Darden (DRI) Q3 2026 Earnings Call Transcript

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DATE

Thursday, March 19, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Rick Cardenas
• Senior Vice President & Chief Financial Officer — Rajesh Vennam
• Senior Vice President, Investor Relations — Courtney Aquilla

TAKEAWAYS

• Total Sales -- $3.3 billion, up 5.9% driven by 4.2% same-restaurant sales growth and 31 net new restaurant openings.
• Same-Restaurant Sales vs. Industry -- 4.2% growth, outperforming the industry benchmark by 540 basis points.
• Brand Outperformance -- Each of the four largest brands exceeded the industry by more than 400 basis points in same-restaurant sales.
• Olive Garden Sales -- Same-restaurant sales grew 3.2%, with total sales up 4.7% and segment profit margin reaching 23%, 10 basis points below last year due to investments in lighter portion menu and delivery fees.
• LongHorn Steakhouse Sales -- Same-restaurant sales increased 7.2%, total sales grew 11.2%, and segment profit margin was 18.6% despite elevated beef costs.
• Fine Dining Segment -- Same-restaurant sales rose 2.1%, with segment profit margin at 22%, 50 basis points lower than last year.
• Other Business Segment -- Same-restaurant sales up 3.9%, driven by Yard House, Cheddar's Scratch Kitchen, and Seasons 52; segment profit margin flat at 15.6%.
• Adjusted Diluted Net EPS -- $2.95, 5.4% higher, with adjusted EBITDA at $579 million.
• Adjusted Earnings from Continuing Operations -- $341 million, representing 10.2% of sales.
• Weather Impact -- Winter weather reduced same-restaurant sales by approximately 100 basis points; more than 40% of restaurants closed temporarily in January.
• Cost Pressures -- Total commodities inflation reached approximately 5%, mainly from elevated beef costs; food and beverage expenses up 50 basis points, partially offset by labor expenses down 20 basis points due to productivity improvements.
• Adjusted Effective Tax Rate -- 12.1%, down 130 basis points from the prior year.
• Capital Returned to Shareholders -- $300 million returned via $173 million dividends and $127 million share repurchases.
• Q4 and Full Year Outlook -- Updated guidance calls for full-year total sales growth of approximately 9.5%, same-restaurant sales growth of 4.5%, 70 new restaurant openings, 4% commodities inflation, effective tax rate of 12.5%, and adjusted diluted net EPS of $10.57–$10.67 (including $0.25 from the fifty-third week).
• Q4 Guidance -- Total sales growth projected at 13%-14.5% (with extra week), same-restaurant sales growth of 3.5%-5%, and adjusted diluted net EPS of $3.59–$3.69.
• Permanent Closures and Conversions -- Strategic alternatives review finalized for Bahama Breeze; 14 locations to close, 14 to be converted to other Darden Restaurants, Inc. brands in the next 12–18 months, with more than 70% of affected managers placed in new roles.
• Beef Cost Hedging -- For Q4, 80%-85% of beef costs are fixed price covered, higher coverage than recent years; some fiscal 2027 beef cost contracts already started.
• Off-Premise Mix -- Olive Garden off-premise sales at 29% (up from 26%), with Uber Eats at 4.7% of Olive Garden sales; LongHorn off-premise mix at 15%, up 1 percentage point.
• Menu Innovation -- Olive Garden’s lighter portion menu, launched in January with seven new dishes under $15, is increasing guest frequency and perceived value, with portion size and value scores rising significantly for these items.
• Marketing Expense -- Marketing expenses increased by 10 basis points; RFP-driven media cost savings above 10 basis points enabled increased marketing activity with flat expense as a percent of sales.
• Team Member Retention -- Management reported historically high retention rates for team members and managers across brands, supporting sales execution and guest satisfaction.
• Guest Demographics -- Sales growth was concentrated among households over $50,000 income, with the highest gains from households above $150,000 and $200,000, especially in fine dining.

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RISKS

• Weather Disruption -- Winter Storm Turner caused temporary closures at over 40% of locations in January, reducing same-restaurant sales by roughly 100 basis points.
• Commodity Cost Headwinds -- Elevated beef costs drove 5% total commodities inflation, resulting in a 50 basis point increase in food and beverage expense year over year.
• Segment Margin Pressures -- Margin investment in menu innovation and commodity headwinds led to Olive Garden segment margins falling 10 basis points and fine dining profit margin falling 50 basis points from last year.

