Darden Restaurants served up higher sales on Thursday morning, but Wall Street sent the check back. The Olive Garden parent reported a 9% drop in quarterly profit as rising food and labor costs more than offset continued sales growth, and shares fell 1.4% to $211.42 in morning trading, according to Barron’s.
For the fiscal first quarter ended August 30, Darden posted net earnings of $233.4 million, or $2.04 a share, down from $257.8 million, or $2.19 a share, in the year-ago period. On an adjusted basis, earnings of $2.05 a share were in line with analyst estimates compiled by FactSet, per the Wall Street Journal. Total sales climbed 5.1% to $3.2 billion, roughly matching expectations.
The problem was the cost line. Operating costs and expenses grew 6.5% to $2.88 billion, which the company attributed to higher spending on food, beverages, and labor. Chief Financial Officer Raj Vennam told analysts that food expenses rose because most of the company’s sales growth came from brands with higher-than-average food and beverage costs. Still, he said Darden kept its menu pricing in line with commodities inflation of 3.5%, and higher labor costs were partially offset by productivity improvements.
Same-restaurant sales rose 3.1% companywide, just below the 3.3% analysts expected. LongHorn Steakhouse was the star, with comparable sales up 6.2%. But the flagship Olive Garden brand slowed: same-restaurant sales grew just 1.1%, down from a 2.4% increase in the fiscal fourth quarter ended May 31. Management said traffic at both chains took a hit from the World Cup, which pulled diners toward bars and restaurants built for watching matches. Yard House actually got a traffic boost from the tournament, but the net effect was negative, Vennam said.
Chief Executive Rick Cardenas called the quarter a “solid start” to fiscal 2027 and pointed to positive same-restaurant sales across every segment. The board declared a quarterly dividend of $1.62 per share, payable November 2 to shareholders of record on October 9, per the company’s announcement.
Importantly for investors, Darden reaffirmed its full-year outlook, calling for earnings per share from continuing operations of $11.10 to $11.35.
What to watch next: investors will be listening for whether food costs, especially beef, ease later in the fiscal year as management expects. The stock is still up 13% year to date, so today’s dip looks less like a verdict on the business and more like Wall Street’s impatience with a quarter where everything grew except the bottom line.
