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

Thanks, Kevin. Morning, everyone, and I appreciate you being with us on this call. With me today are Darden's President and CEO, Rick Cardenas, along with our CFO, Raj Vennam. Just a quick note that what we say here 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 come in materially different from what we expect and project. You can find those risks spelled out in the press release the company put out this morning, as well as in its filings with the Securities and Exchange Commission. There's also a supplemental materials presentation with information we're sharing on this call, and you can access it under the Financials tab in the Investors section at darden.com. Some of what we discuss today involves certain non-GAAP measurements, and reconciliations for those appear in the presentation. Turning to what's next, we intend to report first quarter earnings for fiscal 2027 on Thursday, September 24, prior to the market opening, with a conference call to follow. Any mention of industry results on this call points to the Black Box Intelligence casual dining benchmark, which leaves out Darden. Back in early May, Black Box Intelligence revised its benchmarks after the underlying brand set changed. That restatement had a disproportionately large effect on the casual dining benchmarks. As a result of the change, the average benchmarks rose by 150 basis points for same-restaurant sales and 25 basis points for same-restaurant guest counts. Once this restatement is factored in, industry average same-restaurant sales were up 1.4%, while average same-restaurant guest counts fell 1.8%, in our fourth quarter. This morning we'll offer a few brief remarks about the quarter and the full year, walk through the details of our financial results, talk about the strength of Darden's portfolio, and lay out our financial outlook for fiscal 2027. I'll now hand the call over to Rick.

Thank you, Courtney. Good morning, everyone. We wrapped up the fourth quarter strongly, capping off a great year — one where our performance beat the industry by a wide margin. Our restaurant teams keep operating at a very high level, and their dedication to running things well helped every one of our brands post positive same-restaurant sales for the quarter. We understand that guests pick the brands they have faith in for important occasions. A number of our brands set records on Mother's Day, among them the busiest traffic day ever at Olive Garden and LongHorn Steakhouse, and guest satisfaction scores stayed at or close to all-time peaks for our biggest brands — Olive Garden, LongHorn and Yard House. Olive Garden came through on our raised expectations for the year, with same-restaurant sales growth of 4%, which sits above the top end of Darden's long-term framework. LongHorn posted same-restaurant sales growth above 7% for the year, which shows their emphasis on food quality and execution. They closed out the year by holding their ninth annual Steak Master Series. Congratulations to Jesse Montalvo from the LongHorn Steakhouse in Riverview Florida, who took home the championship trophy. Yard House increased total sales by $95 million versus last year, partly powered by same-restaurant sales growth of 5.6% for the year. The results from Olive Garden, LongHorn and Yard House this year are truly outstanding, marking the fifth year in a row that all 3 brands have generated positive same-restaurant sales. With our attention on growing our brands, we opened 71 new restaurants during the fiscal year, 6 more than we originally planned when the year began, and our development team has assembled a robust pipeline of sites to back new restaurant growth. Raj will go into more detail about our growth plans in his remarks. On top of that, our newest international franchising partners in Spain and India opened their first locations during the year. And our new partner in Canada intends to open their first new restaurant next week. Our franchising and international team has helped our new partners get restaurants open faster, and they are on track to open the most international locations in a single year in fiscal '27. Fiscal '26 marks our 31st year as a publicly traded company, and Darden has delivered an average annualized total shareholder return of 10% or greater for any 10 fiscal year period, once you factor in Darden's stock price appreciation plus dividend yield. This morning, I want to concentrate my comments on how we manage to do this and what makes me confident about the future. Full service dining is a category where people seek variety. And we have a group of brands that gives us reach across many dining occasions, guest demographics, price points, geographies and cuisine types while lowering dependence on any single brand, consumer segment, region or cuisine. Our brands serve distinct and valuable roles. Olive Garden and LongHorn are the 2 most dominant brands in our portfolio, with strong guest relevance and more room to grow. Yard House, Cheddar's Scratch Kitchen, and Chili's are exceptionally well-liked concepts with plenty of room left to expand; meanwhile Ruth's Chris Steak House, the Capital Grille, ADVs, and Season 52 are distinctive concepts occupying clear spots within their segments and ought to deliver steady expansion across time. Through our portfolio we achieve the scale that lets our concepts gain from our strategic platform. A common operating approach unites us, one rooted in food, service, and atmosphere, made possible by the finest team members in this business. And our 4 competitive edges let our concepts battle more successfully and give their guests still more value. The strength of our scale — one such competitive edge — shows up in our supply chain and technology stack, which let our concepts achieve better results than they might manage alone. Take, for instance, how we buy straight from producers and run our own dedicated food distribution network. That yields cost benefits for our concepts and guarantees an uninterrupted supply to our restaurants. Our proprietary POS system acts as the nerve center of our integrated restaurant technology ecosystem, while applications — payroll, guest forecasting, labor management, and much more among them — supply essential data, sharpen operations, and lighten the load for our restaurant managers, freeing them to devote more hours to their guests and their team members. Marketing is another area where our scale pays off. Throughout all our concepts, we employ digital marketing in a targeted, cost-effective manner to build brand equity and support incremental sales. Our smaller concepts gain from lessons produced by our larger concepts, and thanks to our platform, they can customize sophisticated media plans for their particular business needs. Extensive data and insights form yet another of our edges, making sure we continually satisfy our guests' expectations and letting us spot chances to enhance the guest experience and drive incremental sales via continuous menu innovation across our concepts. Olive Garden's new Lighter Portions menu illustrates this well, as does their new protein-forward Calabrian Steak & Shrimp Bucatini, which has swiftly turned into a guest favorite. Data and insights have likewise underpinned all the excellent work Yard House has done on menu optimization. The new burger, pizza, and taco platforms they have introduced over the past 3 years prove simpler to execute and earn better guest satisfaction scores. Rigorous strategic planning stands as another of our edges; planning at the Darden enterprise level settles each concept's strategic role, ensuring we hold the right portfolio of concepts, we align strategies and coordinate operations to maximize our portfolio's value, and we capture available synergies across our concepts. At the concept level, the strategic planning process helps us pinpoint each concept's distinct advantages, cultivate differentiated positioning, develop a deep understanding of each concept's guests and competitive landscape, and ensure our concepts stick to their strategy so they compete effectively and grow share. This effort matters a great deal to us, and the teams at the brands we've acquired keep telling us that they now understand their brand's core even better, thanks to how much time and how much rigor went into it. Another key piece of this process is the 5-year business plans our brands finished last year. And to generate shareholder value, our teams keep carrying out those plans. Naturally, our brands and our platform only count for something because of our last edge. The individuals who make them real each day. According to our founder, Bill Darden, the biggest advantage we hold over rivals is how good our employees are, shown daily through the work they perform, and that remains the case now. Backed by our amazing restaurant support center teams, we have exceptional teams throughout our 2,200 restaurants. We've created a strong employment offer, proven by retention that leads our industry, and to protect this edge we use our distinctive capacity to offer solid development chances, thanks to how broad our portfolio is. In the restaurant support center's operations, we're able to offer chances in roles tied to specific brands, in shared support functions, and in restaurants nationwide. This lets us shift proven talent between brands and assist new restaurant expansion, and it hands us several ways to cultivate high-potential talent. One of the strongest aspects of Darden is how we can transform our team members' lives. No matter what someone's first role with us is, we offer the chance to develop and advance. A number of our senior leaders, myself included, started out as hourly team members. So I take great pride in the fact that we moved 1,375 hourly team members up into management positions during fiscal '26. Darden's record of success is enormous, and it shows how strong our brands are, how disciplined our strategy is, and how good our teams are; with the proper brand, strategy, and teams set, I feel sure we're positioned well to keep expanding the business and building long-term shareholder value; to wrap up, I want to express thanks to our more than 200,000 team members for all their efforts. I take pride in how engaged our teams are and in the strong retention numbers that help fuel our success. I'm eager to meet with many of you at our General Manager and Managing Partner conferences in the coming < >. I'll now hand things over to Raj.