SUMMARY

Darden Restaurants, Inc. (NYSE:DRI) delivered strong total and same-restaurant sales growth, materially surpassing industry averages, while continuing to expand unit count through new openings and conversions. Management expects Q4 and full-year results to benefit from both pricing catching up with inflation and higher beef cost hedging coverage, alongside an incremental $0.25 per share from the additional fiscal week. The company is executing targeted menu and operational initiatives, including Olive Garden’s lighter portion offering and expanded media support, which are increasing guest frequency and mix. Guidance incorporates a disciplined marketing approach leveraging substantial RFP-driven cost savings, with increased activity budgeted at a flat percent of sales.

• Management stated, “all segments grew sales and segment profit dollars,” indicating broad-based performance across its portfolio.
• “restaurant-level EBITDA of 21%,” while 30 basis points below last year, reflects continued operational resilience in the face of cost inflation.
• Brand-specific tactics, including reduced price-point promotions at Olive Garden and recertification efforts at LongHorn Steakhouse, were explicitly cited as drivers of relative comp growth variations.
• Leadership noted, "Q3 is typically a high off-premise quarter because of catering," offering context for the reported off-premise sales mix shift.
• Management communicated that segment profit headwinds from menu innovation were planned, stating, "This, along with our measured approach in reacting to elevated beef costs, resulted in a headwind to segment profit margin."
• The team affirmed that permanent Bahama Breeze closures and conversions are not expected to materially impact financial results, with the majority of affected employees redeployed internally.

INDUSTRY GLOSSARY

• Same-Restaurant Sales: The revenue change at locations open at least 16 months, excluding new unit openings and closures, used to assess organic growth and performance.
• Adjusted Diluted Net Earnings Per Share (EPS): Non-GAAP EPS metric factoring in adjustments for nonrecurring or nonoperational items, reflecting ongoing earnings potential from continuing operations.
• Off-Premise Mix: Percentage of total sales generated from takeout, delivery, and catering, excluding traditional dine-in.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization, a measure of operating cash flow and core profitability.
• Commodities Inflation: Year-over-year increase in costs for key food ingredients and items, such as beef and dairy, impacting restaurant expense lines.

Full Conference Call Transcript

During the fiscal third quarter, average same-restaurant sales for the industry decreased 1.2% and average same-restaurant guest count decreased 3%. Additionally, median same-restaurant sales for the industry increased 0.6% and median same-restaurant guest counts decreased 2.9%. This morning, Rick will share some brief remarks on the quarter and Raj will provide details on our third quarter financial performance and share our updated fiscal 2026 financial outlook. I will now turn the call over to Rick.

Rick Cardenas: Thank you, Courtney. Good morning, everyone. We had a very strong quarter. We generated $3.3 billion of total sales, 5.9% higher than last year, driven by same-restaurant sales growth of 4.2%. We have been consistently outperforming industry same-restaurant sales and this quarter our gap widened as each of our four largest brands exceeded the industry by more than 400 basis points. All of our segments delivered positive same-restaurant sales as our restaurant teams continue to be brilliant with the basics, once again leading to impressive guest satisfaction scores. Our restaurant team's ability to consistently deliver exceptional guest experiences is enabled by historically high team member and manager retention levels that we are seeing across our businesses.

We began the quarter with very strong holiday sales and several of our brands generated record Valentine's Day sales, reinforcing that guests choose the brands they trust for these special occasions. We also opened 16 new restaurants during the quarter and we remain confident in our ability to deliver our planned openings for the fiscal year. Olive Garden delivered positive same-restaurant sales of 3.2% for the quarter, driven by strong operational execution, even with three fewer weeks of price-pointed promotions than last year.

The restaurant teams are focused on ensuring every guest is offered a free refill on breadsticks and soup or salad, which led to new all-time high guest satisfaction scores for service, and matched their all-time high for overall guest satisfaction. In January, Olive Garden completed the rollout of the lighter portion section of their menu, adding seven more dishes under $15. This platform provides their guests with more choice by offering additional smaller portions of popular dishes at a lower price, and is offered in addition to Olive Garden's regular portion sizes. Since these are existing menu items, there is minimal operational complexity and the restaurant teams can execute at a high level.

The lighter portion section of the menu is clearly resonating with our guests and their restaurant teams. In February, fan favorites returned with four-cheese manicotti for a limited time starting at $12.99. Olive Garden also reintroduced two past favorites, ravioli di portobello and braised beef tortelloni, meeting strong guest affinity for familiar, craveable dishes. Building on last year's successful reintroduction, Olive Garden recently launched Buy One, Take One and is extending the offer for one additional week versus last year. With the same starting at price point of $14.99, guests can choose one entrée for their dine-in experience and then they take a second entrée home.

