Darden Restaurants (DRI) Q1 2027 earnings review
LongHorn Steakhouse carries Darden while Olive Garden cools
Darden Restaurants, the owner of Olive Garden and LongHorn Steakhouse, leaned heavily on its steak brand and share buybacks to deliver a steady first quarter. Total sales grew 5%, and profit per share rose slightly despite higher food costs. The company's actual operating margin fell from a year ago, but management retired enough shares to keep the headline earnings number moving up. The full-year plan did not move.
| Underlying sales | +3% comparable calendar basis |
|---|---|
| Total sales | $3.2 billion +5% from a year ago |
| Profit per share, excluding one-offs | $2.05 +4% from a year ago |
| Full-year profit outlook | Unchanged middle of the range: 5% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because the underlying trade-off remains the same. Darden is still accepting lower margins to keep its prices down and drive traffic. That strategy is working brilliantly for LongHorn Steakhouse, which grew underlying sales by 7%, but it is suddenly showing much less lift at Olive Garden. The reaffirmed outlook suggests management expects its winning brands to continue carrying the load.
The question now is whether Olive Garden's cooling growth is a blip or a trend. If the Italian chain's delivery and value initiatives have run out of steam, Darden will need more from its smaller brands to hit its targets; if they reaccelerate, the plan is safe. Next quarter's segment figures will tell.
🐂 Bull Case
LongHorn Steakhouse Carries the Quarter
Darden's steakhouse brand continues to grow much faster than the rest of the company. It added nearly 11% to its total sales from a year ago.
- LongHorn underlying sales: up 7% from a year ago
- Darden underlying sales: up 3%
The company has kept beef prices at the restaurant artificially low compared to grocery store prices over the last year. That decision pressures margins, but it continues to pull diners in.
What to watch: whether LongHorn eventually has to raise prices to cover elevated beef costs. A sharp price increase could slow its traffic.
Buybacks Hide the Profit Dip
The company's actual operating profit fell about 6% from a year ago, but its headline profit per share still grew 4%. That happened because management retired a massive number of shares.
Darden spent $222 million buying back stock this quarter alone. That shrank the total share count by 3%, spreading a smaller pool of total profit across fewer shares.
What to watch: whether the business itself returns to profit growth. Buybacks can engineer earnings growth for a long time, but eventually the underlying profit pool needs to stop shrinking.
🐻 Bear Case
Olive Garden's Momentum Cooled
Management called out positive underlying sales across every segment, framing the quarter as a solid start. Yet the company's biggest brand barely grew at all.
Olive Garden's underlying sales rose just 1% from a year ago. That is a sharp step down from the 6% growth it posted in the same quarter last year. The sudden deceleration suggests that last year's two main growth drivers — a new delivery partnership and a cheaper menu of smaller portions — are no longer providing fresh lift.
What to watch: Olive Garden's underlying sales next quarter. A second flat reading means the brand has stalled, forcing the rest of the portfolio to work harder just to meet targets.
Margins Are Still Under Pressure
The cost of running the restaurants is rising faster than the money coming in. Operating margin fell by 1.2 percentage points from a year ago, landing at 10% of revenue.
The main culprit remains food and beverage costs, which rose to nearly 31% of revenue. Darden's strategy is to intentionally price its menus below the rate of inflation to keep customers coming back. The trade-off is that every meal sold is less profitable than it used to be.
What to watch: the gap between menu pricing and commodity inflation. Management previously said it expects relief later in the year, which would allow margins to expand again.
👓 Other Themes
The Outlook Did Not Move
Despite the shift in momentum between its brands, management held its full-year plan exactly where it was. The reaffirmed target calls for profit per share to end the year between $11.10 and $11.35.
💲 Other KPIs
Up 6% from a year ago. The segment is finding its footing after struggling with weak business travel and a pullback by high-income diners last year. Underlying sales grew 1.6%, a clear improvement over last year's decline.
Down 19% from the same quarter last year. The drop reflects lower actual operating profit and changes in how fast the company pays its bills. The shrinking cash flow did not stop management from spending heavily on share buybacks.
🔮 Guidance
Unchanged. The plan still calls for about 5% growth over last year. By our math, backing out this quarter's result leaves the company needing to grow earnings at roughly 6% over the rest of the year to hit the middle of the range.
❓ Key Questions
What caused the sharp deceleration at Olive Garden?
Underlying sales growth dropped from 6% a year ago to 1%. Investors need to know if the delivery and value initiatives have simply run their course.
When will menu pricing catch up to food inflation?
The strategy of absorbing higher food costs to drive traffic has pressured operating margins for several quarters. Management needs to outline when the gap will close.
Are the Bahama Breeze conversions on schedule?
The company planned to convert over a dozen locations to higher-performing brands. Investors need an update on the cost and timing of that pivot.