Thanks, Rick, and good morning to all of you. We closed out a great year with a strong fourth quarter, as total sales came in above what we had expected and annual earnings landed above the midpoint of our initial guidance. For the year, results show same-restaurant sales that were stronger than expected along with quicker new restaurant openings, and that happened despite considerable macro pressures, among them beef inflation running higher than anticipated for the year. All year long, we kept our attention on the things we could control, balancing investments in the business against a measured approach to pricing — an approach to inflation. Since revenue outperformed our forecasts, we could direct money toward specific growth initiatives while maintaining our pricing approach—covering only a portion of the higher commodity expenses. That preserved our capacity to deliver solid value to guests; this equilibrium is reflected in our Q4 results, as margin improvement matched our projections. In the fourth quarter, overall sales hit $3.7 billion, up 13.7% versus the prior year. Growth came from a 4.6% rise in same-merchant sales alongside increased traffic, 43 net new restaurants opened—this figure accounts for the permanent shuttering of 15 Bahama Breeze spots—plus the extra benefit from the 14 fiscal week. For the quarter, both same-restaurant sales and same-restaurant guest counts exceeded the industry benchmark by over 300 basis points. Adjusted diluted net earnings per share from continuing operations climbed 22.8%, reaching $3.66. Within that number, the additional fiscal week contributed $0.25. Adjusted EBITDA came to $678 million, and we gave back $310 million to shareholders, consisting of $172 million in dividends plus $138 million of share repurchases. Turning now to the fourth quarter P&L compared with last year. Food and beverage expenses held steady, as roughly 3% commodities inflation and an unfavorable mix were fully offset by pricing. Restaurant labor was 40 basis points lower, driven by productivity gains and sales leverage, despite total labor inflation of 3.2%. On the restaurant side, costs came in level. Marketing came down by 10 basis points, which reflects leverage from sales. During the quarter we also spent more on marketing, and those added costs were covered by savings elsewhere. Taking all of that together, restaurant level EBITDA rose 50 basis points in the quarter, reaching 22.1%, right in line with what we expected. Adjusted G&A also held steady. Adjusted depreciation and amortization ran 30 basis points lower, helped by sales leverage from the additional fiscal week. Our adjusted effective tax rate for the quarter came to 12.8%. All told, adjusted earnings from continuing operations totaled $422 million, equal to 11.3% of sales. During Q4, which spanned 13 weeks, every one of our segments posted gains in both total sales and segment profit margin, and the momentum came from same-restaurant sales that were positive. At Olive Garden, quarterly total sales climbed 11.4%, a figure that includes 7.5% contributed by the extra fiscal week, 14 net new restaurants, and a 2.4% lift from same-restaurant sales. Guest traffic finished in positive territory, beating the industry by 200 basis points. The lighter portion section of the menu generated an 80 basis point mix headwind to check. When viewed across a 2-year timeframe, same-restaurant sales for Olive Garden were up 9.3%, demonstrating that the brand sustained its strong performance despite facing a high-growth quarter in the prior year. When it comes to segment profit margin, Olive Garden continues to lead the industry, recording 24.3% for the quarter — that's a 50 basis point improvement over the same period last year. Within that number is about 50 basis points of margin investment related to the introduction of the Lighter Portion menu section. Now looking at LongHorn: total sales were up 21.9%, driven by a 9.5% increase in same-restaurant sales, 27 net new restaurants, and 8% attributable to the additional fiscal week. LongHorn continues to take market share, delivering strong and consistent sales growth that outperformed the industry's same-restaurant sales benchmark by 810 basis points in the quarter. Over the past 3 years, LongHorn has increased same-restaurant sales by more than 20%, pushing average unit volumes to $5.6 million. This quarter, segment profit margin was 21.2%, up 10 basis points versus a year ago. Within the Fine Dining segment, overall sales rose 10.9%, and that gain reflected 6.6% contributed by the additional fiscal week, same-restaurant sales that were positive at 1.9%, plus 6 net new restaurants. The segment profit margin for Fine Dining finished 20 basis points short of last year's level. Because Memorial Day landed inside the quarter, Fine Dining's segment profit margin took a significant hit, as that holiday week typically brings low volume for this segment. When looked at across 13 weeks, Fine Dining's segment profit margin actually exceeded last year by 20 basis points. For the Other Business segment, overall sales increased 9.8%, a figure that includes 7.7% attributable to the additional fiscal week, along with same-restaurant sales growth of 4.6%, which was partially offset by Bahama Breeze locations that were permanently shuttered. A 17.9% segment profit margin for the Other business segment was achieved, helped along by favorable sales momentum and continued gains in productivity — a result that came in 40 basis points higher than the prior year. Moving now to our results for the full fiscal 2026 year, same-restaurant sales were up 4.5%, surpassing what we had anticipated and exceeding the industry's performance. Overall sales climbed 9.4%, surpassing $13 billion for the first time ever in Darden's history. Adjusted diluted net earnings per share from continuing operations increased 11.4% to $10.64. From continuing operations, we produced $2.2 billion in adjusted EBITDA, driven by robust sales growth. We also gave back $1.4 billion to shareholders — $693 million came as dividends, and $675 million went toward buying back shares. Turning to the fiscal 2026 full year P&L, restaurant level EBITDA shrank by 20 basis points. That decline stemmed from a major headwind: commodity costs ran high, and we chose on purpose not to raise prices enough to cover them completely. The sales leverage on G&A plus depreciation and amortization expenses more than made up for that unfavorable impact, which left earnings after tax margin unchanged versus last year. Zooming out, what we delivered shows how strong and resilient our business model is. Our model fundamentally revolves around a collection of distinct brands, backed by rigorous operational discipline and a commitment to providing value for guests, enabling us to achieve balanced, sustainable growth as time goes on. Each of our segments plays a part in sales growth, and our 5-year plan mirrors that. Olive Garden is going to keep expanding as a reliable, well-balanced contributor, whereas our remaining segments should expand more quickly and take on a bigger, more significant role in generating incremental growth. Across the last 7 years, our portfolio has grown more balanced and diversified. During fiscal 2019, Olive Garden accounted for 50% of sales and 55% of segment profit. When we look at fiscal 2026, those brands now account for 42% of sales and 47% of segment profit. What this tells us is that our portfolio strategy is delivering, and if you break down the change, roughly half is driven by consistent growth at LongHorn, with the rest coming from the other brands we own, including acquisitions. And importantly, Olive Garden remains a strong and reliable performer, but now a broader set of brands is fueling more of the sales and earnings growth at Darden. Going forward, we expect new restaurant growth across Darden to remain in that 3% to 4% range over the long term, which is consistent with our long-term framework.

