Darden’s third quarter results were met with a negative market reaction, with shares falling after the company delivered sales growth but missed Wall Street’s profit expectations. Management attributed the quarter’s performance to strong same-restaurant sales gains at Olive Garden and LongHorn Steakhouse, supported by menu innovation and the growing adoption of first-party delivery. CEO Ricardo Cardenas highlighted the positive impact of new menu items and promotional campaigns, noting, “Olive Garden’s advertising featuring 1 million free deliveries concluded in the first quarter with all the free deliveries being redeemed.” However, executives also acknowledged margin pressures from higher beef costs and increased investment in affordability initiatives.
Is now the time to buy DRI? Find out in our full research report (it’s free).
Darden (DRI) Q3 CY2025 Highlights:
- Revenue: $3.04 billion vs analyst estimates of $3.04 billion (10.4% year-on-year growth, in line)
- Adjusted EPS: $1.97 vs analyst expectations of $2.01 (2% miss)
- Adjusted EBITDA: $439 million vs analyst estimates of $452 million (14.4% margin, 2.9% miss)
- Adjusted EPS guidance for the full year is $10.60 at the midpoint, missing analyst estimates by 0.9%
- Operating Margin: 11.1%, up from 9.8% in the same quarter last year
- Locations: 2,165 at quarter end, up from 2,040 in the same quarter last year
- Same-Store Sales rose 4.7% year on year (-1.1% in the same quarter last year)
- Market Capitalization: $21.76 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Darden’s Q3 Earnings Call
- Brian Harbour (Morgan Stanley) asked about beef cost coverage and exposure to price swings. CFO Raj Vennam acknowledged limited hedging in beef and noted, “beef is the biggest variable here,” with ongoing volatility expected in the near term.
- Jon Tower (Citi) inquired about the impact of affordability initiatives and delivery costs on margins. Vennam explained that delivery and lighter portion menus each reduced margins by about 20 basis points but were planned investments to drive long-term traffic.
- David Palmer (Evercore ISI) questioned the sustainability of casual dining strength and Olive Garden’s plans against tougher comparisons. CEO Ricardo Cardenas cited value perception as a driver and said new initiatives will be deployed to maintain momentum.
- Eric Gonzalez (KeyBanc Capital Markets) probed shifts in guest income demographics. Cardenas confirmed visit growth across all income groups, with higher-income guests showing increased frequency, possibly reflecting trade-down from other segments.
- Peter Saleh (BTIG) pressed on the sustainability of elevated beef prices and the likelihood of further price increases. Vennam described current beef prices as unsustainable, but said more pricing could occur if costs remain high and demand holds.
Catalysts in Upcoming Quarters
In the coming quarters, our team will be closely tracking (1) the pace at which Darden can mitigate commodity cost pressures and achieve margin stabilization, (2) measurable progress in expanding first-party delivery and its ability to drive incremental traffic, and (3) the effectiveness of menu affordability initiatives in sustaining guest visits without eroding average check. Additional attention will be paid to new unit openings and competitive responses to Darden’s value-driven approach.
Darden currently trades at $187.26, down from $208.86 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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