Darden Restaurants reported a solid QQ3 2025 performance highlighted by continued brand momentum, a dilutive weather impact on topline, and the strategic execution of growth initiatives. Total sales reached $3.158 billion, up 6.8% YoY, driven by 0.7% same-restaurant sales growth and the incremental contribution from the Chuy’s acquisition and 40 net new openings. The company reaffirmed and updated guidance, signaling confidence in sustaining above 3% same-store sales growth for the December quarter and mid-to-high single-digit earnings progression on adjusted metrics. Management underscored the benefits of its portfolio strategy (Olive Garden, LongHorn, and other brands) and ongoing investments in delivery via Uber Direct, smaller prototypes, and a technology-driven POS refresh, all designed to support margin resilience and unit growth. The quarter also featured promotional and marketing initiatives (Fan Favorites/Buy One, Take One) aimed at driving traffic while maintaining brand equity and price discipline. For investors, the key implications are: (1) Darden’s mix of high-quality, value-oriented offerings supports above-market SSS in a challenging macro backdrop; (2) delivery and new formats (prototype restaurants) are structurally additive to long-run growth and free cash flow; and (3) balance sheet leverage remains meaningful but with robust FCF generation and buybacks/dividends supporting shareholder value. Looking ahead, the company projects 60-65 new openings in FY2026, capex of $375-400 million for new restaurants, and a 53rd week providing incremental earnings upside, subject to commodity and labor cost dynamics.
Key Performance Indicators
Revenue
3.16B
QoQ: 9.27% | YoY:6.79%
Gross Profit
2.20B
69.80% margin
QoQ: 259.78% | YoY:310.50%
Operating Income
418.20M
QoQ: 43.17% | YoY:5.39%
Net Income
323.40M
QoQ: 50.35% | YoY:4.97%
EPS
2.76
QoQ: 50.00% | YoY:6.98%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $3.158 billion, up 6.8% YoY; QoQ growth 9.3% (per earnings metrics). The YoY lift reflects the Chuy’s acquisition and 40 net new restaurants in the period, plus modest same-restaurant growth.
Gross profit: $2.2044 billion; gross margin 69.80% (vs. 69.80% reported); YoY gross profit growth materially boosted by favorable mix and pricing discipline across concepts.
Operating income: $418.2 million; operating margin 13.24%; QoQ and YoY expansion driven by mix, cost controls, and incremental contributions from new units and acquisitions.
EBITDA: $551.0 million; EBITDA margin approximately 17.45% (EBITDAR 17.45%).
Net income: $323.4 million; net income margin 10.24%; diluted EPS: $2.74; adjusted diluted EPS (continuing ops): $2.80 (YoY +6.9%).
Financial Highlights
Overview of QQ3 2025 financials and YoY/QoQ trends:
- Revenue: $3.158 billion, up 6.8% YoY; QoQ growth 9.3% (per earnings metrics). The YoY lift reflects the Chuy’s acquisition and 40 net new restaurants in the period, plus modest same-restaurant growth.
- Gross profit: $2.2044 billion; gross margin 69.80% (vs. 69.80% reported); YoY gross profit growth materially boosted by favorable mix and pricing discipline across concepts.
- Operating income: $418.2 million; operating margin 13.24%; QoQ and YoY expansion driven by mix, cost controls, and incremental contributions from new units and acquisitions.
- EBITDA: $551.0 million; EBITDA margin approximately 17.45% (EBITDAR 17.45%).
- Net income: $323.4 million; net income margin 10.24%; diluted EPS: $2.74; adjusted diluted EPS (continuing ops): $2.80 (YoY +6.9%).
- Cash flow: Operating cash flow $580.3 million; free cash flow $417.1 million. Net cash provided by operating activities $580.3 million, supporting deleveraging and capital returns.
- Balance sheet: Total assets $12.56 billion; total liabilities $10.36 billion; total stockholders’ equity $2.20 billion. Cash and cash equivalents $224.2 million at period end; net debt approximately $5.855 billion; debt-to-capitalization ~0.734.
- Capital allocation: Dividends paid $164.1 million; share repurchases $53.0 million; capex outlay reflected in both maintenance/upgrade and new restaurant development.
