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

Thanks, Kevin. Hello, everybody, and I appreciate you being with us on today's call. Rick Cardenas, President and CEO of Darden Restaurants, Inc., and Rajesh Vennam, our CFO, are here alongside me. Please keep in mind that remarks on this call will contain forward-looking statements, as set out in the Private Securities Reform Act of 1995. Such statements carry risks and uncertainties that might lead actual results to vary materially from what we expect and project. Those risks appear in the press release issued by the company this morning and in its Securities and Exchange Commission filings. Supplemental materials with information discussed on today's call can be found under the Financials tab in the Investors section of our website, darden.com. Certain non-GAAP measures are part of today's discussion, and reconciliations for them appear in that presentation. Turning to what's next, we intend to report fiscal 2026 fourth quarter earnings on Thursday, June 25, ahead of the market opening, with a conference call to follow. Any references to industry results on today's call point to the Black Box Intelligence casual dining benchmark, which excludes Darden Restaurants, Inc. In the fiscal third quarter, the industry's average same-restaurant sales fell 1.2%, while average same-restaurant guest count dropped 3%. On top of that, the industry's median same-restaurant sales rose 0.6%, and median same-restaurant guest counts declined 2.9%; this morning, Rick will offer a few brief comments about the quarter, and Raj will walk through our third quarter financial performance and share our updated fiscal 2026 financial outlook. At this point, I'll hand the call over to Rick.

Thanks, Courtney. Morning, everybody. It was a really solid quarter for us. Total sales came in at $3.3 billion, up 5.9% versus a year ago, and that was powered by same-restaurant sales growth of 4.2%. We've kept beating the industry on same-restaurant sales, and this quarter the gap got even wider — all four of our biggest brands topped the industry by over 400 basis points. Every segment posted positive same-restaurant sales, because our restaurant teams keep nailing the basics, which again produced impressive guest satisfaction scores. That ability to consistently deliver exceptional guest experiences rests on historically high retention levels for team members and managers that we're seeing across our businesses. We came into the quarter off really strong holiday sales, and several of our brands set records for Valentine's Day, which tells us that when people want to mark those special occasions, they go with the brands they believe in. On top of that, we launched 16 new restaurants during the quarter, and our confidence hasn't changed that we'll reach the openings we've planned for the fiscal year. At Olive Garden, same-restaurant sales came in positive at 3.2% for the quarter, powered by solid operational execution, and that happened despite having three fewer weeks of price-pointed promotions compared with last year. The teams in the restaurants are zeroed in on ensuring each and every guest receives a complimentary refill of breadsticks and soup or salad. The result was record-breaking marks from guests on service, and overall guest satisfaction hit the same all-time peak. Olive Garden completed the January rollout of its lighter portion menu section, which brought seven additional items priced below $15. Through this platform, diners get more options because smaller sizes of well-liked dishes are available at a reduced cost, and this exists alongside Olive Garden's standard portion offerings. Because these dishes were already on the menu, operations stay simple and crews in the restaurants are able to deliver consistently strong execution. Our guests and their restaurant teams are clearly responding well to the lighter portion section of the menu. During February, Four-Cheese Manicotti came back as a fan favorite for a short window, priced from $12.99. Two previously popular items, Ravioli di Portobello along with Braised Beef Tortelloni, were also restored by Olive Garden, responding to solid guest enthusiasm for well-known, highly desired menu items. After the positive results