To give guests even more reasons to enjoy it, this year's offer features a new rigatoni alla vodka entrée for a limited time. Olive Garden is supporting Buy One, Take One with increased media. At LongHorn Steakhouse, strict adherence to their strategy rooted in quality, simplicity, and culture continues to drive their momentum as they delivered same-restaurant sales growth of 7.2%. The LongHorn team is deeply committed to ensuring every item they serve meets their high quality standards. Already this year, they have recertified every manager on their culinary standards and during the quarter, their directors of operations completed hands-on culinary training in order to expertly assess and coach the behaviors that drive consistent execution.

LongHorn people bring the brand to life in their restaurants, and their culture remains a clear differentiator in earning strong team member loyalty, which in turn helps drive guest loyalty. During the quarter, LongHorn was recognized as one of the Best Places to Work by Glassdoor. This award is particularly meaningful as winners are determined solely based on the feedback provided by team members. LongHorn also celebrated five new Grillmaster Legends during the quarter. This program is a great example of the intersection of quality and culture, celebrating team members who have each grilled more than 1,000,000 steaks over the course of their career, a milestone that typically takes more than 20 years to reach.

Same-restaurant sales for the fine dining segment grew 2.1% for the quarter. All three brands in this segment delivered positive same-restaurant sales, driven by strong private dining sales growth at The Capital Grille and Eddie V’s, and the continued success of the three-course fixed-price menu at Ruth's Chris Steak House. Within our other business segment, same-restaurant sales grew 3.9% during the quarter driven by very strong performance at Yard House and positive same-restaurant sales at Cheddar's Scratch Kitchen and Seasons 52. The Yard House team has done a great job of leveraging their competitive advantage of a socially energized bar and distinctive culinary offerings with broad appeal to drive strong demand for Yard House as a social gathering space.

During the quarter, more than half their restaurants set new daily sales records on Valentine's Day. At Cheddar's, the team remains focused on strengthening their competitive advantages of wow price and speed. During the quarter, they maintained their number one ranking for affordability among major casual dining brands within Technomic's industry tracking tool. I am proud of our performance this quarter and confident in our ability to build on our sales momentum. We remain focused on executing our proven strategy, enabling us to grow sales, increase market share, and make meaningful investments in our business while returning capital to shareholders. We also continue to work in our pursuit of our shared purpose: to nourish and delight everyone we serve.

One of the ways we do this for our team members and their families is through our NexCore Scholarship Program. Next month, the Darden Foundation will award more than 90 post-secondary education scholarships worth $3,000 each to the children of Darden team members. This is the fourth year of the program and over that time, we have awarded more than $1,000,000 worth of scholarships, helping them reach their educational goals. Finally, I want to thank our team members for their continued hard work and dedication to creating memorable experiences for our guests every day. On behalf of our leadership team and the board of directors, thank you for everything you do. I will now turn it over to Raj.

Raj Vennam: Thank you, Rick, and good morning, everyone. As Rick mentioned, in the third quarter, we generated $3.3 billion of total sales, 5.9% higher than last year driven by same-restaurant sales growth of 4.2% and the addition of 31 net new restaurants. Our same-restaurant sales exceeded the industry benchmark by 540 basis points during the quarter. Our sales momentum was strong throughout the quarter as we further expanded our positive gap to the industry. Winter weather negatively impacted same-restaurant sales by approximately 100 basis points for the quarter with more than 40% of our restaurants having to close temporarily in January during Winter Storm Turner.

Underlying sales adjusted for weather were greater than 5%, a strong performance in what is traditionally a high-volume quarter. Overall, our teams did a great job managing the business through the volatility created by weather. Third quarter earnings were in line with our expectations, delivering mid-single-digit earnings per share growth. Adjusted diluted net earnings per share from continuing operations of $2.95 were 5.4% higher than last year. We generated $579 million of adjusted EBITDA and returned $300 million to our shareholders this quarter by paying $173 million in dividends and repurchasing $127 million in shares.

Now looking at our adjusted margin analysis compared to last year, food and beverage expenses were 50 basis points higher, primarily due to elevated beef costs driving total commodities inflation of approximately 5% for the quarter. Restaurant labor was 20 basis points lower, driven by productivity improvement, as pricing was in line with total labor inflation of 3.3%. Marketing expenses were 10 basis points higher, consistent with our expectations due to incremental marketing activity. Restaurant expenses were 10 basis points lower due to sales leverage. This resulted in restaurant-level EBITDA of 21%, 30 basis points lower than last year, as our pricing was 40 basis points below inflation. Adjusted G&A expenses were flat to last year.