- Guidance: FY2025 updated to 118.3 million diluted shares; adjusted diluted EPS $9.45-$9.52 (excluding ~$47 million pre-tax transaction/integration costs). QQ4 guidance implies total sales of $3.23-$3.26 billion; same-restaurant sales >3%; adjusted diluted EPS $2.88-$2.95. For FY2026, plan 60-65 new restaurants with capex of $375-$400 million for new builds and $300-$325 million for maintenance/tech; tax rate 13%-13.5%; a 53rd week contributing about $0.20 per diluted share. These metrics imply continued earnings growth and material cash generation, even after absorbing the Chuy’s integration.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.16B
6.79%
9.27%
Gross Profit
2.20B
310.50%
259.78%
Operating Income
418.20M
5.39%
43.17%
Net Income
323.40M
4.97%
50.35%
EPS
2.76
6.98%
50.00%
Key Financial Ratios
currentRatio
0.39
grossProfitMargin
69.8%
operatingProfitMargin
13.2%
netProfitMargin
10.2%
returnOnAssets
2.57%
returnOnEquity
14.7%
debtEquityRatio
2.76
operatingCashFlowPerShare
$4.95
freeCashFlowPerShare
$3.56
dividendPayoutRatio
50.7%
priceToBookRatio
10.37
priceEarningsRatio
17.66
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from the earnings call transcripts by management themes:
- Strategy and growth: Executives highlighted Chuy’s integration progress and the expansion of delivery via Uber Direct as core growth levers, with Cheddar’s pilot underway and Yard House prototype openings performing above plan. Rick Cardenas emphasized the upside from new formats and the scale advantages of a diversified brand portfolio.
- Operational execution: Raj Vennam underscored weather and holiday shifts as the primary quarterly headwinds, noting Q3 same-restaurant sales excluding weather were positive across all four segments, and that Olive Garden’s fan-favorites/Manicotti promotions contributed to improved traffic and base sales.
- Uber Direct and delivery economics: Rick noted early but meaningful evidence of delivery incrementalism, stating “delivery provides Olive Garden with a meaningful sales building opportunity over time” and later confirming an approximate 40-50% incrementality for Uber Direct in early-stage pilots.
- Inflation and margins: Raj highlighted a shift in inflation dynamics for Q4 (~3%), with pricing still below 3%, and a favorable mix that supported margin resilience. He also provided color on chicken and seafood inflation expectations for Q4 and beyond, indicating continued cost discipline and procurement advantages.
- M&A and capital allocation: Management reinforced a disciplined M&A stance focused on integration of Chuy’s and capital deployment via dividends and buybacks, with strategic growth through unit expansion and capex investments.
- Value-driven promotions: The team described Buy One, Take One as a carefully calibrated traffic driver that aligns with brand equity (abundance at Olive Garden) and avoids the deep-discount constructs of the past.
- Pace of labor and guest dynamics: Management cited stable labor inflation around mid-3% and improving productivity, with labor and food costs managed through pricing, operational efficiency, and strategic menu design.
Delivery provides Olive Garden with a meaningful sales building opportunity over time.
— Rick Cardenas
The biggest dynamic here is that Q4, our inflation, overall inflation is going to be about 3%. If you look at the first three quarters, our overall inflation was in the low-2s.
— Raj Vennam
Forward Guidance
Outlook and assessment of forward trajectory:
- Near-term (Q4 FY2025): The company maintains guidance for total sales of $3.23 billion to $3.26 billion, with same-restaurant sales growth above 3% and adjusted diluted EPS of $2.88 to $2.95. Management notes inflation for Q4 is expected to be around 3%, with pricing still below that level and ongoing pricing leverage. The Uber/Delivery initiative is expected to contribute modestly to marketing spend and traffic in the period, with incrementality already observed in pilots.
- FY2026 trajectory: Darden plans to open 60-65 new restaurants, capex of $375-400 million for new builds and $300-325 million for maintenance/tech, and a 53rd week adding approximately $0.20 in EPS. The Company also forecasts an effective tax rate of 13%-13.5% and confirms ongoing strategy to integrate Chuy’s while evaluating potential capital optimization avenues with the board. The long-term growth thesis hinges on continued unit expansion, margin discipline, and the ability to monetize delivery/channel partnerships without compromising guest value.