of last year's relaunch, Buy One Take One was introduced recently by Olive Garden, and the promotion is running an extra week compared with the prior year. At an unchanged starting price of $14.99, diners pick a single entree to eat in the restaurant, then bring a second entree home. To provide additional incentives for guests to participate, a new Rigatoni alla Vodka entree is included in this year's promotion for a limited time. To back Buy One Take One, Olive Garden is putting more weight behind its advertising. Over at LongHorn Steakhouse, the brand keeps gaining steam thanks to a disciplined commitment to its approach built on quality, simplicity, and culture — same-restaurant sales climbed 7.2%. Everyone on the LongHorn team cares deeply about making sure each dish lives up to their rigorous quality benchmarks. Sometime earlier in this year, every manager at the chain completed recertification focused on culinary standards, and throughout the quarter, operations directors wrapped up practical, hands-on culinary training, equipping them to assess and guide the behaviors that yield steady, consistent execution. LongHorn team members bring the brand to life inside their restaurants, and their culture continues to be a clear point of difference in earning strong loyalty from team members, which in turn helps generate loyalty among guests. Over the quarter, Glassdoor named LongHorn one of the Best Places to Work. That honor carries special significance because winners are chosen purely from feedback that team members give. LongHorn additionally honored five new Grill Master Legends over the quarter. This program nicely illustrates where quality meets culture, recognizing team members who have each grilled over 1,000,000 steaks across their career, a milestone that usually requires more than 20 years to achieve. During the quarter, same-restaurant sales in the fine dining segment climbed 2.1%. All three brands within that segment delivered positive same-restaurant sales, driven by strong growth in private dining at The Capital Grille and Eddie V’s, along with continued success from the three-course fixed price menu at Ruth's Chris Steak House. Turning to our other business segment, same-restaurant sales were up 3.9% for the quarter, fueled by very strong performance at Yard House as well as positive same-restaurant sales at Cheddar's Scratch Kitchen and Seasons 52. The Yard House crew really knocked it out of the park when it comes to leveraging what makes them stand out — a bar scene with great social energy and a menu of unique dishes that appeal to a wide range of guests — which keeps driving people to Yard House as a spot to get together. Across the quarter, over 50% of their locations hit fresh single-day sales highs on Valentine's Day. When it comes to Cheddar's, the team remains committed to sharpening the advantages that set them apart: impressive value and fast service. This quarter, they kept the top spot for affordability among the big casual dining chains, according to Technomic's industry tracking tool. This quarter's results make me proud, and I have every confidence that we can keep our sales momentum going. Our attention remains on executing the strategy we've proven works — one that drives revenue growth, expands our market share, and allows substantial reinvestment in the company, all while giving capital back to stockholders. At the same time, we continue pursuing our common mission of nourishing and delighting all those we serve. For our employees and their families, the NexCore Scholarship Program is one example of that effort. Come next month, the Darden Foundation will award upwards of 90 scholarships for post-secondary education, each worth $3,000, to the children of Darden team members. That will be the program's fourth year, and across that span we've provided in excess of $1,000,000 in scholarships, assisting those students in achieving their education objectives. To wrap up, I'd like to express appreciation to everyone on our team for the continued effort and commitment they bring to making each day special for the people we serve. Along with the Board of Directors, our leadership group shares my thanks for everything you do. At this point, Raj, I'll pass it over to you.

