DARDEN RESTAURANTS Q3 FY26 earnings call DRI

Darden's Q3 FY26 saw Olive Garden achieve 3.2% same-restaurant sales (SSS) despite 3 fewer weeks of price-pointed promotions, driven by strong operational execution and record guest satisfaction. The brand successfully rolled out a lighter portion menu, adding 7 dishes under $15, which is resonating with guests and driving increased frequency. LongHorn Steakhouse delivered 7.2% SSS growth, attributed to its focus on quality, simplicity, and culture, with managers undergoing culinary recertification. The Fine Dining segment grew 2.1% SSS, with all three brands positive, benefiting from strong private dining sales and Ruth's Chris's successful 3-course fixed-price menu. The Other Business segment, including Yard House and Cheddar's, also contributed with 3.9% SSS growth.

The company experienced strong sales momentum throughout the quarter, further expanding its positive gap to the industry benchmark by 540 basis points. However, winter weather negatively impacted same-restaurant sales by approximately 100 basis points, with over 40% of restaurants temporarily closing in January during winter storm Fern. Despite this, same-restaurant sales adjusted for weather were greater than 5%, demonstrating robust underlying performance in what is traditionally a high-volume quarter. Management highlighted the teams' effective management of business through this volatility.

Darden announced the completion of its exploration of strategic alternatives for the Bahama Breeze brand. This decision will result in the permanent closure of 14 locations and the conversion of the remaining 14 to other Darden brands over the next 12 to 18 months. The company believes these conversion locations are valuable sites that will benefit other brands in its portfolio. A key focus during this transition is team member support, with a majority of impacted team members, including over 70% of managers from closed locations, already placed in new roles within Darden.

The company reported historically high team member and manager retention levels across its businesses, which are crucial for consistently delivering exceptional guest experiences. This low turnover contributes to improved labor productivity by reducing the need for new hiring and training. Management emphasized that this strong employment proposition, offering growth opportunities and life-changing manager jobs, helps maintain a competitive advantage. The company aims to continue improving labor productivity, potentially investing some gains back into the guest experience through service, pricing, or food quality.

Darden is leveraging AI and machine learning to enhance operational efficiency, particularly by providing managers with better forecasts for scheduling and food ordering. This allows managers to spend less time on administrative tasks and more time with guests and team members. In the support center, AI is being used to accelerate project initiation and code writing, leading to savings and faster tool development for restaurant teams. The company views AI as a tool to amplify the expertise of its people and improve the guest experience, rather than replacing jobs, especially for its 200,000 restaurant employees.