Press release·04/01/2025 21:11:06

Overview of Operations

Darden Restaurants, Inc. reported strong financial results for the third quarter and first nine months of fiscal 2025. Total sales increased 6.2% and 4.4% respectively, driven by sales from 143 net new restaurants, including the acquisition of 103 Chuy’s restaurants, as well as a blended same-restaurant sales increase of 0.7% and 0.8%. However, the company’s blended U.S. same-restaurant sales were negatively impacted by severe weather and a shift in the timing of the Thanksgiving holiday.

Net earnings from continuing operations were $323.7 million and $747.0 million for the third quarter and first nine months, up from $313.4 million and $720.5 million in the prior year periods. Reported diluted net earnings per share from continuing operations were $2.74 and $6.30, compared to $2.60 and $5.95 previously.

Outlook

On October 11, 2024, Darden acquired Chuy’s Holdings, Inc. for $649.1 million in an all-cash transaction. The acquisition was financed through the issuance of $400 million in 4.350% senior notes due 2027 and $350 million in 4.550% senior notes due 2029.

During the second quarter, Darden entered into an exclusive multi-year delivery arrangement with Uber Technologies, Inc. to enable guests to order delivery via Darden restaurant channels, with delivery handled by Uber. A pilot of first-party delivery from Olive Garden began in the second quarter and rolled out to nearly all locations by the third quarter. A pilot for Cheddar’s Scratch Kitchen will begin in the fourth quarter.

For fiscal 2025, Darden expects sales of approximately $12.1 billion, same-restaurant sales growth of around 1.5%, and 50-55 new restaurant openings. Capital expenditures are expected to be around $650 million, including the addition of Chuy’s.

Sales

Darden’s sales increased across all segments in the third quarter and first nine months of fiscal 2025:

• Olive Garden’s sales rose 1.5% and 1.1%, driven by same-restaurant sales increases and new restaurant openings, partially offset by a decrease in guest counts.
• LongHorn Steakhouse’s sales grew 5.1% and 7.3%, fueled by same-restaurant sales increases and new restaurants.
• Fine Dining sales increased 3.3% and 0.6%, due to higher average check, partially offset by lower guest counts.
• Other Business sales jumped 20.2% and 10.8%, primarily from the addition of Chuy’s and new restaurant openings, despite negative same-restaurant sales.

Costs and Expenses

Darden’s operating costs and expenses as a percentage of sales decreased slightly in the third quarter but remained flat for the first nine months:

• Food and beverage costs decreased due to pricing leverage and cost savings, partially offset by menu mix changes.
• Restaurant labor costs remained flat, with productivity improvements offsetting inflation.
• Restaurant expenses increased due to inflation and brand mix, partially offset by pricing.
• Marketing expenses were flat as a percentage of sales.
• General and administrative expenses rose due to Chuy’s transaction costs, partially offset by lower Ruth’s Chris integration costs.
• Depreciation and amortization increased due to the Chuy’s acquisition and new restaurant investments.
• Impairment and disposal of assets remained flat.

Interest Expense and Income Taxes

Net interest expense increased as a percentage of sales due to financing related to the Chuy’s acquisition. The effective income tax rate rose to 13.1% in the third quarter and 12.2% for the first nine months, driven by higher net earnings and non-deductible Chuy’s transaction costs.

Segment Results

Darden’s four reportable segments - Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business - all saw increases in segment profit margin in the third quarter, ranging from 50 to 70 basis points. For the first nine months, Olive Garden, LongHorn Steakhouse, and Other Business improved, while Fine Dining declined by 20 basis points.

The increases were primarily driven by lower food and beverage costs, as well as productivity improvements, partially offset by negative same-restaurant sales in some segments.

Liquidity and Capital Resources

Darden’s principal source of liquidity is cash flows from operating activities, which increased to $1.25 billion for the first nine months of fiscal 2025 from $1.20 billion in the prior year period. This was primarily due to higher net earnings and the timing of tax payments.

Net cash used in investing activities was $1.10 billion, including $613.7 million for the Chuy’s acquisition, compared to $1.18 billion in the prior year which included the $699.9 million Ruth’s Chris acquisition. Capital expenditures increased slightly to $472.6 million.

Financing activities used $123.9 million in cash, down from $158.5 million, as the company repaid commercial paper, issued $750 million in long-term debt, paid dividends of $494.6 million, and repurchased $367.2 million in shares.

Darden maintains an investment-grade credit rating and has access to a $1.25 billion revolving credit facility, of which $1.19 billion was available as of February 23, 2025. The company also issued $400 million in 4.350% senior notes due 2027 and $350 million in 4.550% senior notes due 2029 to finance the Chuy’s acquisition.

Analysis

Darden delivered solid financial results in the third quarter and first nine months of fiscal 2025, demonstrating the strength of its diversified portfolio of restaurant brands. The company’s sales growth was driven by new restaurant openings, including the strategic acquisition of Chuy’s, as well as positive same-restaurant sales trends in most segments.

The company’s focus on cost management and operational efficiency helped offset inflationary pressures, allowing Darden to maintain relatively stable operating margins. Improvements in restaurant-level profitability, particularly at Olive Garden, LongHorn Steakhouse, and the Other Business segment, indicate that the company is effectively managing its cost structure.

Darden’s liquidity position remains strong, with ample cash flow from operations and access to credit facilities to fund growth initiatives, such as new restaurant openings and the Chuy’s acquisition. The company’s investment-grade credit rating and ability to access the debt capital markets provide financial flexibility to pursue strategic opportunities.

However, the company faces some headwinds, including the negative impact of severe weather and holiday timing on same-restaurant sales, as well as rising interest expenses related to the Chuy’s acquisition financing. Additionally, the integration of Chuy’s operations will require careful execution to ensure a seamless transition and realization of expected synergies.

Looking ahead, Darden’s guidance for fiscal 2025 suggests continued momentum, with expectations for solid sales growth, same-restaurant sales improvement, and moderate new unit expansion. The company’s focus on enhancing the guest experience through initiatives like the Uber delivery partnership and ongoing investments in technology and operations should help drive long-term value creation.

Overall, Darden’s performance in the third quarter and first nine months of fiscal 2025 demonstrates the resilience of its business model and the effectiveness of its strategic initiatives. The company appears well-positioned to navigate the current operating environment and capitalize on opportunities for future growth and profitability.