Darden's Q1 2026: Contradictions Emerge on Pricing Strategy, Delivery & Marketing, and Consumer Spending and Income Groups

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $3.0B, up 10% YOY
• EPS: $1.97 adjusted diluted EPS from continuing operations, up 12.6% YOY

Guidance:

• FY26 total sales growth expected at 7.5%–8.5% (raised)
• Same-restaurant sales growth 2.5%–3.5% (tightened)
• Approximately 65 new restaurant openings (pipeline accelerated)
• Total inflation 3.0%–3.5%; commodities inflation 3%–4%
• Adjusted diluted EPS unchanged at $10.50–$10.70; lowest YoY EPS growth in Q2
• Q2 pricing ~100 bps below inflation; gap narrows in H2
• Commodity inflation expected to peak in Q2; beef costs elevated; coverage lighter (≈25% in beef next 6 months)
• Pricing for FY to end in mid-to-high 2%, continuing to price below total inflation

Business Commentary:

• Strong Financial Performance:
• Darden Restaurants reported sales growth of 4.7% for Q1, exceeding expectations, with total sales reaching $2.8 billion.
• The company's adjusted diluted net earnings per share were $1.97, up 12.6% from the previous year.

• This growth was driven by their strategic investments in pricing, menu innovation, and consumer engagement, as well as positive same restaurant sales and traffic growth in most segments.

• UberDirect Partnership Success:

• Olive Garden and Cheddar’s Scratch Kitchen saw significant growth through their partnership with UberDirect for delivery, with delivery order volume doubling during a promotional campaign.
• Following the promotion, delivery order volume remained 40% above pre-campaign averages, contributing to increased sales and traffic.

• The partnership helped capture younger and more affluent guests, resulting in higher check averages and incremental opportunities for these brands.

• Menu Pricing and Affordability:

• Darden maintained pricing below total inflation, with food and beverage expenses lower by 20 basis points, driven by leverage on pricing.
• The company continued to emphasize affordability, introducing smaller portion sizes at Olive Garden, which increased preference scores by 15%.

• These initiatives catered to evolving consumer tastes for bolder flavors and allowed for price adjustments to respond to market demands.

• Beef Cost Challenges and Strategic Pricing:

• The company faced challenges with higher beef costs, particularly impacting LongHorn Steakhouse with higher-than-expected costs towards the end of the quarter.
• Darden’s pricing was 30 basis points below inflation for the first quarter, with a plan for further adjustments as the year progresses.
• The strategy aims to navigate inflationary pressures while ensuring long-term business health and consumer value, with a focus on maintaining strategic pricing rather than short-term adjustments.

Sentiment Analysis:

• Management said results “exceeded our expectations,” with “same restaurant sales and earnings growth” strong. Guidance was raised for total sales growth and same-restaurant sales, and development accelerated (~65 openings). They highlighted strong Olive Garden and LongHorn comps and continued market-share gains. Caution noted on elevated beef costs and Q2 EPS growth being the lowest of the year, but they reiterated full-year EPS guidance and expect the price/inflation gap to narrow in H2.

Q&A:

• Question from Brian James Harbour (Morgan Stanley): Could you discuss contracting/coverage on food costs, especially beef, and visibility for the rest of the year?
  Response: Beef coverage is ~25% for the next six months; beef and shrimp (tariffs) drive higher inflation; current beef spikes seem unsustainable; raised commodity inflation to 3%–4% with situation fluid.

• Question from Brian James Harbour (Morgan Stanley): Early read on Olive Garden’s smaller portions—traffic or check impact?
  Response: Early but viewed as a traffic driver; modest check dilution as some trade down; signs of slightly higher frequency without marketing support yet.

• Question from John Tower (Citi): How did affordability initiatives and UberDirect affect margins, and what’s the forward impact?
  Response: Planned and absorbed: Olive Garden pricing was 1.9%; Uber fees and affordability each ~20 bps margin headwind; OG segment margin only -10 bps YOY and still >20%.

• Question from John Tower (Citi): Any color on delivery guests’ frequency/seasonality at Olive Garden?
  Response: Delivery guests are more frequent than dine-in; no typical summer drop-off seen; still building read on seasonality as the channel scales.

• Question from David Palmer (Evercore ISI): What’s driving casual dining strength, and how will Olive Garden sustain momentum against tougher compares?
  Response: Value leadership with lower pricing vs other segments and strong in-restaurant experience; Olive Garden has back-half plans, with right-sized portions supporting long-term traffic.