Thanks, Rick, and good morning to all of you. As Rick said, we brought in $3.3 billion in total sales during the third quarter, which was up 5.9% versus a year ago, fueled by a 4.2% rise in same-restaurant sales and 31 net new restaurants. For the quarter, our same-restaurant sales beat the industry benchmark by 540 basis points. Sales momentum held up well across the quarter as our positive gap to the industry widened further. Same-restaurant sales took a hit of roughly 100 basis points from winter weather in the quarter, and in January, over 40% of our restaurants had to shut down temporarily because of winter storm Turn. Once you adjust for weather, the underlying strength showed sales above 5%, which is a solid result in what is usually a high-volume quarter. All in all, our teams handled the business very well amid the volatility that weather caused. Third quarter earnings came in as we expected, with earnings per share growth in the mid-single-digit range. Adjusted diluted net earnings per share from continuing operations reached $2.95, up 5.4% from last year. We produced $579 million in adjusted EBITDA and gave back $300 million to shareholders this quarter, through $173 million in dividends and $127 million in share repurchases. Turning to our adjusted margin analysis versus last year: food and beverage expenses rose 50 basis points, mainly because of higher beef costs, which pushed total commodities inflation to about 5% for the quarter. Restaurant labor fell 20 basis points thanks to productivity gains, since pricing matched total labor inflation of 3.3%. Marketing expenses came in 10 basis points higher, in line with what we expected, due to more marketing activity. Restaurant expenses dropped 10 basis points from sales leverage. That left restaurant-level EBITDA at 21.0%, down 30 basis points from last year, since our pricing trailed inflation by 40 basis points. Adjusted G&A expenses were flat versus last year. Sales growth leverage was offset by 20 basis points of unfavorable mark-to-market expenses on our deferred compensation. Because of how we hedge mark-to-market expense, that unfavorability is entirely offset in taxes. Consequently, our adjusted effective tax rate was 12.1%, 130 basis points below last year; we delivered $341 million in adjusted earnings from continuing operations, equal to 10.2% of sales. Now on to our segments: every segment increased sales and segment profit dollars for the quarter, powered by positive same-restaurant sales. As Rick noted, we keep making meaningful investments in the business, including the lighter portion section of the Olive Garden menu. That, combined with our careful approach to reacting to higher beef costs, created headwinds to segment profit margin for the quarter compared with last year. Olive Garden total sales rose 4.7%, lifted by strong same-restaurant sales growth and 17 net new restaurants. Sales momentum carried over from earlier quarters, with same-restaurant sales beating the industry benchmark by 440 basis points. For the quarter, Olive Garden posted a solid segment profit margin at 23.0%, which came in just 10 basis points under the prior year. That figure reflects roughly 40 basis points of margin investment tied to adding the lighter portion section of the menu as well as delivery fee impacts. Over at LongHorn, total sales rose 11.2%, fueled by a 7.2% gain in same-restaurant sales and 22 net new restaurants added. With sales and traffic continuing to outperform, same-restaurant sales beat the industry benchmark by 840 basis points, while same-restaurant traffic exceeded it by 640 basis points. The LongHorn team stays committed to its strategy, producing strong results and an 18.6% segment profit margin even with beef costs running high. In the fine dining segment, total sales climbed 4.3%, driven by positive same-restaurant sales of 2.1% and two net new restaurants. Segment profit margin there was 22.0%, down 50 basis points versus last year. Sales for the other business segment grew 3.2%, helped by positive same-restaurant sales of 3.9%, partly offset by the permanent closure of Bahama Breeze restaurants. Segment profit margin came to 15.6%, flat compared with last year. Now turning to our financial outlook for fiscal 2026, we've updated guidance to capture year-to-date results along with fourth quarter expectations. For the full year, we now anticipate total sales growth of roughly 9.5%, same-restaurant sales growth of roughly 4.5%, about 70 new restaurant openings, commodities inflation near 4%, an effective tax rate around 12.5%, and adjusted diluted net earnings per share of $10.57 to $10.67, which includes approximately $0.25 tied to the addition of a fifty-third week. For the fourth quarter on its own, our annual outlook implies total sales growth of 13% to 14.5%, including that extra fiscal week; same-restaurant sales growth of 3.5% to 5% captures the strong trends we've seen through the first three weeks of March; and we expect adjusted diluted net earnings per share of between $3.59 and $3.69. As we previously announced, we've finished exploring strategic alternatives for the Bahama Breeze brand and concluded that 14 locations will permanently close while the remaining 14 will be converted to other Darden Restaurants, Inc. brands over the next 12 to 18 months. We believe these commercial locations are great sites that will benefit several brands in our portfolio. Our team members remain a priority throughout this process. A majority of team members, including more than 70% of managers affected by the permanent closures, have already been placed into new roles within the Darden Restaurants, Inc. portfolio. In addition, we intend to keep the restaurant teams from the conversion locations with the new brand or other Darden Restaurants, Inc. brands; we don't expect these actions to materially impact our financial results. Now, looking ahead to fiscal 2027, I'd like to share our thoughts on a few items. To start, our plan is to launch 75 to 80 additional restaurants, plus we'll be converting 14 Bahama Breeze spots into other Darden Restaurants, Inc. brands. After that, we're looking at roughly $850 million in capital spending, broken down like this: about $475 million goes toward the new restaurants; about $25 million covers those 14 Bahama Breeze conversions; and about $350 million is tied to keeping our existing restaurants running, refreshing them, and technology. Last, we're expecting an effective tax rate of around 13.5% for fiscal 2027, along with total interest expense of roughly $200 million. To wrap up, I'd like to praise our teams for what they've done in taking care of our guests. That commitment shows up in the solid financial results we produce and in how we keep outperforming the industry; we're still confident we can grow sales, control costs, and bring value to both our guests and our shareholders. At this point, we'll take your questions.