- Key monitoring factors for investors: (i) delivery channel monetization and incremental traffic quality (customer mix and spend per delivery), (ii) progress on new prototype formats (cost-to-build reduction, throughput improvements, and sales consistency), (iii) impact of commodity costs (especially chicken and seafood) and labor costs on margin trajectory, (iv) execution risk associated with integrating Chuy’s across operations and supply chains, and (v) the timing and scale of further M&A opportunities beyond Chuy’s.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DRI Focus
69.80%
13.20%
14.70%
17.66%
EAT
75.20%
11.00%
46.00%
14.36%
YUM
47.40%
33.90%
-4.98%
25.78%
DIN
47.80%
23.20%
-8.80%
6.10%
DPZ
39.20%
18.40%
-3.69%
24.88%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
DRI presents a balanced growth/income profile anchored on a resilient brand portfolio, expansion of delivery channels, and ongoing efficiency improvements. The QQ3 2025 results demonstrate revenue growth supported by a 0.7% same-restaurant sales uplift (adjusted for weather) and meaningful accretion from Chuy’s, with adjusted EPS up 6.9% year over year. The delivery push (Uber Direct) and prototype concepts (Yard House and Cheddar’s) are structural investments likely to bolster unit growth and operating leverage in the medium term. The FY2026 plan to open 60-65 new restaurants, with capex of roughly $375-400 million for new builds and $300-325 million for maintenance/tech, supports a multi-year growth trajectory, aided by a favorable tax rate and a calendar-driven 53rd week that could add roughly $0.20 in EPS. However, investors should monitor macro sensitivity (inflation, wage growth, and consumer spending), commodity risk (particularly chicken/seafood), and integration milestones related to Chuy’s. Overall, DRI trades at a mid-to-high-teens earnings multiple (P/E around 17.7x) and a premium price-to-sales ratio (~7.23x) reflecting its scale, growth initiatives, and cash-generative profile. The combination of durable brand demand, comprehensive delivery strategy, and disciplined capital allocation supports a constructive long-term investment thesis, albeit with near-term earnings sensitivity to cost inflation and weather events.
Key Investment Factors
Growth Potential
Growth potential is anchored in: (a) successful integration of Chuy’s with Darden’s platform, (b) acceleration of unit growth through smaller, cost-efficient prototypes (Yard House, Cheddar’s) and ongoing Olive Garden/LonGHorn expansion, (c) expansion of Uber Direct and other first-party delivery channels to drive incremental traffic and higher average checks, and (d) 53rd week uplift in FY2026 to be realized through a more favorable calendar mix. The 60-65 new restaurants target for FY2026 provides a clear growth runway, supported by capital investment in both opening new units and upgrading technology (new POS systems) and guest experience improvements.
Profitability Risk
Key risks include: (1) macro consumer softness and consumer confidence sensitivity influencing dining-out behavior, (2) commodity and labor cost volatility (including potential tariffs and supply chain disruptions), (3) execution risk in the Chuy’s integration and cultural alignment across a multi-brand footprint, (4) customer reliance on delivery channels, and (5) potential dilution of unit-level economics if growth investments outpace cash flow generation. The business is exposed to weather and seasonal variances that can distort quarterly comparables.
Financial Position
Strengths include a diversified brand portfolio with Olive Garden as a leading driver and strong cash flow generation ($580.3m OCF, $417.1m FCF). The balance sheet shows sizable total assets, with net debt around $5.86B and a debt-to-capitalization of ~0.734, indicating a levered but cash-flow-supportable capital structure. The company is returning cash to shareholders via dividends ($164.1m) and buybacks ($53m). Margins improved across brands (Olive Garden 23% segment margin, LongHorn 19.4%, Fine Dining 22.3%, Other 15.4%), reflecting pricing discipline and productivity gains. The FY2026 calendar expansion and 53rd week offer optionality for EPS uplift and cash flow optimization.
SWOT Analysis
Strengths
Strong, diversified brand portfolio (Olive Garden, LongHorn, Cheddar’s, Yard House, The Capital Grille, Seasons 52)
Improved operating margins and solid free cash flow generation
Successful delivery pilot via Uber Direct with 40-50% early-stage incrementality
Strategic growth through smaller prototypes to accelerate unit openings and reduce capex per unit
Chuy’s acquisition expanding footprint and growth runway
Healthy dividend and share repurchase activity (cash returned to shareholders)
POS modernization and technology investments to improve guest experience
Weaknesses
Leverage is meaningful and contingent on continued cash flow strength
Reliance on North America (US/Canada) brand portfolio can amplify sensitivity to macro shocks
Weather and holiday shifts remain a quarterly headwind impacting same-store sales
Integration execution risk associated with Chuy’s acquisition and potential complexity of multi-brand synergy
Promotional spend and marketing efficiency require ongoing optimization to sustain traffic growth
Opportunities
Delivery channel expansion and monetization (Uber Direct) to drive incremental traffic and higher checks
Prototype formats that reduce build costs while preserving brand core (New Yard House, Cheddar’s prototypes)
Continued menu innovation and value promotions (Buy One, Take One) supporting traffic while preserving margins
Increased marketing analytics and data-driven targeting to improve ROI
53rd week uplift in FY2026 adds upside to earnings and cash flow
Threats
Macro consumer weakness or volatility reducing dining-out frequency
Commodity and labor cost volatility and potential tariff exposure
Competition from other casual dining and quick-service brands
Supply chain disruptions and foreign exchange exposure affecting sourcing costs
Regulatory and macroeconomic risks impacting consumer discretionary spend
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