Darden Restaurants, Inc. (DRI) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended November 23, 2025 (Fiscal Q2 2026) and the six months ended on that date. Darden Restaurants operates full-service dining brands including Olive Garden, LongHorn Steakhouse, Ruth's Chris, and The Capital Grille. As of the period end, the company owned and operated 2,182 restaurants in the U.S. Notable strategic activities during the period included the sale of eight Olive Garden locations in Canada and the ongoing integration of the Chuy's acquisition completed in the prior fiscal year.
Key Financial Metrics
| Metric (in millions) | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Sales | $3,102.1 | $2,890.0 | $6,146.8 | $5,647.0 |
| Operating Income | $320.4 | $292.1 | $659.6 | $561.3 |
| Net Earnings | $237.2 | $215.1 | $495.0 | $422.3 |
| Diluted EPS | $2.03 | $1.82 | $4.22 | $3.56 |
| Operating Cash Flow (YTD) | $663.2 (YTD 2026) vs $661.8 (YTD 2025) | |||
| Capital Expenditures (YTD) | $375.0 (YTD 2026) vs $314.5 (YTD 2025) | |||
| Debt (Long-term) | $2,139.1 (Nov 23, 2025) | |||
| Cash & Equivalents | $224.1 (Nov 23, 2025) |
Margins: Operating margin for the quarter was 10.3% (up from 10.1% prior year). Net earnings margin was 7.7% (up from 7.5%).
Material Changes vs. Prior Period
- Sales Growth: Sales increased 7.3% in Q2 and 8.9% YTD, driven by the inclusion of Chuy's, 30 net new restaurants, and a blended same-restaurant sales (SRS) increase of 4.3% (Q2) and 4.5% (YTD).
- Profitability: Net earnings rose 10.3% in Q2 and 17.2% YTD. Operating income increased 9.7% in Q2 and 17.5% YTD.
- Cost Pressures: Food and beverage costs increased as a percent of sales (31.1% vs 30.2% in Q2) due to inflation (1.6% impact), partially offset by pricing leverage. Restaurant labor costs also rose slightly (32.2% vs 32.1%) due to inflation.
- Asset Disposition: The company recorded a net gain of $44.9 million YTD on the disposal of assets, primarily related to the sale of eight Olive Garden Canada locations and real estate sales.
- Shareholder Returns: The company repurchased 2.0 million shares YTD for $404.3 million and paid dividends of $3.00 per share YTD.
Guidance, Outlook, and Risks
Fiscal 2026 Outlook:
- Sales Growth: Expected between 8.5% and 9.3%.
- Same-Restaurant Sales: Expected between 3.5% and 4.3%.
- New Openings: Expected between 65 and 70 new restaurants.
- Capital Expenditures: Expected between $750 million and $775 million.
Management Commentary: Management highlighted strong performance in Olive Garden and LongHorn Steakhouse. LongHorn margins were pressured by menu pricing set below inflation. The company is exploring strategic alternatives for the Bahama Breeze brand (28 locations).
Risks and Contingencies:
- Cost Inflation: Continued pressure on commodities, labor, and utilities.
- Integration Risk: Successful integration of Chuy's operations.
- Regulatory/Tax: Impact of the "One Big Beautiful Bill Act" (OBBBA) enacted July 2025, which restored 100% bonus depreciation.
- Market Risk: Exposure to interest rate, commodity, and equity market volatility, managed via derivative instruments.
Investor Verification Checklist
- Chuy's Integration: Verify the timeline for Chuy's inclusion in same-restaurant sales metrics (expected Q4 2026) and the realization of projected synergies.
- Bahama Breeze Strategy: Monitor updates on the strategic alternatives (sale or conversion) for the Bahama Breeze brand.
- Margin Sustainability: Assess the ability to maintain operating margins given the 1.6% inflation impact on food costs and labor pressures.
- Capital Allocation: Review the balance between $750M+ capital expenditures, $1B share repurchase authorization, and dividend commitments.
- Debt Covenants: Confirm compliance with the new leverage ratio covenant (max 3.50:1.00) under the amended Revolving Credit Agreement.