Darden Restaurants: Moving Fwd Consistently as Casual Dining Continues to Experience Revival

Research evidence excerpt

Darden Restaurants: Moving Fwd Consistently as Casual Dining Continues to Experience Revival

r 2.5% to 3.5% was ~inline. PREV 2.12 2.40 3.26 3.56 11.32

We raise our F1Q SSS est to 3.3% from 2.3%, and model 2.8% in F27.

Restaurant level margin inline with inflation, commentary likely better than feared. RLM ex-

marketing of 23.3% was inline with slightly lower than expected COGS and labor partly offset by

higher Other OpEx. YoY margin expansion benefited from a further narrowing of the inflation gap w/

menu pricing offsetting ~3% commodity and 3.2% labor inflation during the quarter (some benefits

from productivity & sales leverage also). Looking ahead, mgmt is incorporating a similar level of

blended inflation (3% cmdty & 3.5% labor), with beef inflation peaking in F1Q, likely declining in F2Q

(given 20% lap) before moderating to LSD% thru FYE. We model RLM of 21.9% in F27 reflecting

modest leverage across store-level expenses.

EPS guide below Consensus. Initial F27 EPS guide for $11.10 to $11.35 compares to Cons $11.38,

on total sales of $13.6b to $13.75b (inline), 75 to 80 openings (vs Cons 73). We model F27 EPS

of $11.28, reflecting ~10% growth excl 53rd wk or at the low-end of the target framework (some

impact from unit ramp YoY re: preopening & new unit inefficiencies).

Reiterate Hold. Near term trends across the brand portfolio remain encouraging, with demand

trends holding and drivers of the business resonating well, sustaining the positive gap vs the broader

industry. Margin commentary was better than feared, with the bar on SSS/EPS likely realistic, but

visibility into potential upside towards the higher end of the guidance range and LT framework

somewhat limited still. Reit Hold & $200 PT, reflecting 11x our CY27 EBITDA.

Andy Barish * | Equity Analyst