Thanks. Morning. Regarding your same-store sales guidance, the implied fourth-quarter outlook sits in that 3.5% to 5% range, which is really impressive. And this is occurring even with significantly harder comparisons — roughly 400 basis points, I believe, in Q4. I think investors broadly have been quite concerned about this stretch of several quarters with tougher comparisons ahead; so could you help us grasp what you think is fueling the capacity to match these so far, at least, so effortlessly, especially at Olive Garden?

Morning, Brian. I will begin. When we look at guidance for next year, folks are examining this quarter by quarter, with harder comparisons against last year. But our perspective is: what are the business's drivers, and how do we keep building growth over time via the initiatives we have. I believe we have demonstrated over time that we deliver what we promise. We have proven we can grow; and so when we look specifically at Olive Garden, last year you noted it is a harder compare. But if you consider what drove growth last year, there were mainly two things. First was Buy One Take One coming back for the first time since COVID, and second was the first-party delivery. Well, both of those remain in place today. And we are extending our Buy One Take One by one more week, and Rick mentioned we are also backing that with additional media. So we craft a plan and we craft an estimate grounded in the initiatives we have in place, factoring in the macro element; and I think we feel good about what we are guiding here. And I do not know if you want to add.

Appreciate that, Raj. My quick follow-up concerns how pricing relates to inflation. Could you address that as we head into the fourth quarter and then into 2027? I realize you aren't providing precise guidance for next year at this point, but there were some fairly significant gaps in that dynamic across this year, and they appear to be closing now, so perhaps you could give us some additional detail on it.

Sure, Brian. Well, I'd say we've seen a fairly substantial shortfall in pricing relative to inflation across the first three quarters. Once we reach Q4, we anticipate that our pricing will have caught up with inflation. We anticipate total inflation landing in the mid-3s, with our pricing also in the mid-3s. And looking at our implied guide for Q4, the strength of that becomes clear. As pricing begins to approach inflation, margins expand considerably, and that's exactly what the implied guidance for the fourth quarter reflects. We'll say more regarding next year, but I'd suggest thinking about it this way: we've built in considerable flexibility for ourselves by keeping pricing below inflation across multiple years, and we believe we possess greater ability than anyone else when it comes to pricing enough to offset inflation. It's really a matter of how we opt to operate the business, and our focus has consistently been on the long term. If we can hit our long-term framework of 10% to 15% TSR without needing to price as aggressively, then that's the path we take. That said, I expect you'll hear additional details on the June call. Our framework targets 10% to 15%, and delivering that is our objective.

Thanks. I have a quick question, then one more after that. How would you typically account for the difference in same-store sales growth when comparing LongHorn with Olive Garden? Is it genuinely just the excitement surrounding protein, plus maybe some undercharging on beef costs as of late? Or do you believe another factor explains the gap in comps that shows up between those two brands?

Yes, David. Let me begin by noting that LongHorn has traveled a very lengthy road toward steadily strengthening its business, ensuring guests receive an excellent-quality product daily. You picked up on some of that during the prepared remarks. Over time, they have also priced beef costs considerably below what grocery stores charge, meaning guests enjoy tremendous value whenever they dine at LongHorn. Returning to quality, they have performed remarkably well at preparing their steaks. A guest wants to visit a restaurant, and if preparing a superb steak is beyond you, why keep your doors open? LongHorn gets a superb steak right nearly 100% of the time, and whenever they fall short, they make it right with the guest. The disparity between Olive Garden and LongHorn will move up and down. During this quarter, LongHorn needed slightly more pricing than Olive Garden. Their traffic growth came in a bit higher than Olive Garden's. I am not certain the weather hit them quite as hard as it did Olive Garden. When you weigh all of that, one brand beating another brand is not something we fret over. Ours is a portfolio of excellent brands. Some quarters will see one brand beat another one, much as we typically beat the industry overall; we are extremely happy with both of our brands, Olive Garden along with LongHorn, given the performance they have delivered. I believe those points can account for some of the major differences. And should Raj wish to add anything further,

One more point from me: as Rick said, we handle strategies tailored to each brand as well. A few of our actions depend on how we assess results throughout the portfolio. At Olive Garden, promotional activity around price points ran for 3 fewer weeks, a choice we made given our confidence in how solid the quarter would be; on its own, that likely accounts for roughly 100 basis points of impact on Olive Garden's comps.

All right, that's useful. Are you expecting the space between those two brands to increase? Or you mentioned one factor that could cause it to shrink, yet for Olive Garden the comparisons are becoming more difficult, as we see it. So I realize there will be worry that the growth differential will expand despite those harder comparisons. Do you expect that differential to expand, or possibly contract because of some of those temporary drags from the previous quarter? And I'll hand it over.

