Darden Restaurants reported QQ1 2026 results reflecting a modest top-line gain amid a challenging cost and margin backdrop. Revenue of $3.0447 billion was up ~3% year over year, supported by resilient guest traffic, while EBITDA stood at $428.8 million and net income at $257.8 million, translating to diluted EPS of $2.19. The quarter featured a substantial gross profit contribution (gross profit of $2.116B on $3.045B revenue, ~69.5% gross margin on reported figures) but was offset by notable 'other expenses' totaling roughly $1.591B, with total operating expenses of $1.776B and a net total expense impact of -$45.4 million from other income/expenses. This combination produced an operating income of $339.2 million and a net income margin of 8.47%. The company continued to deploy capital toward share repurchases (approximately $182.7 million) and modest share issuance (about $8.8 million), culminating in a -$29 million net change in cash for the quarter and ending cash of ~$225.5 million. Free cash flow was reported at $342.5 million, underscoring strong cash-generation capabilities even as leverage remains a key point of scrutiny. Management commentary (where available) and the quarterly results together suggest ongoing focus on guest traffic, mix optimization, and cost discipline, but the balance sheet warrants attention given the historically elevated debt load relative to EBITDA. Investors should monitor cash flow sustainability, debt-maturity profile, and any color on commodity/guest dynamics and new menu initiatives that could unlock further profitability as macro conditions evolve.
Net Income: $257.8 million; Margin 8.47%; YoY -16.33%; QoQ -20.28%
EPS (diluted): $2.19; YoY -14.34%; QoQ -19.93%
Financial Highlights
Revenue and profitability metrics presented for QQ1 2026 (USD):
- Revenue: $3,044.7 million; YoY +2.96%; QoQ -3.59%
- Gross Profit: $2,115.6 million; Gross Margin 69.48% (Revenue-based); YoY +293.02%; QoQ -4.03%
- Operating Income: $339.2 million; Margin 11.14%; YoY -17.17%; QoQ -18.89%
- Net Income: $257.8 million; Margin 8.47%; YoY -16.33%; QoQ -20.28%
- EPS (diluted): $2.19; YoY -14.34%; QoQ -19.93%
- EBITDA: $428.8 million; EBITDA Margin 14.08%
- Net cash provided by operating activities: $342.5 million; Free cash flow: $342.5 million
- Cash at end of period: $225.5 million; Net change in cash: -$29.0 million
- Total debt: $6,155.4 million; Net debt: $5,944.4 million; Cash and cash equivalents: $211.0 million
- Current ratio: ~0.40 (Calculated from $932.8M current assets and $2,346.8M current liabilities)
- Capital allocation: common stock repurchased $182.7 million; common stock issued $8.8 million; dividends paid $175.1 million
- Leverage: Net debt to EBITDA approximately 13.9x (based on 6.0–6.2B debt vs. 0.429B EBITDA).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.04B
2.96%
-3.59%
Gross Profit
2.12B
293.02%
-4.03%
Operating Income
339.20M
-17.17%
-18.89%
Net Income
257.80M
-16.33%
-20.28%
EPS
2.21
-14.34%
-19.93%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
No earnings call transcripts were provided in the data snapshot. As a result, there are no directly sourced management quotes or theme-based highlights to cite. The narrative below integrates the disclosed financials with typical management commentary expectations for a QQ1 in a large-cap restaurant operator.
N/A
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Forward Guidance
Management did not publish explicit forward guidance within the provided materials. Given the quarter’s results and the broader consumer environment, the following contextual view is offered:
- Revenue trajectory: Modest YoY growth (~3%) suggests continued guest traffic resilience but a potential headwind from macro consumer caution and menu price/mix dynamics.
- Profitability and cost structure: A robust gross margin (as reported) is offset by sizable other expenses and a sizable non-operating charge backdrop implied by the period’s total cost structure. Profitability hinges on managing commodity costs, labor, and non-operating items.
- Capital allocation and balance sheet: The substantial net debt burden (~$5.94B) versus EBITDA (~$428.8M) implies a stretched leverage profile. Any improvement in cash flow sustainability or reductions in debt could meaningfully shift risk-reward.
