Darden Restaurants(DRI) - 2026 Q1 - Quarterly Report

Financial Performance - Total sales increased by 10.4% to $3.04 billion for the first three months of fiscal 2026 compared to $2.76 billion for the same period in fiscal 2025, driven by 125 net new restaurants and a same-restaurant sales increase of 4.7%[109] - Net earnings from continuing operations were $257.9 million for the first three months of fiscal 2026, up from $207.6 million in the same period of fiscal 2025, representing a 24.2% increase[109] - Diluted net earnings per share from continuing operations rose to $2.19 for the first three months of fiscal 2026, compared to $1.74 for the same period in fiscal 2025, marking a 25.9% increase[109] - Olive Garden's sales increased by 7.6% to $1.30 billion for the first quarter of fiscal 2026, driven by a 2.8% increase in same-restaurant guest counts and a 3.1% increase in average check[113] - LongHorn Steakhouse's sales rose by 8.8% to $776.4 million, supported by a 3.2% increase in same-restaurant guest counts and a 2.3% increase in average check[115] Tax and Expenses - The effective income tax rate for continuing operations increased to 12.2% for the three months ended August 24, 2025, compared to 10.6% for the same period in fiscal 2024[123] - Losses from discontinued operations for Q1 fiscal 2026 were $0.1 million, a decrease from $0.4 million in Q1 fiscal 2025[125] - Olive Garden's segment profit margin decreased to 20.6% in Q1 fiscal 2026 from 20.7% in Q1 fiscal 2025, while LongHorn Steakhouse's margin fell to 17.4% from 18.0%[127] Cash Flow and Capital Expenditures - Net cash flows from operating activities increased to $342.5 million in Q1 fiscal 2026, up from $273.2 million in Q1 fiscal 2025, driven by higher net earnings[140] - Capital expenditures rose to $174.1 million in Q1 fiscal 2026 from $145.2 million in Q1 fiscal 2025, reflecting increased spending on new restaurant construction and remodels[141] - Net cash flows used in financing activities were $212.2 million in Q1 fiscal 2026, compared to $126.7 million in Q1 fiscal 2025, including $175.1 million in dividends paid[142] Restaurant Operations and Growth - The company owned and operated 2,165 restaurants in the U.S. as of August 24, 2025, an increase from 2,040 restaurants at the end of the first quarter of fiscal 2025[106] - The company expects sales growth for fiscal 2026 to be between 7.5% and 8.5%, with same-restaurant sales growth projected between 2.5% and 3.5%[111] - Capital expenditures for fiscal 2026 are expected to be between $700 million and $750 million, including new restaurant openings and technology initiatives[111] - The company anticipates an increase in the number of restaurants and capital expenditures in fiscal 2026[150] Financing and Debt Management - The company entered into a $1.25 billion Revolving Credit Agreement on October 23, 2023, with no outstanding balances as of August 24, 2025[131] - The company authorized a new share repurchase program of up to $1 billion, replacing the previous authorization[144] - The company maintains a target of an investment-grade bond rating to ensure flexible access to financing at reasonable costs[130] - The fair value of long-term fixed-rate debt outstanding averaged $2.16 billion, with a range of $2.14 billion to $2.18 billion during the three months of fiscal 2026[153] - The company aims to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed-rate debt[153] Risks and Challenges - Potential losses in future net earnings from changes in equity forwards, commodity instruments, and interest rate exposures are approximately $59.1 million over one year[153] - The company faces risks related to rising costs for commodities, labor, and utilities, which could impact financial performance[150] - There are significant risks associated with hiring and retaining restaurant team members, which may affect operational efficiency[150] - The company is exposed to market risks including fluctuations in interest rates and commodity prices[152] - The company is subject to various economic factors that could adversely impact the restaurant industry, including unemployment and energy prices[150] - The company recognizes the need to effectively manage social media impacts and consumer preferences to maintain demand[150] Strategic Initiatives - The company entered into an exclusive multi-year delivery arrangement with Uber, rolling out the program to nearly all Olive Garden and Cheddar's Scratch Kitchen locations during fiscal 2025 and the first quarter of 2026[107] - The integration of Chuy's operations into the company's business is a critical focus area[150]