, has any media been tested behind that? What's the thinking behind that move? Clearly, you're experiencing somewhat of a negative mix at this point since you've introduced it in certain stores. So how are you approaching the way you communicate it to guests? And clearly, there might be some strain on the business if you were to promote it to them; so how are you weighing that trade-off?

Yeah, John, at present we aren't anticipating or we aren't considering promoting it to our guests since it's performing fairly well on the menu as things stand. And it's generating slightly more frequency and guests would order it. And perhaps word of mouth from other guests will handle that; but our current plans don't involve marketing it, though those could shift.