EPS of $1.82 decreased by 29.8% from previous year
Gross margin of 21.2%
Net income of 215.10M
""In October, Olive Garden launched its Uber Direct pilot in approximately 100 restaurants. They are not promoting it yet in order to focus on the technology integration and operational execution."" - Rick Cardenas
DRI QQ2 2025 Results Analysis: Darden Restaurants Inc. (DRI) Q2 Fiscal 2025 – Chuy’s Acquisition, Uber Direct pilot, and Durable Margin Expansion Across Core Brands
Executive Summary
Darden’s QQ2 2025 results reflect solid operating momentum across its four largest brands, driven by continued value-led strategies, operating discipline, and a favorable mix shift. Total sales reached $2.89 billion, up 6% year over year, aided by same-restaurant sales growth of 2.4% (including a ~90 basis point benefit from Thanksgiving timing) and the acquisition of 103 Chuy’s restaurants, plus net 39 new units. Adjusted diluted earnings per share from continuing operations were $2.03, 10% higher than last year, and adjusted EBITDA was $445 million. The Olive Garden and LongHorn segments delivered the strongest performance, with Olive Garden reporting 3.3% total sales growth and a 21.4% segment EBITDA margin, while LongHorn posted 7.5% comparable restaurant sales growth and an 18.9% segment EBITDA margin. The company closed the Chuy’s deal in October and is actively integrating it on a multi-year path toward run-rate synergies of roughly $17 million (with about $2 million realized in fiscal 2025 and the remainder in 2026). Management emphasized a back-half bias in growth due to the Thanksgiving shift into Q3, with anticipation of continued optimization of the portfolio via menu and pricing actions, and a continued emphasis on speed, data insights, and technology (including a next-generation POS) to sustain margins and guest satisfaction. For 2025, Darden updated guidance to approximately $12.1 billion in total sales, ~1.5% same-restaurant sales growth, 50–55 new restaurants, ~650 million in capital expenditures, ~2.5% total inflation (commodities ~1%), an ~12.5% tax rate, ~118 million weighted-average diluted shares, and EPS of $9.40–$9.60. The outlook assumes the Chuy’s integration is neutral to Adjusted EPS for the year (excluding transaction/business costs) with expected $17 million in run-rate synergies; the company also highlighted Q3–Q4 cadence given the holiday shift and ongoing promotions across the portfolio.
Key Performance Indicators
Revenue
2.89B
QoQ: 4.82% | YoY:-2.85%
Gross Profit
612.70M
21.20% margin
QoQ: 8.87% | YoY:16.11%
Operating Income
292.10M
QoQ: 8.51% | YoY:-24.68%
Net Income
215.10M
QoQ: 3.81% | YoY:-31.26%
EPS
1.84
QoQ: 5.14% | YoY:-29.77%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $2.890 billion for QQ2 2025, up 6% YoY. QoQ data not reported in the provided material.
Gross profit: $612.7 million; gross margin 21.2% (vs. 21.2% reported; YoY margin stability given commodity deflation and pricing leverage).
Overview and profitability
- Revenue: $2.890 billion for QQ2 2025, up 6% YoY. QoQ data not reported in the provided material.
- Gross profit: $612.7 million; gross margin 21.2% (vs. 21.2% reported; YoY margin stability given commodity deflation and pricing leverage).
- Operating income: $292.1 million; operating margin 10.1%.
- EBITDA: $419.8 million; EBITDA margin 14.5%.
- Net income: $215.1 million; net margin 7.4%.
- Diluted EPS: $1.84; Adjusted diluted EPS from continuing operations: $2.03 (YoY increase of ~10%).
- Weighted average diluted shares: ~118.3 million.
- Cash flow: Operating cash flow of $388.6 million; capex $(175.8) million; free cash flow $212.8 million.
- Balance sheet highlights: total assets $12.5192 billion; total liabilities $10.4483 billion; total stockholders’ equity $2.0709 billion. Net debt approximately $6.118 billion; cash and cash equivalents $217.3 million at period end.
- Capital allocation: Dividends paid $166.0 million and share repurchases $142.0 million in QQ2 2025; total cash returned to shareholders $308 million.
- Guidance (full year 2025): total sales ~$12.1 billion; same-restaurant sales growth ~1.5%; 50–55 new restaurants; capex ~$650 million; inflation ~2.5% (commodities ~1%); annual effective tax rate ~12.5%; diluted shares ~118 million; EPS guidance unchanged at $9.40–$9.60 (excl. ~$47 million pre-tax transaction/integration costs).
- Chuy’s integration: acquired 103 Chuy’s restaurants in October; initial run-rate synergies ~$17 million ( ~$2 million realized in FY2025, remainder in FY2026); integration activity ongoing with a focus on preserving culture, guest experience, and migration to the Darden platform.”
