Darden's Q1 2026 Earnings Call: Contradictions on Food Inflation, Delivery Impact, and Uber Eats Comps

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

Date of Call: September 18, 2025

Financials Results

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

Guidance:

• FY26 total sales growth expected at 7.5%–8.5%.
• FY26 same-restaurant sales growth expected at 2.5%–3.5%.
• Approximately 65 new restaurant openings in FY26.
• Total inflation guided to 3.0%–3.5%; commodities inflation 3.0%–4.0%.
• Adjusted diluted EPS reiterated at $10.50–$10.70.
• Q2 to see the lowest YOY EPS growth due to higher beef costs; pricing ~100 bps below total inflation in Q2.
• Pricing/inflation gap expected to narrow in H2; full-year pricing remains below total inflation.

Business Commentary:

• Strong Financial Performance:
• Darden reported total sales of $3 billion, an increase of 10% compared to the previous year.

• The growth was driven by same-restaurant sales growth of 4.7%, the addition of 103 Chuy's restaurants, and the opening of 22 new restaurants.

• Olive Garden Sales and Menu Innovations:

• Olive Garden's same-restaurant sales grew by 5.9%, driven by new menu items and delivery strategies.

• The introduction of the Create Your Own Pasta platform and limited-time offerings like Calabrian Steak and Shrimp Bucatini contributed to sales growth.

• Delivery and Guest Engagement:

• Delivery represented about 5% of Olive Garden's sales, with a significant increase in delivery order volumes during a free delivery campaign.

• First-party delivery captured younger and more affluent guests, leading to a higher check average and increased guest frequency.

• Commodity Inflation and Pricing Strategy:

• Darden's pricing was 30 basis points below total inflation, with a focus on long-term affordability.
• The company expects increased pricing to offset some of the additional commodities costs, especially in beef and seafood.

Sentiment Analysis:

• Management said sales and earnings exceeded expectations; total sales rose 10% with same-restaurant sales up 4.7%. Olive Garden comps +5.9% and LongHorn +5.5%. Guidance was raised for total sales growth and SSS, and unit openings increased to ~65. They returned $358M to shareholders. While noting beef cost headwinds and lower Q2 EPS growth, they reiterated FY EPS guidance and expect the pricing/inflation gap to narrow later in the year.

Q&A:

• Question from Brian Harbour (Morgan Stanley): How are you contracted on commodities for the rest of the year, especially beef, and what underpins your inflation outlook?
  Response: Beef coverage is ~25% for the next 6 months; recent beef spikes (plus shrimp tariffs) drive higher inflation, but current price levels seem unsustainable, so coverage is intentionally lighter.

• Question from Brian Harbour (Morgan Stanley): Early read on Olive Garden smaller-portion tests—traffic driver or check dilutive?
  Response: Early signs point to a traffic driver with some check dilution as guests trade down; minimal marketing so far, but engagement is encouraging.

• Question from Jon Tower (Citi): Cost impact from Olive Garden affordability and Uber Direct delivery on margins?
  Response: Olive Garden priced below inflation (1.9%); affordability test and delivery each pressured margins ~20 bps; segment margin still ~20.6%, only down 10 bps YOY.

• Question from Jon Tower (Citi): How is delivery guest behavior vs. dine-in and seasonality?
  Response: Delivery guests show higher frequency than dine-in; no typical summer dip observed; channel continues to grow and supports reinvestment.

• Question from David Palmer (Evercore ISI): Why is casual dining strong and how will Olive Garden sustain momentum against tough comps?
  Response: Casual dining value (lower pricing) is resonating; Olive Garden has a back-half plan with portion-right pricing that should aid traffic, with potential promotion later.

• Question from James Salera (Stephens): LongHorn comp mix and pricing vs inflation cadence?
  Response: LongHorn traffic +3.2%, pricing 2.5% with slight negative mix; Darden pricing ~100 bps below inflation in Q2, gap narrows through H2; full-year pricing remains below inflation.

• Question from Eric Gonzalez (KeyBanc): What are you seeing by income cohort and implications for margins amid commodity pressures?
  Response: Visits grew across all income groups, especially higher-income; focus is on sustaining after-tax margin inline to up per framework, not on segment margin expansion.

• Question from David Tarantino (Baird): Any change in consumer spending health vs. start of year?
  Response: No material change; August retail sales were strong and Darden’s August was also strong.

• Question from Sara Senatore (BofA): Are you increasing marketing and subsidizing delivery to drive top line?
  Response: Marketing activity is up (more TRPs, CTV tests) without heavy discounting; free-delivery promotion modestly pressured margins this quarter.

• Question from Jeffrey Bernstein (Barclays): Confidence behind raising comp guidance and 2Q cadence?
  Response: Confidence stems from outperformance and an accelerated, visible development pipeline (~65 openings); back half comps still expected below first half, but Q2 started well.

• Question from Jake Bartlett (Truist): Olive Garden delivery mix and promo outlook; Never Ending Pasta Bowl performance?
  Response: Delivery was ~5% in Q1, exiting ~4%; volumes remain ~40% above pre-promo; Uber marketing funds will be used; NEPB is off to a good start with higher preference and refills, reflected in guidance.

• Question from Peter Saleh (BTIG): What’s driving beef higher and how would you respond if it persists?
  Response: Supply constraints (packer cutbacks, halted Mexican imports, Brazil tariffs) lifted prices; if high prices persist and demand holds, they’ll take some price, though that’s not preferred.

• Question from John Ivankoe (JPMorgan): Evidence of retail beef demand destruction?
  Response: Latest month shows low single-digit YOY volume decline at retail after months of resilience.

• Question from Lauren Silberman (Deutsche Bank): Comp cadence and regional trends; commodity cadence?
  Response: July was the softest month; August outperformed industry most; Texas softer, Florida improving, CA decent; commodity inflation likely peaks in Q2, remains >3% in Q3–Q4.

• Question from Chris O’Cull (Stifel): Risk from eliminating the tip wage?
  Response: Darden can adapt to policy changes; current model remains best for guests and team, and they expect to manage any shifts effectively.