Darden Restaurants, Inc. 2027 Q1 Earnings Call

Thank you, Donna. Good morning, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO, and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. A supplemental materials presentation containing information shared on today's call is available on the Financials tab in the Investors section of our website at darden.com. Today's discussion includes certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation.

Looking ahead, we plan to release fiscal 2027 second quarter earnings on Friday, December 18th, before the market opens, followed by a conference call. During today's call, all references to industry results refer to the Black Box Intelligence casual dining benchmark, excluding Darden on a calendar-aligned basis. Darden's transition from a 53-week fiscal year last year to a 52-week fiscal year this year has created an offset of one week between our reported fiscal periods and the comparable calendar periods used in the industry benchmark. As a result, industry trends should be compared to Darden's comparable calendar results, which helps account for the one-week shift and is intended to provide a clearer year-over-year comparison. On a comparable calendar basis, average same restaurant sales for the industry increased 2.4%, and average same restaurant guest counts decreased 0.2% during our first quarter.

During today's call, we will be referring to comparable calendar periods when discussing our same restaurant sales results. This morning, we will share some brief remarks on the quarter and provide details on our financial results. Now I will turn the call over to Rick.

Thank you, Courtney, and good morning, everyone. The first quarter was a solid start to fiscal 2027. Results were in line with our expectations, and each of our segments delivered positive same restaurant sales. Throughout the quarter, our restaurant teams did a great job of controlling what they can control. They remain focused on strong operating fundamentals, and guest satisfaction scores across our brands remain at or near record highs for the quarter. Equally important, they continue to advance their strategic priorities to support long-term growth. Olive Garden grew same restaurant sales by 1% for the quarter. The brand continued to pair menu innovation with compelling value. Their Calabrian Summer promotion introduced differentiated flavors at an accessible starting price, while their Season of Garlic promotion provided guests with additional choice and multiple protein-forward offerings.

During the quarter, Olive Garden was prepared to communicate about one of its core brand equities, unlimited soup, salad, and breadsticks, but quickly pivoted away from their planned marketing support in response to external events that led to broader consumer concern about lettuce. Olive Garden is a brand that is well-positioned to leverage news to drive traffic, and there is no better example than their signature promotion, Never-Ending Pasta Bowl. This year's offer launched at the beginning of Q2, and we are very pleased with the early results. Adding to the excitement this year are two new bold menu additions, Spicy Alfredo sauce and crispy Shrimp Fritta as a protein topping. Guest preference for the protein-forward options remains strong, and Olive Garden has seen increased buy-ups for unlimited protein toppings with Never-Ending Pasta Bowl.

In support of the launch of NEPB, Olive Garden brought back their Never-Ending Pasta Pass after a six-year hiatus. The Olive Garden team drove significant social media buzz as 3 million devices logged in for the pasta pass sale. All 10,000 passes sold out immediately. More broadly, the response demonstrated the deep connection guests have with the brand and the value and abundance found at Olive Garden. This demonstrates the popularity of Olive Garden, which was further reaffirmed in YouGov's Best bites 2026: U.S. restaurant brand rankings report ranking U.S. restaurant brands. The report ranked them the number one casual dining brand for consideration when dining out by multiple generational cohorts, including millennials. Olive Garden also ranked number one among casual dining brands for service, dining experience, and value. While Olive Garden has delivered strong sales growth over the past several years, the weekday lunch daypart remains a meaningful opportunity.

I'm excited about several initiatives the team is working on that are designed to reinforce their value proposition and drive additional traffic. Later in our current quarter, Olive Garden will activate the previously planned marketing support behind its iconic unlimited soup, salad, and breadsticks lunch offering at a compelling price point. The team also plans to test a new lunch platform that delivers a highly competitive value proposition and includes the abundance that differentiates the Olive Garden. At dinner, the team continues to test additional protein-forward dishes to build on the success of new core menu items like Calabrian Steak & Shrimp Bucatini that has quickly become a guest favorite. LongHorn Steakhouse delivered same restaurant sales growth of 6.8% for the quarter. Their momentum has been powered by disciplined adherence to a clear strategy focused on quality, simplicity, and culture over many years.

Sustaining that momentum is not easy, and the team continues to have a relentless focus on consistently executing 14 great shifts every week. LongHorn also continues to invest in food quality and will be introducing new menu items and menu enhancements during the second quarter designed to strengthen value and variety at both lunch and dinner. Our other business segment delivered same-restaurant sales growth of 4.5%. This was driven by very impressive same-restaurant sales growth of 10% at Yard House. A broad menu and socially energized bar makes Yard House a natural gathering place for group occasions like sporting events. This was true for the World Cup, which presented a great opportunity for Yard House to deepen connections with their loyal guests.

It also grew brand awareness by bringing in many new guests who got to experience all the new menu enhancements the team has introduced over the past few years, including the new burger, pizza, taco, and pasta platforms. Yard House is a high potential growth brand with plans to open 13 new restaurants this fiscal year, giving even more guests an opportunity to experience the brand. Five of the openings will be conversions of Bahama Breeze restaurants, and half of the other locations will utilize the new smaller Yard House prototype. This will be the primary prototype going forward, helping lower construction costs, enabling the brand to consider even more sites while still delivering their impressive AUV of $10.5 million. I am proud of what Bryan Clements and the team at Yard House have accomplished.

Just last week, they reached $1 billion in sales for the trailing 52 weeks, becoming Darden's third billion-dollar brand. Stepping back, I am pleased with the progress our team has made during the quarter. The performance across our portfolio reinforces the importance of having distinctive brands, each with a clear strategy supported by Darden's scale and other competitive advantages. Our focus remains the same: operate our restaurants at a high level, strengthen guest loyalty, invest in our people and brands, and deploy capital in ways that support long-term shareholder value. During the first quarter, we also held our annual leadership conferences with the general managers and managing partners from across our more than 2,200 restaurants. These leaders hold the most influential position in our company, and the opportunity to interact with them and hear what is on their mind is invaluable.

Across the conferences, I saw strong engagement and alignment around what success looks like in fiscal 2027. Our brands are aligned and on remaining disciplined. Our success goes beyond the four walls of our restaurants. There is a larger purpose to what we do, and that is to nourish and delight everyone we serve, which includes the communities our guests and team members call home. One way we serve our communities is working to help end hunger. This year, the Darden Foundation and Penske are helping seven more Feeding America food banks add refrigerated trucks to support food distribution in communities with significant need. With these additions, more than 60 Feeding America food banks will have received a truck through the program during the last six years.

Of course, our philanthropic giving would not be possible without the passion of our restaurant teams for nourishing and delighting our guests. On behalf of our leadership team and board of directors, I want to thank our more than 200,000 team members for the care and commitment they bring to serving our guests and communities every day. Now, I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. The first quarter was another strong quarter for Darden, with sales and earnings growth meeting our expectations. The World Cup positively impacted Yard House same-restaurant sales by approximately 180 basis points. However, the tournament negatively impacted the rest of our brands, resulting in a net negative impact to Darden same-restaurant sales of approximately 80 basis points. This impact was concentrated earlier in the quarter, which is evident in the sequential improvement of traffic throughout the quarter. We've seen this trend further accelerate into September. In the first quarter, we generated $3.2 billion of total sales. This was 5.1% higher than last year, driven by positive same-restaurant sales growth and the addition of 53 net new restaurants. On a comparable calendar basis, same-restaurant sales grew 3.2%.