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
2.89B
-2.85%
4.82%
Gross Profit
612.70M
16.11%
8.87%
Operating Income
292.10M
-24.68%
8.51%
Net Income
215.10M
-31.26%
3.81%
EPS
1.84
-29.77%
5.14%
Key Financial Ratios
currentRatio
0.37
grossProfitMargin
21.2%
operatingProfitMargin
10.1%
netProfitMargin
7.44%
returnOnAssets
1.72%
returnOnEquity
10.4%
debtEquityRatio
3.06
operatingCashFlowPerShare
$3.31
freeCashFlowPerShare
$1.81
dividendPayoutRatio
76.5%
priceToBookRatio
9.94
priceEarningsRatio
23.93
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways and quotes from the QQ2 2025 earnings call:
- Strategy and portfolio execution: Rick Cardenas emphasized, “We had a strong quarter that met our expectations. Same restaurant sales at three of our four segments were positive and all of our brands remained intensely focused on our back to basics operating philosophy anchored in food, service, and atmosphere.” This frames a disciplined execution mindset across Olive Garden, LongHorn, Yard House, and Cheddar’s.
- Uber Direct pilot for Olive Garden: Cardenas noted, “In October, Olive Garden launched its Uber Direct pilot in approximately 100 restaurants. They are not promoting it yet in order to focus on the technology integration and operational execution.” This highlights a technology-enabled delivery initiative with potential upside as rollout accelerates post-holiday period.
- Chuy’s integration: “We successfully closed the transaction during the quarter, and the leadership team… is in place.” The company outlined a phased integration approach including roll-out of a next-generation POS, data insights, and minimal disruption to operations.
- Never Ending Pasta Bowl and promotional strategy: The Olive Garden team reintroduced fan favorites (Steak Gorgonzola and Stuffed Chicken Marsala) with a broader marketing push starting January and a compelling price point for select LTOs, underscoring value-led promotions without heavy discounting.
- Hurricanes and operational resilience: The call highlighted the operational impact of Hurricanes Helene and Milton, and the company’s Severe Weather Task Force response, including safe re-openings and a best-practice disaster response framework.
- Be mindful of macro headwinds: Several questions centered on GLP-1 consumer dynamics and labor costs, with management acknowledging GLP-1 usage among consumers (~6% as noted by Rick Cardenas) and reiterating the focus on efficiency and pricing discipline to manage inflation and preserve margins.
"In October, Olive Garden launched its Uber Direct pilot in approximately 100 restaurants. They are not promoting it yet in order to focus on the technology integration and operational execution."
— Rick Cardenas
"We successfully closed the transaction during the quarter, and the leadership team, including Chuy's President, Steve Hislop, and their operations leader, John Corman, is in place. The integration process has just begun..."
— Rick Cardenas
Forward Guidance
Forward-looking view based on management guidance and macro signals:
- Revenue and growth: Full-year total sales guidance of approximately $12.1 billion with same-restaurant sales growth about 1.5% and 50–55 unit openings. The back half cadence is expected to be stronger in Q4, with Q3 growth durably impacted by Thanksgiving’s shift into the third quarter.
- Margin and profitability: The company maintains an EPS target of $9.40–$9.60 for the year, unchanged from prior guidance, excluding ~$47 million of pre-tax transaction and integration expenses related to Chuy’s. The Q2 margin improvements were driven by lower food and beverage costs (roughly 80 bps) and higher restaurant-level EBITDA (19.5% vs. prior year by ~70 bps).
- Inflation and costs: Total inflation anticipated around 2.5% for 2025, with commodities around 1% and a modest increase in labor costs. The company expects Q3-to-Q4 inflation to trend higher (beef, chicken, and seafood edging into modest inflationary territory).
- Capex and synergies: Capex guidance raised to approximately $650 million, reflecting Chuy’s integration spend and pipeline development. Run-rate synergies from Chuy’s are targeted at roughly $17 million, with $2 million realized in 2025 and the rest in 2026.
- Key risk factors to monitor: (1) The sustainability of industry guest traffic gains, (2) GLP-1 impact on high-end brands, (3) commodity and labor cost volatility, (4) successful integration of Chuy’s without disruption to existing operations, and (5) rollout success and potential uplift from Uber Direct and other delivery platforms.