Within that range, Olive Garden would likely land at the bottom, LongHorn at the top, and as our smaller brands extend their footprint they should grow at that rate or beyond, while Fine Dining keeps expanding when opportunities arise. Over time, we think this changing mix can underpin a growth profile that is more diversified and more resilient. Pricing is another key piece of the model. Although we can raise prices, we've always done so in a disciplined way, keeping them under inflation across time, so that our value proposition holds up and traffic is supported. That discipline keeps us relevant to guests, aids traffic growth over the long run, and makes the business more durable across varying operating conditions. If we look at how we've performed since fiscal '19 against our long-term framework, we produced after-tax earnings growth of 7.5% and cash returns of 4.2%. That gave us total shareholder returns of 11.7%, measured as EPS growth plus dividend yield. Our robust operating model throws off substantial, lasting cash flows. Starting in fiscal 2019, we've achieved 9% annualized growth in adjusted EBITDA. This also shows balanced execution across every part of the framework and a total shareholder return sitting inside our target range, even after issuing 9 million shares of common stock in fiscal '20 and dealing with other COVID-related business disruptions. We expect our steady cash generation to give us more than enough capacity annually to cover the business's core needs, such as maintenance capital to keep our current asset base going, continued dividend growth, and investment in developing new restaurants. What's left over generally goes back to shareholders via share repurchase, while we keep our financial flexibility and a strong balance sheet. At the close of fiscal 2026, our adjusted debt to EBITDA was 2.1x, inside our target range of 2 to 2.5x and in line with preserving an investment-grade credit profile. Now to our financial outlook for fiscal 2027: we anticipate total sales between $13.6 billion and $13.75 billion, fueled by same-restaurant sales growth of 2.5% to 3.5%, 75 to 80 gross new restaurant openings, and 11 Bahama Breeze conversions over the year. Capital spending of roughly $875 million, total inflation of roughly 3%, comprising commodities inflation of roughly 3% and labor inflation of roughly 3.5%; an annual effective tax rate of roughly 13.5%; and roughly 114 million diluted average shares outstanding for the year. All of that yields EBITDA of $2.26 billion to $2.29 billion, and diluted net earnings per share of between $11.10 and $11.35. In addition, our board approved an 8% raise to our regular quarterly dividend, bringing it to $1.62 per share, which implies an annual dividend of $6.48. To wrap up, we had a strong year backed by ongoing sales momentum. Across the last 5 fiscal years, we've reliably delivered earnings at or above the midpoint of our initial guidance, which shows we can meet our commitments. Such steadiness demonstrates how capable and adaptable our teams are, along with their commitment to managing whatever lies within our power while we move through shifting conditions. Taken together, these elements leave us assured that we can keep producing steady expansion and sustained returns for shareholders; having said that, we're ready for your questions.