• Question from Jim Sanderson (Stephens): LongHorn comp split (traffic vs ticket) and pricing vs inflation cadence?
  Response: LongHorn traffic +3.2%, check +2.3% (price 2.5%, -20 bps mix); Darden pricing ~100 bps below inflation in Q2, gap narrows in H2 while staying below inflation for FY.

• Question from Eric Andrew Gonzalez (KeyBanc Capital Markets): Trends by income cohort and margin outlook amid commodities?
  Response: Visits up across all income groups, notably higher-income; focus is on EAT margin flat-to-up per long-term framework, even if segment margins fluctuate.

• Question from David Tarantino (Baird): State of the consumer and driver of narrowing price/inflation gap later in year?
  Response: Consumer steady vs start of year; narrowing gap mainly from taking a bit more price later while avoiding pricing for temporary cost spikes.

• Question from Sarah Senator (Bank of America): How are you investing behind top-line (marketing, delivery fees)?
  Response: Increasing media (more TRPs, CTV/digital) without deep discounting; free-delivery campaign modestly pressured margins; will continue targeted delivery promotions.

• Question from Jeffrey Bernstein (Barclays): Confidence in raised comp guide and Q2; Uber first-party expansion and marketplace view?
  Response: Raised outlook reflects strong unit pipeline and start to Q2; back-half comps remain lower than first half; a third brand adds first-party delivery in Q3; remain cautious on third-party marketplaces.

• Question from Jacob Aiken-Phillips (Milieus Research): Unit growth ramp and prototype/cost updates?
  Response: Target 3%–4% sales growth from new units over five years; smaller, more efficient prototypes lower costs; construction tracking at/under budget with strong returns.

• Question from Jake Bartlett (Truist Securities): Delivery mix and Never Ending Pasta Bowl performance at Olive Garden?
  Response: Delivery ~5% in Q1; exited ~4% (still ~40% above pre-promo); will use Uber marketing funds; Never Ending Pasta Bowl off to a strong start with higher preference/refills, within guidance.

• Question from Peter Saleh (BTIG): What’s driving beef price spikes and how would you respond if sustained?
  Response: Supply constraints (packer cutbacks, halted Mexico imports, Brazil tariffs) and near-term demand; expect demand destruction; would consider more price if high costs persist and demand supports it.

• Question from John Ivanko (J.P. Morgan): Retail beef demand and smaller-portion strategy lessons?
  Response: Recent retail beef volume turned to low-single-digit decline YOY; OG’s smaller portions remain abundant with unlimited soup/salad/breadsticks, adding price breadth without shrinking the whole menu.

• Question from Lauren Silverman (Deutsche Bank): Comp cadence and commodity cadence by quarter/region?
  Response: July was weakest; August had biggest gap vs industry; limited regional variance; commodity inflation expected to peak in Q2, remain >3% in Q3, easing by Q4.

• Question from Courtney Aquilla (Bernstein): Progress on speed of service and drivers of top/bottom store performance within brands?
  Response: Speed gains early; renewed focus via GM conference; store outperformance primarily driven by strong, stable restaurant leadership teams.

• Question from Dennis Geiger (UBS): Any notable daypart or menu-mix behaviors?
  Response: Alcohol preference is softer; LongHorn lunch growing faster than dinner (both up); fine dining weekdays softer on reduced business travel.

• Question from Christopher Thomas O’Cull (Stifel): Risk from eliminating the tip wage?
  Response: Models vary across the industry; Darden can adapt to policy outcomes and does not foresee material impact to its business model.

• Question from Brian Michael Vaccaro (Raymond James): Olive Garden comp breakdown and check vs price; labor reinvestment?
  Response: Olive Garden: SSS +5.9% with traffic +2.8% plus +80 bps catering; price 1.9% and ~40 bps delivery fee uplift; check will exceed price mainly due to delivery fees; labor inflation 3.1% offset by productivity.

• Question from Jim Sanderson (North Coast Research): Delivery incrementality and Olive Garden mix impact from smaller portions?
  Response: Delivery ~50% incremental outside promos; smaller portions are mix-dilutive but offset by higher-preference premium items like Calabrian steak & shrimp.

• Question from Zach Ogden for Andrew Michael Charles (TD Cowen): Which brands are driving ‘other business’ and any Gen Z trends?
  Response: Cheddar’s led comps, followed by Yard House and Seasons 52; Gen Z behavior broadly similar to overall consumer trends.