Well, David, once more, whether the gap for our brands expands or contracts isn't what worries us most, provided the brands keep growing. What matters to us is Olive Garden's gap to the industry widening, and during our third quarter, Olive Garden's gap to the industry did widen. LongHorn's gap widened by an even greater amount. Eventually, though, the law of large numbers indicates Olive Garden and LongHorn will likely come together as time passes. I can't claim that will occur in Q4. I can't claim that will occur next year. As time passes, provided we aren't making any major changes in promotional cadence or other areas, you would anticipate those gaps to shrink somewhat. It's possible LongHorn will sit above Olive Garden for some period. We simply can't tell you precisely when that convergence will happen.

Thank you very much, and well done on the quarter. I'll begin with the subject of rising gasoline costs. Based on the strength we've seen so far in the quarter, it doesn't appear that you've felt much of an effect. Still, do you have any views on whether consumers might react with a lag? Also, any insight into what history has shown when gas is expensive and how various brands have been affected?

Sure, Lauren. As many of you have noted in your writing, the numbers don't demonstrate a particularly strong link between what people pay at the pump and what they spend at restaurants. In past periods, costlier gas has tended to hit durable goods harder while services have felt it less. I've lived through several of these cycles. A sharp, sizable jump in gas prices can trigger a short-lived slowdown, yet it typically lasts only a handful of weeks. As you may remember, the spike in gas costs happened just a couple of weeks back. Our quarter was still quite strong. For restaurant traffic, the single largest factor we observe is GDP. Should gas stay expensive over an extended stretch and deal a meaningful blow to GDP, some weakening could follow. Broadly speaking, gas prices aren't a big concern for us, and if they remain very high for some time, we can respond in whatever way is necessary.

Thanks for that, and I have one more question about the Q4 guidance. A range of 3.5% to 5% is quite broad. Could you give any detail on what you've baked in for the remainder of the quarter? I realize there are many variables at play. I'm simply attempting to grasp the high end against the low end against where things currently stand. Thanks.

Yes, Lauren. What we're attempting to bake in is that a degree of uncertainty remains, and that range exists so as to capture that amount of uncertainty. Quarter-to-date, we believe we're in a good position, and that has been factored in. We're also factoring in the broader environment and making certain we don't promise too much; we're being deliberate and factoring in every element that's present.

Hello, and thanks a lot. I'd like to talk about what's happening with beef costs, especially with an eye toward FY2027. On the previous call, I believe you said some green shoots were beginning to appear, yet spot prices appear to keep climbing, and the strike news looks like an added pressure point. Could you give us your sense of direction on beef, along with the rates you've already secured for the coming quarters? Thanks.

Hi, Christine. To begin, when it comes to fiscal 2027, we'd prefer to hold off until June before giving anything more detailed. As for Q4, our fixed-price coverage stands at 80% to 85%. That's genuinely strong coverage compared with what we've had lately. Over the past several years we simply couldn't lock in that much, so this is a positive; suppliers are beginning to show some readiness to commit to longer contracts, which means we've begun securing certain items for fiscal 2027 — likely far earlier than would have been the case 12 months ago, or in recent years, when it came to the following year. I'd rather wait for June before getting into greater detail. On the subject of price, plenty of supply-side factors are in play. We don't anticipate meaningful improvement on the supply side. Double-digit demand destruction is still what we're observing, even in February at retail. In the end, the outcome hinges on how demand responds as prices rise.

Thanks a lot. I'd like to return as well to how the lighter portion menu rolled out at Olive Garden. Do you have any detail on how incidence rates have moved since it debuted? And does the mix effect look like what you anticipated? Plus, is there anything new you've learned about the diners picking these items? Does the take-up seem mostly driven by value, or is it more about the health surge/GLP-1 angle? Thank you.