Nice work on the year. I just had a question about how consumers are doing overall. Clearly, there's a lot happening. If you could share anything about how comps trended as the quarter went on — whatever you can say about June, whether climbing gas prices played a part. Curious what you think.

Lauren, I appreciate the kind words about the quarter and the year. On the consumer, we truly haven't observed much movement relative to what we've described over the past 2 quarters. Spending among consumers is still quite resilient. On the whole, consumers' mood remains somewhat cautious. Yet, as we've mentioned a few times previously, softer consumer sentiment hasn't really shown up as lower spending. One thing was a bit different this quarter: our casual brands experienced more visits versus a year ago across every income group, the bottom quintile included. Tax refunds could explain part of that, yet they did record a year-over-year gain across every income group. We did notice slight softness among guests under 35. Still, we'll keep controlling what we control, as Raj said; on how things trended through the quarter, it was quite steady — our same restaurant sales by month were pretty steady, and on a 2-year stack, it's nearly the identical figure. So we felt pretty good about where we stood, though we won't necessarily speak to the quarter-to-date thus far; it's just 3 weeks; and things are a bit choppy given our 53rd week and the calendar shift. So we won't address that at this point.

All right, I see. And I suppose, stepping back a bit, what's the right way to think about how comp or EPS growth will be paced across fiscal '27?

Sure, Lauren — here's how I'd put it: as we move through the year, given part of the cost backdrop we're facing, on a year-over-year basis we'd anticipate the first quarter coming in at roughly low to mid-single-digit EPS growth, and after that the remaining quarters should be pretty evenly weighted across a 52-week calendar when it comes to growth. That's largely driven by a few of the items hitting the year-over-year comparison, most notably in the first quarter, since that's the period when we anticipate the steepest commodities inflation. Our expectation there is approximately 4% for the first quarter. On top of that, a handful of other near-term expenses are mostly onetime in nature, which will put somewhat more strain on the first quarter; still, across the full year, the remaining quarters ought to be relatively level.

