Darden Restaurants Earnings Call Highlights Growth Amid Costs

Darden Restaurants, Inc. ((DRI)) has held its Q2 earnings call. Read on for the main highlights of the call.

Darden Restaurants Balances Robust Sales Momentum With Margin Pressures

Darden Restaurants’ latest earnings call struck a largely upbeat tone, underscored by strong same-restaurant sales growth, successful promotions, and accelerating unit expansion. Management acknowledged pressure from elevated commodity and labor costs—most notably in its fine dining brands—but emphasized that broad-based sales strength and solid execution are supporting overall performance despite margin headwinds.

Broad-Based Same-Restaurant Sales Outperformance

Darden delivered positive same-restaurant sales across all major segments, with Olive Garden up 4.7% and LongHorn Steakhouse up 5.9%. Other brands also posted growth, and the company said its same-restaurant sales outpaced the broader industry by roughly 300 basis points. This outperformance highlights Darden’s ability to gain share in a competitive and value-sensitive environment, signaling that its brands remain relevant and resilient with consumers.

Accelerated Expansion and New Openings

Expansion was a clear growth driver in the quarter as Darden opened 17 new restaurants, adding roughly 40 operating weeks above its original plan. The company indicated it is tracking ahead of its fiscal-year development goals and expects to exceed planned openings for the year. This stepped-up pace of new unit growth, layered on top of solid same-restaurant sales, positions Darden for continued top-line gains and reinforces management’s confidence in the long-term demand for its concepts.

Olive Garden Promotions and Value Resonance

Olive Garden’s Never Ending Pasta Bowl promotion once again proved to be a traffic driver, contributing to the brand’s 4.7% same-restaurant sales increase. Beyond short-term promotions, Olive Garden is also benefiting from a stronger value perception: guests ordering from the lighter portions menu drove a double-digit improvement in affordability perceptions. This mix of promotional appeal and perceived everyday value is helping Olive Garden maintain guest loyalty while supporting incremental sales.

Record Guest Satisfaction Underpins Brand Strength

Across its portfolio, Darden reported record or near-record guest satisfaction scores, a sign that operational execution remains a differentiator. Management credited consistent in-restaurant performance for these results, suggesting that service quality and experience are reinforcing the company’s sales momentum. Strong guest satisfaction also provides a buffer against competitive pressures, making it easier for Darden to hold share even as consumers become more selective with dining dollars.

Solid Top-Line Growth and Shareholder Returns

Financially, Darden posted total sales of $3.1 billion, up 7% year-over-year, and achieved 2.5% growth in adjusted earnings per share. While EPS growth lagged sales due to cost pressures, the company still generated enough cash to return $396 million to shareholders through dividends and share repurchases. This combination of steady earnings growth and meaningful capital return underscores Darden’s ability to reward investors while continuing to invest in expansion and operations.

Commodity Cost Pressures Weigh on Margins

Elevated commodity costs—especially beef—remained a significant drag on profitability. These higher input costs affected most segments, with Olive Garden being the primary exception given its pasta-heavy menu. Management emphasized that commodities are still at historically high levels, limiting margin expansion even as sales grow. The company continues to manage pricing carefully to protect traffic, which constrains its ability to fully offset these cost increases through menu price hikes.

Labor Costs Remain a Persistent Headwind

Despite productivity gains and operational efficiencies, Darden continues to feel pressure from labor inflation. Restaurant labor expenses were 10 basis points higher than a year ago, reflecting wage growth and staffing needs to support strong sales and new openings. While the labor drag is modest, it adds to the broader margin squeeze from commodities and highlights the challenge of sustaining earnings growth in a rising cost environment.

Fine Dining Segment Faces Profitability Squeeze

Darden’s fine dining segment was the soft spot in the quarter. Sales in the segment grew just 0.8%, and profitability was hit hard, with segment profit margin at 14.8%—a decline of 280 basis points from last year. Elevated beef costs, which are particularly impactful in steak- and protein-heavy fine dining concepts, were a key driver of the margin compression. While the segment did manage positive same-restaurant sales growth, its earnings contribution lagged the rest of the portfolio and remains an area to watch for investors.

Guidance Signals Confidence in Continued Growth

Looking ahead, Darden raised the bar with updated fiscal 2026 guidance that points to continued strength. The company now expects total sales growth of 8.5% to 9.3%, supported by same-restaurant sales growth of 3.5% to 4.3% and an aggressive development plan calling for 65 to 70 new restaurant openings. Adjusted diluted EPS is projected between $10.60 and $10.70. Management reiterated its commitment to keep menu pricing below inflation—by about 130 basis points—signaling an ongoing focus on value and traffic, even as cost pressures persist.

In summary, Darden Restaurants’ earnings call painted a picture of a company leveraging brand strength, value propositions, and disciplined execution to drive sales and expansion, while working through commodity and labor headwinds. Same-restaurant sales outperformance, successful promotions at Olive Garden, and robust unit growth support a constructive outlook, although fine dining and cost inflation remain key risk factors. Overall sentiment was positive, with management’s guidance reinforcing the view that Darden is well positioned to deliver sustainable growth for shareholders.