Hi, Christine. We wrapped up the launch in January, when the remaining divisions went live, and those divisions are showing the same patterns as the ones where we launched earlier. The encouraging part is that among guests ordering these lighter portions, we're seeing frequency rise. We're seeing enormous value scores along with enormous scores for portion size. It's several factors combined. We know Olive Garden's menu offers abundant portions, and what counts as abundant varies from person to person. When you can have as much soup or salad as you like and as many breadsticks as you like, a lighter portion might be everything you need. Whether that ties to GLP-1 or not, I don't believe it's only GLP-1s. My sense is plenty of people prefer smaller portions when they're getting all those other items. Like I said, for those items, portion size ratings have climbed considerably and value ratings have climbed considerably. Among guests ordering it, we've seen frequency rise; that's a considerable gain in frequency. Much of the preference shows up at weekend lunch, a daypart where there's no lunch menu, so there's a solid rationale for this lighter portion menu. Last, the mix effect is roughly what we expected. Raj covered what the margin effect of the mix was, but the mix effect lands about where we expected it to when the menu first launched.

Hello there, and good morning. With respect to the revised guidance that came out earlier today, how are we supposed to view marketing spend for the fourth quarter now? My assumption is that you'll hold off on giving specifics about marketing costs for fiscal 2027 until June. It would help to hear any thinking on marketing at a broader level, given a macro environment that could be more volatile.

Right, Chris; our position has been consistent all year long: as a percentage of sales, we anticipate marketing coming in within 10 basis points compared with the prior year. That's the lens we're using, since one factor this year — which we brought up during the calls — was a media-wide RFP that produced substantial savings, in fact exceeding 10 basis points as a percentage of sales. Those savings are enabling us to step up marketing activity. In quarters where you don't observe growth as a percentage of sales, we're in fact spending more, thanks to those savings.

All right, understood. Thanks. So, to shift gears and cut Olive Garden some slack here, could you talk about what got better in the fine dining segment? What's your outlook on that segment moving ahead? And how big a lift to the comp during the quarter came from that solid Valentine's Day you brought up? Thanks.

Yes, Chris. Like we said, fine dining — same-restaurant sales came in positive at all three of the fine dining brands during the quarter. Valentine's Day wasn't the sole factor behind it. I wouldn't call it a significant driver — possibly tens of basis points across the entire quarter attributable to Valentine's Day. Private dining performed really well, as we noted, at The Capital Grille and Eddie V’s. The three-course price fixe menu at Ruth's Chris is genuinely connecting with people. We offered it for, I believe, five or six weeks during the quarter, and it's connecting with guests. We're watching lapsed Ruth's Chris guests return, and we're also watching guests who ordered it come back. In our view, this makes for a solid platform for them. It makes us happy that every brand in fine dining posted positive results this quarter. Some time has passed since that last occurred. We can't share our thinking about what's ahead, but our guide takes everything we have into account, and that guide is a strong one. My sense is fine dining will be performing okay in Q4.

Just a quick admin point. I believe I missed this. Could you walk us through the pricing and mix components inside the comp, and perhaps add a bit of detail? I think you said LongHorn carried more pricing than Olive Garden, but how did each brand stack up against the average?

Sure, Sara. For Darden Restaurants, Inc. overall, comps came in at 4.2%. Check growth was 3.5%. Pricing accounted for essentially 3.4%, meaning 10 basis points of favorable mix. Turning to Olive Garden, pricing there was 2.8%, though catering also contributed. Catering rose roughly 130 basis points, and while we don't treat that as traffic, in practical terms it does lift traffic. Accounting for that, traffic was essentially higher by 100 basis points. There was also some investment, as we discussed — the lighter portions investment reduced the check by about 60 basis points. Uber fees added a bit, around 50. Our view is that Olive Garden's comps — even though reported traffic may show negative 0.4% — once you add back weather and catering, amount to roughly a positive 2% traffic comp. At LongHorn, same-restaurant sales of 7.2% comprised traffic of 3.3% plus check growth of 3.9%. Pricing was 4.4%, so mix was negative 50 basis points.

All right, thank you. That's quite useful. Regarding the choice to hold fewer weeks of promotions built around price points, as you mentioned, perhaps 100 basis points, yet then during this quarter adding one extra week of Buy One Take One while backing it with additional marketing — presumably, every one of those moves was scheduled far ahead of time. I simply wanted to verify that, since I wasn't certain whether going from fewer weeks in the prior quarter to one additional week in this quarter said anything about how intense promotions are or about how results came in relative to what you expected. Just attempting to square those two choices, or perhaps it's just harder comparisons or some other reason completely. I'm curious about it.