Let's talk about the numbers LongHorn has been putting up on a comp basis. Those results remain truly impressive. What do you attribute that to? And how much of the driver there is something you could replicate across the rest of your brands? Based on the 5-year outlook, it sounds like some share of investment might move toward the other brands. That said, is there anything else going on in that business that strikes you as a significant component — something that either can or can't be extended to your remaining brands?

Greg, I appreciate the kind words about LongHorn as well. LongHorn posted a 9.5% comp — what a quarter — and Laura and her team are doing a fantastic job growing that business. Much of it comes from things we've done for years. Like we've said, we've put money into food quality for probably the last 10 years. Those investments keep paying off. Service keeps getting better. Guests understand they're receiving high-quality steaks. When they visit LongHorn, our steak correctness scores sit at their highest levels ever; and they get strong value. And it certainly helps that beef inflation is high in the market; and so LongHorn's relative value appears somewhat stronger. During Q4 in particular, we leaned on social a little—something we're always doing—but one particular post really took off, and that was the teasers about land coming back. They typically do offer land, and throughout the year guests kept inquiring about it. All he did was use teasers to say, essentially, what you're after is on its way; and after that they moved more land—our land purchases this year exceeded last year's, and we cleared inventory in half the time. So the results were solid. There are lessons from Longhorn that can be applied to other brands, though LongHorn also picks up things from those other brands that it brings back to itself. Not every one of our brands will run a non-comp each quarter. However, across our portfolio we have a framework that allows us to hit that target, and ideally beat it occasionally. We'll keep learning as we go. As you pointed out, LongHorn offers most of its steaks in several sizes. Olive Garden does that to a lesser degree. Protein carries a bit more weight there, and within the past year Olive Garden rolled out a dish that leads with protein. You may see additional protein-focused messaging from Olive Garden, yet at the moment LongHorn is performing really well, and we intend to maintain that momentum.

Regarding your 3% commodity basket guidance, could you elaborate a bit further and address certain particular factors, beef especially? Also, Raj, I believe you referenced 4% inflation during 1Q. So additional detail on how commodity inflation expectations are paced would be wonderful.

Sure, Chris — speaking about commodities, when we look ahead to fiscal ’27, something you’re likely to notice, and something we anticipate, is that in the first quarter beef will mostly run in the mid- to high single digits, since we’re lapping fairly low inflation from a year earlier. Beginning in the second quarter of last year, we started seeing much higher beef inflation; across the whole year, we finished at close to 12-ish percent for beef in fiscal 2026. Now, as we turn to ’27, we expect beef to land in the low single digits across the full year. In fact, we’d anticipate a bit of deflation during the second quarter. So for the first half, I believe we’ve indicated low single-digit inflation, though that reflects mid- to high in the first quarter and essentially slight deflation in the second quarter. On other items, one thing I know many of you are watching is chicken. We have a contract; and really, what happens on our end is that over time we’re actually performing well — our contracts shield us from market volatility. That’s let us keep pricing far more stable; and looking at the last 3 years, our chicken costs have stayed fairly flat, while the broader market has seen roughly 5% annual inflation. So those are a few of the major drivers. I’d say I think seafood is still — we expect seafood to be high single digits in the front half, but to normalize by the time we reach the back half.

What I'd like to understand is whether the comparable sales outlook takes into account growth in delivery, whether that's through additional brands picking up first-party or maybe first-party brands adding third-party?

When it comes to delivery, at this point we remain concentrated on the brands offering first-party delivery, which are Olive Garden, Cheddar's and Yard House. Third-party is already in place at Chuy's. As for third-party delivery, there — like we've said on many occasions, a handful of aspects of that third-party delivery model don't sit well with us, though a portion of them have been resolved. Before we'd move in that direction, we'd need to see the rest addressed; let me share a few illustrations: pricing transparency for our guests, so they understand precisely what an entree runs them at our restaurant compared with having it delivered, plus keeping the data and gratuities under our control for the benefit of our team members. That's only 3 items. There are additional ones; and thanks to acquiring Chuy's, we now have a clearer window into the third-party model and the ways it can affect restaurant sales, in both positive and negative directions. So at present, we keep our attention on first party within the — within the restaurants we operate and the brands where we offer it alongside Uber Direct. That said, should a third party ever become part of how we do business, it has to be sustainable for us over the long term. And no third-party delivery is factored into our guidance.

That's useful. And my second question concerned marketing spending. So regarding what we observed during Q4, ought we to anticipate one more year in '27 with greater activity, yet a smaller rise in cost as you discover < >?

