Darden Restaurants(DRI) - 2026 Q3 - Quarterly Report

Financial Performance - Total sales increased by 5.9% to $3.35 billion for the third quarter of fiscal 2026 and by 7.8% to $9.49 billion for the first nine months compared to the same periods in fiscal 2025[109] - Net earnings from continuing operations were $310.6 million for the third quarter and $805.9 million for the first nine months of fiscal 2026, compared to $323.7 million and $747.0 million for the same periods in fiscal 2025[109] - Diluted net earnings per share from continuing operations were $2.68 for the third quarter and $6.91 for the first nine months of fiscal 2026, compared to $2.74 and $6.30 for the same periods in fiscal 2025[110] Sales Growth - The company expects sales growth for fiscal 2026 to be approximately 9.5%, driven by a 2.0% contribution from the fifty-third week and a same-restaurant sales growth of approximately 4.5%[111] - Olive Garden's sales for the third quarter of fiscal 2026 increased by 4.7% to $1.39 billion, driven by a 3.6% increase in average check[114] - LongHorn Steakhouse's sales for the third quarter of fiscal 2026 increased by 11.2% to $854.2 million, supported by a 3.9% increase in average check[115] - The company reported a blended same-restaurant sales increase of 4.2% for the third quarter of fiscal 2026[109] - Fine Dining's sales for Q3 fiscal 2026 increased due to new restaurant revenue and a 2.2% rise in average check, despite a 0.1% decline in guest counts[116] - Other Business sales for Q3 fiscal 2026 rose primarily from a 3.6% increase in average check and a 0.3% increase in guest counts, offset by the closure of 15 Bahama Breeze locations[118] Restaurant Operations - The company-owned restaurant count increased to 2,196 as of February 22, 2026, from 2,165 at the end of the third quarter of fiscal 2025[105] - The company expects to permanently close approximately 14 Bahama Breeze restaurants and convert another 14 to other Darden brands by April 2026[107] Costs and Expenses - Total operating costs and expenses as a percentage of sales for Q3 fiscal 2026 were 87.9%, up from 86.8% in Q3 fiscal 2025, with operating income decreasing to 12.1%[120] - Food and beverage costs as a percentage of sales increased to 30.7% in Q3 fiscal 2026, up from 30.2% in Q3 fiscal 2025, primarily due to inflation[120] - General and administrative expenses decreased to 3.6% of sales in Q3 fiscal 2026, down from 3.7% in Q3 fiscal 2025, influenced by transaction costs related to Chuy's[120] Tax and Discontinued Operations - The effective income tax rate for continuing operations for Q3 fiscal 2026 was 12.9%, a slight decrease from 13.1% in Q3 fiscal 2025, primarily due to mark to market impacts[123] - Losses from discontinued operations for Q3 fiscal 2026 were $3.8 million ($0.03 per diluted share), compared to $0.3 million ($0.00 per diluted share) in Q3 fiscal 2025[125] Segment Profit Margins - Olive Garden's segment profit margin for Q3 fiscal 2026 was 23.0%, a decrease of 10 basis points from 23.1% in Q3 fiscal 2025, driven by higher restaurant expenses[128] - LongHorn Steakhouse's segment profit margin for Q3 fiscal 2026 decreased to 18.6%, down 110 basis points from 19.7% in Q3 fiscal 2025, due to increased food and beverage costs[128] Cash Flows and Investments - Net cash flows provided by operating activities from continuing operations increased to $1.28 billion for the first nine months of fiscal 2026, up from $1.25 billion for the same period in fiscal 2025[139] - Net cash flows used in investing activities from continuing operations were $523.1 million for the first nine months of fiscal 2026, a decrease from $1.10 billion for the same period in fiscal 2025[141] - Capital expenditures increased to $540.9 million for the first nine months of fiscal 2026, up from $472.6 million for the same period in fiscal 2025, reflecting increased new restaurant construction[141] - Net cash flows used in financing activities from continuing operations were $761.5 million for the first nine months of fiscal 2026, compared to $123.9 million for the same period in fiscal 2025[142] Share Repurchase and Debt - The company authorized a new share repurchase program allowing for the repurchase of up to $1 billion of outstanding common stock, with 2.7 million shares repurchased in the first nine months of fiscal 2026[144] - The company entered into a $1.25 billion Revolving Credit Agreement on October 23, 2023, with $960 million of credit available as of February 22, 2026[133] Current Assets and Liabilities - Current assets totaled $1.01 billion as of February 22, 2026, compared to $937.7 million as of May 25, 2025[146] - Current liabilities increased to $2.61 billion as of February 22, 2026, from $2.25 billion as of May 25, 2025, primarily due to an increase in short-term debt[146] Leverage and Debt Exposure - The company has a maximum consolidated leverage ratio of 3.50 to 1.00, which may be temporarily increased to 4.00 to 1.00 for covered acquisitions[135] - The fair value of long-term fixed-rate debt outstanding averaged $2.18 billion as of February 22, 2026, with potential losses in future net earnings from interest rate exposures estimated at approximately $72.5 million[152]