- Key factors to monitor: same-store sales trends by brand (Olive Garden, LongHorn, The Capital Grille, etc.), guest traffic patterns in off-premise channels, wage/benefit inflation, commodity costs, and any strategic moves (menu optimization, pricing, or menu mix shifts) that could drive incremental margin expansion. Investors should watch for quarterly cadence of cash flow generation, debt reduction progress, and any commentary on capital allocation pace going forward.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DRI Focus
69.48%
N/A
N/A
N/A
EAT
14.30%
4.95%
3.03%
22.18%
YUM
70.90%
54.00%
-3.24%
43.54%
DIN
42.00%
16.90%
-3.80%
10.58%
DPZ
39.80%
18.90%
-6.75%
26.98%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
DRI’s QQ1 2026 results portray a company with strong top-line execution and the ability to generate solid cash flow, but with a notably high debt load that raises leverage risk. The revenue trajectory shows modest YoY growth, while profitability is tempered by the substantial other expenses and non-operating items that undercut operating income and net income. The balance sheet suggests that cash generation remains a strength, yet liquidity and leverage warrants a cautious stance, particularly in a high-rate environment. Relative to peers in the restaurant sector (e.g., YUM, DPZ, DIN, CAKE, CBRL), Darden’s gross margin appears robust on a revenue basis, but the debt burden and financing costs imply a higher risk profile that could constrain upside unless cash flow generation improves or debt is reduced.
Investment thesis: Maintain a cautious to moderate-risk stance. If DRI can stabilize or improve free cash flow, accelerate debt reduction, and demonstrate stable guest traffic with favorable mix, the stock could offer attractive upside given its brand strength and cash-generation capability. Key catalysts to monitor include quarterly trends in same-store sales by brand, progress on debt reduction, any forward guidance on capital allocation strategy, and management commentary around pricing power and cost-control initiatives. In the near term, the valuation should reflect the balance of strong brand-driven revenue potential with the risk tethered to leverage and liquidity. Investors should watch changes in debt structure, working capital dynamics, and the sustainability of current margins as macro conditions evolve.
Key Investment Factors
Growth Potential
Growth potential centers on stabilizing the guest base, optimizing menu mix, and leveraging scale across a diversified brand portfolio. Potential upside could arise from price/mix optimization, selective international expansion, a more favorable commodity environment, and continued strength in higher-margin brands (e.g., The Capital Grille) if sustained traffic supports higher-margin mix.
Profitability Risk
Key risks include a historically elevated leverage profile (net debt to EBITDA ~13.9x), exposure to macro consumer weakness and discretionary spending, commodity and wage inflation, sensitivity to interest rate shifts, and potential volatility from non-operating items that can erode reported profits despite strong operating performance.
Financial Position
Financial position shows healthy operating cash flow ($342.5M) and free cash flow generation, but debt levels are disproportionately high relative to EBITDA. Liquidity appears constrained with a current ratio near 0.40, and the company has been active in equity repurchases (net cash outflow for financing activities) while continuing to return capital to shareholders.
SWOT Analysis
Strengths
Strong brand portfolio across multiple segments (Olive Garden, LongHorn, The Capital Grille, Yard House, Cheddars) enabling broad guest appeal and pricing power
Robust free cash flow generation in the quarter
Resilient gross margin relative to revenue, suggesting effective cost/recipe engineering and menu discipline
Established scale in the U.S. and Canada with a diversified geographic footprint
Solid operational cash flow supports continued investment in brand initiatives and capital return programs
Weaknesses
Very high leverage with net debt to EBITDA around 13.9x, increasing financial risk under rising rates
Reported other expenses are sizeable and may indicate non-operating items that could skew quarterly profitability
Low liquidity signals (current ratio ~0.40) and reliance on continued cash flow strength to meet obligations
Profitability can be sensitive to commodity costs and labor inflation, which may squeeze margins if traffic softens
Opportunities
Menu optimization and price/mix enhancements to support margin expansion
Brand-driven traffic growth through marketing and promotional strategies across flagship concepts
Operational efficiency programs to reduce structural costs and improve throughput
Potential debt-reduction initiatives or refinancing to improve leverage profile
Capital allocation efficiency, including selective share repurchases balanced with debt management
Threats
Macro consumer weakness impacting dining-out frequency
Rising interest rates increasing borrowing costs and pressuring the debt burden
Commodity price volatility and wage inflation impacting cost of sales and SG&A
Competitive dynamics from peers (e.g., YUM, DPZ, DIN) and shifts in consumer preferences
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