Yeah. I believe — so looking at it through a marketing lens, we are — we plan to put in some investment even with certain costs, since most of the cost comes in as we get it this year, next year, I think likely there's an additional $5 million to $6 million in cost saves; however we anticipate marketing expense rising approximately 10 basis points. From a dollars standpoint, it will be — consider it roughly a $25 million investment year-over-year, and the guidance takes that into account.

To kick things off, from a really broad perspective, I'd like to know if you could walk us through some of the positives and negatives in your guidance, and maybe tell us where your confidence is strongest and where — on the other hand — you're keeping a closer eye on things, and what would get you to the upper limit of that guidance when we look out to the end guidance for '27?

Sure, Danilo, so let's begin with the 2.5% to 3.5% guidance for the year, which suggests traffic that's flat to positive, with check running in the mid- to high 2% range. With that as our baseline, when you consider — we're talking about 12 months here, and plenty of factors could affect how traffic plays out. But we anticipate our pricing will land nearer to inflation. So as I said — we said — I said that we expect total inflation of roughly 3%. Our pricing ought to come in pretty close to that, and our check would sit in that mid- to high-2s area. So that's the context. When we look at the positives and negatives, clearly the wider macro environment feeds into that range; and should the macro turn out significantly stronger, we'd land at the upper limit. And beyond that, there are initiatives across our brands. That is — again, I want to — I don't want to dwell on this too long, but the truth is having that portfolio of brands is a massive benefit when it comes to planning and forecasting forward and figuring out how we can pull various levers within — throughout our portfolio to hit our commitments. So at a high level, those are the pieces. One item I'd like to highlight that I believe might have been — may not be so obvious is that we have a fairly large step-up in growth. So consider the fact that we're opening — our guidance calls for 75 to 80 gross openings, while last year we opened 71. But on top of that 75 to 80 gross openings, we also have 11 Bahama Breeze conversions. So adding those 2 together, from a development standpoint and a preopening standpoint, we're really going to see about 20 more openings versus the prior year. That brings some incremental preopening costs; and taking all of that into account, it's roughly a $0.15 — $15 million hit to our profit and a $0.10 EPS drag for the year. And these are really growth costs, correct, arising because there's a step change in how many openings we have, and it covers the preopening costs plus some year 1 inefficiencies. So when you look at that and still see that even with such a headwind, our guidance points to EAT margin flat to positive. And when you include that once more, I'd really expect margin expansion of more than 10 basis points; so those are truly the main pieces in how we're approaching the entire year.

Great. And in fact, you covered the follow-up I had, which concerned development, though more from a global perspective; and it strikes me as quite interesting that in your presentation you're also emphasizing how important international is within your strategic planning. So I'm curious whether you might help us grasp when we will see — the biggest over the coming 2 to 3 years, when will the greatest effect arrive from the international expansion? And perhaps you could provide some kind of parameters from an EAT standpoint regarding the contribution that we might — that we could anticipate from growth in international markets?

Danilo, one thing to remember is that when we grow overseas, it's done via franchising. That's not equivalent to us launching a new restaurant of an existing brand, yet a solid share of the revenue still comes our way. As more franchise locations get added, EAT should expand, though we're really talking about a few cents per year — the lower end of single digits annually — since you're looking at maybe 20 or 25 locations in a strong year for openings. Even so, it's a meaningful piece of business for us. And the work Brad Smith and his group are doing to locate partners is excellent. As I mentioned in my prepared remarks, Darden will see more international openings than ever before. Our plan is to maintain that pace annually over the coming several years, and on top of that, we'll keep bringing on additional partners. Those most recent three agreements were inked back in June of last year—essentially twelve months ago. The locations covered were 40 restaurants across a portion of India, 40 in Spain, and 30 in Canada. Before this, we had never managed to sign a country development deal and get it open inside a year, yet essentially all three are on track to launch within that 12-month window. Beyond that, further openings in those markets are already lined up. So our confidence in where things stand is quite high. Even so, it won't dramatically boost EAT's expansion. It will contribute to earnings per share, though only modestly, yet the impact remains favorable.

Nice work on the year you just had. What I'd like to dig into is the same-store sales outlook for fiscal '27 and that 2.5% to 3.5% range. How are you broadly framing that when it comes to Olive Garden? Would it be fair to say your thinking lands a touch under that, yet still on the positive side? And if that's right, how are you approaching restaurant level margin for the brand in this coming year, particularly given what you're doing with the small plates? It looks like you're pushing harder there. Do you believe those margins can hold steady this year? I also have one quick follow-up.