Yes, Sara. Given how large Olive Garden is, we can't turn on a big dime; both of those items had been arranged quite some time before. We had arranged to run fewer price-pointed weeks in Q3 and arranged to add a week of Buy One Take One in Q4 quite early in this fiscal year, possibly even prior to the fiscal year beginning. The rationale we pushed the three weeks out — we removed a promotion during the third quarter — was our belief that weather would return to a typical five-year average, and thus we'd enjoy some weather tailwinds during this quarter. Headwinds occurred instead, so that's what took place. If — and Raj brought up what would have resulted absent that sort of weather headwind — we would have posted a 2% comp in traffic; we arrange these things long before the fact. This isn't a response to promotional intensity in any other place. If you remember, when we introduced Never-Ending Pasta, we returned, I believe it was seven weeks, perhaps eight weeks, and then inside a year or two, it reached twelve. That was a deliberate choice on our part. I can't promise you Buy One Take One will reach twelve weeks, but I can say that when we rolled out Buy One Take One last year, we never meant for it to be as brief as it turned out.

Hi, I appreciate you letting me ask. To kick things off, could you provide more detail on how Olive Garden's delivery performed this quarter? My understanding is that mix was around 4% in the prior period. Was there much of a shift? And as we look ahead, what's your plan for how frequently you'll push it going into Q4? Clearly, the macro backdrop is different at the moment, plus there are delivery fees layered on top. I'm wondering whether it will receive more emphasis than it did in earlier quarters.

Sure, Jon, a few points. For Q3, Uber accounted for 4.7% of sales. We did put some media behind it. When we pulled that promotion lasting four weeks — meaning three fewer weeks with a price point — we removed it during January; what we put in its place was simply a delivery-focused message without any offer. It was essentially, "Hey, Olive Garden delivers." After that, in February, we attached an offer to Olive Garden delivery — complimentary delivery, matching what we did a year ago. During Q3 of last year, delivery was approximately 0.8%. In Q4 of last year, it reached 3.5%. That's the large increase you observed once we began marketing delivery in Q4. As for Q4 this year, I won't reveal whether marketing for delivery is planned, but should we proceed, it would serve as a secondary message. My expectation is that the delivery increase from Q3 this year to Q3 last year won't repeat in Q4, since that's when the major surge occurred; we continue to believe delivery ought to come in somewhat above last year's level.

All right, that's great. It appears the lighter portion menu at Olive Garden is paying off right away. When you look at the remaining brands you own, could that be something worth extending to other brands in the portfolio, or do those guests simply differ somewhat?

Yes, we've made this point previously. My sense is LongHorn has already implemented some of it. LongHorn introduced this at lunch a number of years back, and lunch has been expanding quite rapidly thanks to a solid lunch platform — smaller items, sandwiches, and so on — which has been building over time. They already offer some steaks in multiple sizes. Consider their filet: two different size filets are available; sirloins are on the menu; two kinds of ribeyes exist — one bone-in, one not. Chicken comes in different sizes, salmon comes in different sizes; much of that is already in place; they're exploring other options to provide portions that may be smaller for guests who don't want portions that large. Same situation at Ruth's Chris: consider the three-course price fixe menu at Ruth's Chris, which features one of their smaller filets, and so on. Across every one of our brands, we have chances to consider something along these lines. It may not be as wide-ranging as what we do at Olive Garden, since most of these menus at other brands offer a range of sizes.

Yeah, thank you. Morning, everyone. Perhaps I'll pose the question about income cohorts. Is there anything worth highlighting regarding income brackets that might have moved during the quarter? And when it comes to fine dining, do you see any segment that has returned to a greater degree?

Hi, Brian. Looking at it through the lens of income, growth is showing up among every household earning more than $50k, with the largest gains coming from those above $150k. Broadly speaking, that's the pattern we're observing across every brand. On the fine dining side, we're also seeing solid growth once you go past $150k, though the $200k-plus group is where growth is strongest. That's also where the gap looks even wider between those under $75k, those under $100k, and then the $200k or $150k and above group.

All right, understood. Appreciate it. Raj, from a directional standpoint, you still anticipate that pressure on food costs will ease somewhat as we move into Q4; and beyond that, given the sales volume you're currently generating, is there any particular reason we wouldn't see somewhat greater leverage on the remaining restaurant expenses right now?