Leverage from sales growth was offset by 20 basis points of unfavorable mark-to-market expenses on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is fully offset in taxes. As a result, our adjusted effective tax rate of 12.1% was 130 basis points lower than last year. We generated $341 million in adjusted earnings from continuing operations which was 10.2% of sales. Looking at our segments, all segments grew sales and segment profit dollars for the quarter driven by positive same-restaurant sales. As Rick mentioned, we continue to make meaningful investments in the business such as the lighter portion section of the Olive Garden menu.

This, along with our measured approach in reacting to elevated beef costs, resulted in a headwind to segment profit margin for the quarter relative to last year. Total sales for Olive Garden increased by 4.7% driven by strong same-restaurant sales growth as well as the addition of 17 net new restaurants. The sales momentum continued from prior quarters, with same-restaurant sales that outperformed the industry benchmark by 440 basis points. Olive Garden delivered a strong segment profit margin of 23% for the quarter, which was only 10 basis points below last year. This includes approximately 40 basis points of margin investment related to the addition of the lighter portion section of the menu and the impact of delivery fees.

At LongHorn, total sales increased 11.2% driven by same-restaurant sales growth of 7.2% and the addition of 22 net new restaurants. A sustained sales and traffic outperformance resulted in same-restaurant sales exceeding the industry benchmark by 840 basis points and same-restaurant traffic exceeding by 640 basis points. The LongHorn team remains focused on their strategy, driving strong results and delivering segment profit margin of 18.6%, despite elevated beef costs. Total sales at the fine dining segment increased 4.3%, driven by positive same-restaurant sales of 2.1% and the addition of two net new restaurants. The segment profit margin of 22% was 50 basis points lower than last year.

The other business segment sales increased 3.2% with positive same-restaurant sales of 3.9%, partially offset by the permanent closure of Bahama Breeze restaurants. Segment profit margin of 15.6% was flat to last year. Turning to our financial outlook for fiscal 2026. We have updated our guidance to reflect year-to-date results and expectations for the fourth quarter. We now expect total sales growth for the year of approximately 9.5%, same-restaurant sales growth of approximately 4.5%, approximately 70 new restaurant openings, commodities inflation of approximately 4%, an effective tax rate of approximately 12.5%, and adjusted diluted net earnings per share of $10.57 to $10.67, including approximately $0.25 related to the addition of the fifty-third week.

For the fourth quarter specifically, our annual outlook implies total sales growth of 13% to 14.5%, which includes the extra fiscal week; same-restaurant sales growth of 3.5% to 5% incorporates the strong trends we have seen through the first three weeks of March. We expect adjusted diluted net earnings per share between $3.59 and $3.69. As previously announced, we have completed the exploration of strategic alternatives for the Bahama Breeze brand and determined that 14 locations will permanently close and the remaining 14 will be converted to other Darden Restaurants, Inc. brands over the next 12 to 18 months. We believe the commercial locations are great sites that will benefit several of the brands in our portfolio.

Our team members remain a priority throughout this process. A majority of team members, including more than 70% of managers who are impacted by the permanent closures, have already been placed in new roles within the Darden Restaurants, Inc. portfolio. Additionally, we intend to keep the restaurant teams from the conversion locations with the new brand or other Darden Restaurants, Inc. brands. We do not expect these actions to have a material impact on our financial results. Now looking forward to fiscal 2027, I would like to provide our thoughts on a few items. First, we expect to open between 75 and 80 new restaurants, in addition to converting 14 Bahama Breeze locations to other Darden Restaurants, Inc. brands.

Next, we expect to spend approximately $850 million of capital on the following: approximately $475 million for new restaurants, approximately $25 million for the 14 Bahama Breeze conversions, approximately $350 million related to ongoing restaurant maintenance, refresh, and technology. Finally, we anticipate an effective tax rate of approximately 13.5% for fiscal 2027 and total interest expense of approximately $200 million. In closing, I want to commend our teams for their efforts in serving our guests. Their dedication is reflected in the strong financial results we deliver and our continued outperformance to the industry. We remain confident in our ability to grow sales, manage costs, and deliver value to our guests and shareholders. We will now open for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. Our first question today is coming from Brian Bittner from Oppenheimer. Your line is now live.