Sure, David, that's a good one. Let me begin by saying, first off, I appreciate you recognizing that. It was indeed a great year for us. So that has us excited and pleased. From a — you can picture, when we review the portfolio and we say 2.5% to 3.5%, you'd anticipate, and we anticipate, Olive Garden landing nearer the bottom of that band across the year; but even so — we continue to anticipate solid growth from Olive Garden. That's especially true when you factor in where the industry is likely to be. And the way to frame it on the margin side is, I just mentioned how in Q4, they in fact saw a 50 basis point lift in segment profit margin despite facing the headwind from the lighter portion investment worth 50 basis points. Looking ahead across the entire year for next year, my expectation is that their margins will be flat to positive; in other words, we don't see margins declining. They've excelled at controlling costs across the rest of the P&L so they can fund investments; and that's genuinely what makes Olive Garden so strong. This is an engine that has been powering growth for Darden via the cash generation it delivers. So it carries a major role in keeping the Darden portfolio as successful as it has been.

Yeah. I wanted to circle back regarding Olive Garden. A ton has been going on with that brand. You folks have perhaps had, with LongHorn, there are efforts underway, though we don't hear as much about them. I mean, when it comes to Olive Garden, the initiatives have been very much in the spotlight, small plates, you've pushed hard into delivery. So what do you plan to emphasize in fiscal '27? I'm certain you'd rather not land much below the exit rate comp, below the mid-2s, as you head into this year. What will the team truly be concentrating on? How would you tell the tale of '27 for that brand?

Yeah, David. Raj touched a bit on how the story goes for the brand, which is that their comps will land somewhere between 2.5% and 3.5%, though likely nearer the low end, and that's fine by us. We believe that's a solid spot for Olive Garden to occupy provided they keep making long-term investments, so they can sustain those comps over the coming 20 years rather than chasing something for 1.5 years. Marketing < > brand sits in a good position to use news to bring in traffic, and they keep developing some news items and you can observe that. LongHorn relies a bit less on news to bring in traffic. Yet Olive Garden does lean on news to bring in traffic. And among the methods we accomplish that is through a number of initiatives aimed at keeping core guests engaged. And Olive Garden's core guests made up the fastest-growing portion of Olive Garden during the last quarter, and that matters to us. Still, we'll keep adhering to our marketing filters, and you'll witness some of that material across the coming year. But keep in mind, it has to be easy to execute, it cannot be a deep discount and it will lift brand equity. Yet ultimately, everything boils down to < > profitable sales growth, and Raj just noted we'll land somewhere in the flat to flat to positive segment profit for Olive Garden, even with the growth. So without diving into too many competitive details, you'll spot some items at Olive Garden that you might have seen years back or that some folks might never have seen; and so I think it matters to recognize that we won't simply sit back and let Olive Garden do nothing and post a very low comp; we're going to have — make sure they're doing the right things for Olive Garden over the long term and to help the other brands over the long term too. So you ought to see some items this year that you might not have seen previously or might not have seen in a while.

I've got a fast question, then one about guidance, and then one regarding the quarter. On the guidance side, though, I was just curious about the CapEx outlook. It seems like a larger increase than what the count of new units would suggest. Does that tie to the — sorry, the conversions? Or is there another factor at play there? Just attempting to figure out whether it connects to a change in the source of your unit growth, or more to do with Bahama Breeze conversions.

Right, Sara. Let me begin by unpacking the CapEx somewhat and then address new units; that's where the largest increase shows up. But when you consider the $875 million guidance, about $25 million ties to the conversions. That leaves us at $850 million. Nearly $350 million covers maintenance/IT investment; essentially keeping up our buildings, technology investments, all of that; and around 500 relates to new unit growth; so we mentioned opening 75 to 80 this year, but we also mentioned attempting to reach that 3% to 4% and building the pipeline for next year. So there's a fairly robust pipeline for next year, and a portion of those costs land in this year. That's really part of why we're finishing up where we're finishing up. But it's — believe us, we apply a pretty strong filter for how we deploy capital here at Darden. And we hold our brands and our development team to a fairly high standard, and our returns on new restaurants have been outstanding. So we feel this is a good use of capital.

Then I'd like to circle back to what was said regarding observing some spending growth from lower income consumers — that group, I believe, had been losing traffic during earlier quarters. You brought up refunds, I realize. Yet is there anything — when you consider what drew them in with the smaller portion? Did that matter since it clearly also comes with lower price points? I suppose when you think about value messaging, maybe in a broader sense, whether anything shifted during the quarter, we'd heard that the Italian category perhaps was somewhat more promotional or leaned more toward value. So I'm just attempting to square everything I believe I understand about the industry, though maybe that isn't accurate.

I believe you've covered every point, correct? So many different factors could be at play. I genuinely think the tax refunds were part of it. That isn't to say that's the sole cause. Other causes exist, in my view. As for the Italian category being more promotional, I'm not certain I really observed that. My sense is Olive Garden repeated what they did the prior year, though perhaps others did differently; even so, since we hold a large portfolio, we noted that Casual Dining as a whole — the entirety of Casual Dining performed quite well among every cohort. The distinction is that the lowest quintile turned positive compared with a year ago, whereas previously they hadn't. That's the reason we chose to call attention to it; and we'll find out whether additional causes emerge, yet it remains too soon to pin down precisely what those causes were, though we feel fairly confident about it.