My sense is that we should see some. Let me put this in context. I'd rather not focus on one specific P&L line, since numerous factors can influence where we ultimately finish the quarter. When we examine the business, the guidance we gave for Q4 suggests margin expansion, and we expect to achieve that from essentially every line on the P&L. That isn't necessarily how it has to unfold. At the end of the day, we focus on the bottom line. My expectation is that we will deliver EBIT margin growth.

Great. Many thanks. My first question concerns the fiscal 2026 guidance. I realize just one quarter is left, yet you lifted the total revenue growth outlook, and you also lifted the comp and unit growth outlook. Outside the extra nickel from week fifty-three, the implied fourth quarter EPS guidance still appears roughly aligned with the Street. I am curious how you view what stands in the way of bigger EPS upside, particularly since total inflation guidance appears unchanged. Just trying to understand your thinking on the path from the top line down to the bottom line for the quarter ahead?

Hey, Jeff. Look, I have no desire to explain the Street's model. What I'm concentrating on is the plan we put together. At the beginning of the year, when we gave our first guidance, the range we put out there was $10.50 to $10.70. Then, as the months went by, inflation ended up being much greater than what we'd anticipated, and we didn't raise prices enough to cover the whole thing. Our comps also performed better than what the plan had assumed, so we raised the comps to match that. In the end, we're still landing at the upper end. If you look at the midpoint, it comes out above the midpoint from that original guidance. Regarding week fifty-three, the change comes down to this: previously it was roughly $0.20, and at present we're indicating roughly $0.25. When you consider the way rounding functions, just a penny or two is enough to shift things between roughly $0.20 and roughly $0.25. So please don't interpret this as a difference of $0.05. Given how the rounding plays out, it might only amount to one or two pennies. That's the reason we used the word approximately. I'll say no more about it.

Understood. Thus it appears that despite increased compensation and higher inflation, on balance this remains a solid earnings year. When I consider how that carries into the coming year, I value the detail regarding unit growth and the CapEx outlay. Speaking in broader terms — and I recognize this is only directional right now — would it be reasonable to expect that your fiscal 2027 growth aligns with the long-term algorithm? It appears you are heading into fiscal 2027 with comps exceeding the 1.5% to 3.5% long-term target. Perhaps you could provide the present annual EPS sensitivity to one additional point of comp. At minimum, some directional insight into how fiscal 2027 should be viewed relative to the long term would be helpful.

Jeff, additional details on fiscal 2027 will come later, though our aim is to remain within that framework, or at minimum deliver what we described as its components: 1.5% to 3.5% for comps alongside 3% to 4% for new restaurant growth. Regarding the early read on fiscal 2027, once the Bahama Breeze effect is excluded, our expectation would place it within that 3% to 4% range for the contribution from new unit growth. Another element of the framework is EBIT margin flat to positive 20 basis points, which brings us to that EPS growth plus dividend yield of 10% to 15%; that is our plan. In any particular year, it could differ somewhat, yet that is our long-term target. Right now, I cannot identify any reason we would fall short of it, though an update will come in June.

Morning, and thanks for taking our question. Raj, you mentioned earlier that retail beef demand has been destroyed at a double-digit rate. I can't help but connect the strong results at LongHorn with that commentary. Could you give us some context there? Is it possible that consumers who skip buying beef at the grocery store are then turning up at LongHorn, and that this actually provides a tailwind to your traffic there, since they feel uneasy about cooking it themselves and so come to have you prepare it for them?

Hey, this is Rick. Normally, when grocery store beef gets costly, a handful of additional diners decide to get their steak at a restaurant. Cooking an expensive steak at home is a chore for a consumer, and should they ruin it, they're stuck eating it anyway. But if someone comes into a restaurant, orders a steak, and we're the ones who ruin it, we're the ones who eat it — and they still get a great steak. That's likely a piece of the explanation, though I can't claim we possess data showing a consumer saying, "I noticed that price at the grocery store. I chose not to buy it. I'll head to LongHorn instead." Our data is great. Our information and perspective in this area are unmatched, yet since that particular question isn't posed to our guests, we lack that knowledge.

Then I might ask one more thing as a follow-up. With Darden Restaurants, Inc. outperforming the industry on traffic, what portion comes from current customers visiting more often because they like the new menu items and certain portion sizes, and what portion comes from taking share away from competitors in the sector?