- Outlook takeaway: Taken together, the QQ2 performance supports a constructive longer-term view anchored in a diversified brand suite, continued menu innovation for Olive Garden, and growth through new-unit development with an eye toward efficiency gains and pricing discipline to preserve margins through the cycle.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DRI Focus
21.20%
10.10%
10.40%
23.93%
EAT
19.80%
11.50%
90.10%
12.85%
YUM
49.30%
34.40%
-4.81%
24.92%
DIN
48.10%
24.10%
-10.00%
5.59%
DPZ
39.80%
17.90%
-3.65%
32.71%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment thesis: Darden’s QQ2 2025 results validate a defensible, diversified casual-dining platform with a clear path to 2025 profitability through mix, pricing discipline, and operating leverage. The Chuy’s acquisition adds scale and a growth pipeline, while ongoing investments in technology (next-gen POS) and delivery (Uber Direct) bolster long-term competitive advantage. The 2025 guidance implies modest SSS growth (~1.5%), steady unit growth (50–55 openings), and a disciplined capex plan (~$650 million) that should support free cash flow generation and shareholder returns. Risks center on leverage and integration costs, GLP-1 effects on fine dining, commodity and labor inflation, and macro shifts in consumer spending. If the company can sustain Olive Garden’s pricing power, continue LongHorn’s quality-driven growth, and realize Chuy’s synergies on a timely basis, the stock could benefit from margin expansion and accretive earnings growth. Valuation remains premium (P/E around 23.9x; EV/EBITDA near 63.6x), signaling investor emphasis on durable growth and portfolio resilience in a competitive landscape.
Key Investment Factors
Growth Potential
- 50–55 new restaurants in FY2025, including contributions from the Chuy’s acquisition (roughly $300 million in incremental sales guidance attributed to Chuy’s). - Significant synergies from Chuy’s integration (target run-rate $17 million; $2 million realized in 2025). - Robust Olive Garden performance with 2% same-restaurant sales growth and a 21.4% segment EBITDA margin highlighting brand resilience and pricing power (Steak Gorgonzola and Stuffed Chicken Marsala reintroduction and Never Ending Pasta Bowl expansion). - Uber Direct rollout at Olive Garden (pilot at 100 restaurants; potential broader impact post-rollout). - Cheddar’s lattice of value-oriented offers and improved retention, underpinning disciplined expansion and stable margins.
Profitability Risk
- Elevated leverage from acquisitions (Chuy’s) and related integration risk, and high enterprise leverage (net debt about $6.1B) which could pressure interest coverage and liquidity if demand softens.
- GLP-1 effects on fine dining and premium casual segments, with management noting potential headwinds in the higher end of the spectrum; monitoring consumer mix with slower growth in fine dining brands.
- Commodity inflation and payroll cost volatility, with back-half inflation expected to rise modestly; address through hedging, productivity gains, and selective pricing.
- External shocks, including adverse weather (Hurricanes Helene and Milton) and macro volatility, could disrupt traffic and guest frequency.
Financial Position
- Liquidity supported by positive operating cash flow ($388.6 million) and free cash flow ($212.8 million) in QQ2; cash at end of period $241.5 million. - Balance sheet remains highly leveraged due to large acquisitions (Chuy’s) with total debt around $6.336 billion and net debt approximately $6.118 billion, implying a total debt to capitalization ratio of ~0.754. - Strong cash generation allows for continued shareholder returns (dividends and share repurchases totaling $308 million in the quarter) and investment in growth opportunities, albeit with a focus on maintaining flexibility amid integration costs and capex needs. - The investor should monitor leverage and interest coverage given debt levels and the pace of unit growth and synergies realization.
SWOT Analysis
Strengths
Diversified, high-quality brand portfolio across value, family, and premium segments (Olive Garden, LongHorn, Yard House, Cheddar's, plus Ruth's Chris and Chuy's integration).
Strong operating discipline and back-to-basics philosophy (food, service, atmosphere) contributing to positive comps in Olive Garden and LongHorn.
Scale advantages in purchasing and inventory management; significant purchasing leverage aiding pricing and margins.
Advanced data and analytics capabilities underpin decision-making and guest insights; strong data infrastructure.
Delivery and off-premise initiatives (Uber Direct pilot) show potential to broaden channel mix.
Weaknesses
High leverage from acquisitions (Chuy’s) elevates balance-sheet risk and interest burden.
Interest coverage data not disclosed publicly in transcript; leverage remains a risk if demand weakens.
Mixed performance across brand tiers (weaker performance in some fine dining brands in Q2) introduces earnings volatility tied to consumer sentiment and macro headwinds.
Opportunities
Accelerated expansion of Cheddar’s and Yard House in select markets via improved operations and lower cost structures.
Scale-driven synergies from Chuy’s integration and potential expansion of the next-gen POS system to more brands.
Advertising mix optimization (connected TV, targeted digital) to boost brand equity and incremental traffic, particularly for Cheddar’s and Ruth’s Chris.
Uber Direct rollout could unlock incremental off-premise demand and improve guest convenience.
Threats
Macro demand volatility and consumer sentiment fluctuations, including GLP-1 dynamics affecting higher-end brands.
Commodity price volatility and labor cost pressures; potential wage inflation beyond current expectations.
Regulatory and permitting changes, and geopolitical risks that could affect expansion timelines and capex planning.
Weather-related disruptions (hurricanes) and other unforeseen events impacting guest traffic.
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