Yeah. I suppose roughly 3% inflation on commodities looks fairly decent given the current climate, where plenty of items are fluctuating significantly. I'm wondering, is this basically a textbook case of how your size truly pays off? And I'm also wondering, does the way you distribute things sort of lower some of the expenses compared to what you'd see otherwise, or what some competitors might face in a climate like this?

Yeah, without a doubt. We've discussed how size helps us. And I believe Rick, in fact, during his prepared comments, mentioned specifically the advantage of running our own distribution system and holding our own stock and dealing straight with our vendors, and the advantage from size is significant, particularly it shields us against a great deal of fluctuation, and we will achieve that since we're able to promise specific quantities, and that makes vendors feel — confident about locking in specific pricing; so — and I don't want to diminish what our supply chain group accomplishes. I mean they've performed superbly, beating the market by mid- to high single-digit percentage points across several years; so that's one aspect of it, how skilled our group is at bargaining and securing excellent terms for Darden, but size truly matters, no question.

Raj, what you're asking about is the extra preopening costs plus some margin drag coming from the new units. I suppose it doesn't really sound like that's a onetime thing. And in years ahead, if unit growth kept speeding up a bit, my assumption is that wouldn't simply disappear. Were you making the point that it was tied mostly to the conversions happening this year, and because of that, you wouldn't face it in later years?

Yes, Brian, excellent point. Yes. So what I was getting at is that we're opening — or basically stepping up, since conversions drive it, it comes to a step-up of roughly 20 units, while if you compare one year to the next, from now to next year, even assuming a mid- to high percent of that target range for units, the step up won't be as large. So this is one — this will show up in the P&L. But comparing year-over-year, the same headwind won't be there.

Perhaps I'll begin with Olive Garden. I realize we've discussed this extensively, yet at present you're offering lower price points, and they've now become part of the core menu. Also, it appears protein is turning into a larger component of the Olive Garden lineup. From what I can tell, right now you're spotlighting a hot honey chicken, at least when it comes to the appetizer side. So could you address how you're approaching the balance between what customers desire and those robust margins the brand has enjoyed historically? It seems certain new items or LTOs that lean more toward protein wind up costing somewhat more. So how ought we consider margins over the longer term for that segment?

Jon, I simply want to ensure it's understood that we do have the lighter portions menu, yet we aren't featuring it anywhere. It isn't as though we're marketing it or doing anything with it. Guests are discovering it on their own as they go; so — but regarding protein, yes, we've got somewhat more protein in a few of these menu items. They still carry a good margin. And as we said, next year, with these investments we made and the Lighter Portions and even in some of the protein, we anticipate our margins being flat to positive; and we'll keep finding other ways to help fund these things. But Olive Garden will be, we believe, a viable brand for a very long time; and to achieve that, we must keep making investments; we must keep evolving alongside what the consumer is seeking, and right now they're seeking a little bit more protein. Who knows how long that lasts, but at present they're seeking a little bit of protein; and we can find ways to provide that at Olive Garden and at all of our other brands. Once more, that is the value of the portfolio we hold. We aren't depending on any single brand, and we aren't depending on any single cuisine. And so you consider LongHorn, you consider Yard House, Cheddar's, Chuy's, very protein-centric across those brands. So — and all of our other brands. So it's — let's not go too far and claim Olive Garden needs to become LongHorn with protein, but they will have some protein on their menu; and they always do with promotions, they have some proteins. The chicken appetite you brought up is performing really well for them. and we'll see how we can keep that going.

Great; and then you just landed on the notion that the benefits you enjoy as a portfolio company — and I believe during the presentation on today's call, you addressed quite openly the power that comes with scale. So I'm wondering whether you might kind of update your thinking regarding the M&A landscape and in particular, how you envision your portfolio expanding as time goes on beyond the brands you currently own?

Yes, Jon, let me begin by stating that our long-term framework doesn't require acquisitions for us to achieve that. So M&A isn't necessarily a component of that framework; M&A could provide incremental lift to that framework; we're very fond of the brands we currently have. Our attention is on organic growth for these brands and developing scale in that manner. Should an opportunity arise, our Board will talk it over; but at this moment, we're working with whatever is right in front of us, which means the brands we own today and converting those Bahama Breezes that remain. That isn't a small amount of effort. That's a considerable amount of effort for our teams. It will be extremely valuable to us. but we're going to concentrate on the brands we have until another brand appears.

Two things on that, if that's alright. First, regarding how people perceive the brand's value. Have the scores shifted at all? I'm not sure whether the smaller locations have contributed on the value front, or some of those other efforts you've put in place, but any word on where value stands if you've noticed anything different recently?