Brian Bittner: Thank you. Good morning. Just as it relates to your same-store sales guidance, the implied outlook for the fourth quarter is that 3.5% to 5% range, which is very impressive. And that is happening despite much tougher comparisons, I think, of nearly 400 basis points in the fourth quarter. I think investors in general have been pretty worried about this multi-quarter stretch of tougher comparisons upcoming. So can you help us understand what you believe is driving the ability to lap these so far, at least with such ease, particularly at Olive Garden?

Raj Vennam: Good morning, Brian. Let me start and, you know, as we look at guidance for next year, this is—people are looking at this quarter to quarter, tougher comparisons towards this last year. But the way we think about it is what are drivers of the business, and how do we continue to build growth over time through the initiatives we have. I think we have shown that over time, we achieve what we commit to. We have been able to show that we can grow. And so as we look at specifically with respect to Olive Garden last year, you said it is a tougher compare.

But if you think about the drivers of growth last year, there were primarily two. One was Buy One, Take One returning for the first time since COVID, and second was the first-party delivery. Well, those two are still in place today. And we are extending our Buy One, Take One by an additional week, and Rick mentioned we are also supporting that with additional media. So we build a plan and we build an estimate based on the initiatives we have in place, taking into consideration the macro factor. And I think we feel good about what we are guiding here.

Brian Bittner: Thanks for that, Raj. And just my quick follow-up is related to the relationship of pricing and inflation. Can you talk about that as we are moving forward into fourth quarter and then into 2027? I know you are not giving exact guidance, obviously, for next year yet, but you had some pretty meaningful gaps in that dynamic throughout this year, which seem to be narrowing now. So maybe you can just put some color on that for us.

Raj Vennam: Yes, Brian, look, I think we have had a pretty big underpricing of inflation through the first three quarters. As we get to Q4, we expect our pricing to catch up to inflation. We expect overall inflation to be in the mid-3s and our pricing to be in the mid-3s. And if you look at our implied guide for Q4, you can see the power of that. When we start coming close to pricing to inflation, you see the margins grow meaningfully, and that is what you are seeing in the implied guidance for the fourth quarter.

We will share more about next year, but I think the way to think about it is we have given ourselves a lot of flexibility by underpricing inflation over several years. And we feel like we have, if the industry—when you look at— we have more power than anybody else in terms of being able to price to cover inflation. It is more of how we choose to run the business, and we have always been focused on the long term. And I think, to the extent we are achieving our long-term framework of 10% to 15% TSR by not having to price as much, then we do that. But I think you will hear more in the June call.

Our framework calls for 10% to 15% and that is what we aim to deliver.

Operator: Thank you. Next question is coming from David Palmer from Evercore ISI. Your line is now live.

David Palmer: Thanks. Quick question and a follow-up. How would you generally explain the same-store sales growth gap between LongHorn and Olive Garden? Is that really simply about the energy around protein and perhaps a little bit of the underpricing of beef costs lately? Or do you think there is something else that would explain the gap that we see between those two brands in terms of comps?

Rick Cardenas: Yes, David. I will start by saying LongHorn has been on a very long path to continue to improve their business to make sure that the guests get a great quality product every day. You heard that in some of the prepared remarks. They have also significantly underpriced beef costs versus the grocery store over time, so the guests are getting an amazing value when they go to LongHorn to eat. Going back to the quality, they have done an amazing job in cooking their steaks. Guests want to come to a restaurant, and if you cannot cook a great steak, why are you open? And LongHorn cooks a great steak very close to 100% of the time.

And when they do not, they take care of the guest. So the gap between Olive Garden and LongHorn, it is going to fluctuate. And this quarter, LongHorn had to get a little bit more pricing than Olive Garden did. They had a little bit more traffic growth than Olive Garden did. They also—I am not sure they were impacted quite as much by the weather as Olive Garden was. But as you think about all of those things, we do not worry about one brand outperforming another brand. We have a portfolio of great brands. There are going to be quarters that one brand outperforms another one, just like we generally outperform the industry.

So we are very pleased with both of our brands, both Olive Garden and LongHorn, in the performance they have had. But I think those can explain some of the big differences.

Raj Vennam: The only thing I will just add is, as Rick mentioned, we also manage brand-specific tactics. Some of the things we do are depending on how we look at our performance across the portfolio. So there were three fewer weeks of price-point promotion at Olive Garden, and that is a decision we made because of how strong we felt the quarter was going to be. And that alone is probably about 100 basis points impact to Olive Garden's comps.

David Palmer: Right. That is helpful stuff. Do you see the gap between those two brands growing? Or—you just called out a reason why it might narrow—but we see the comparisons getting tougher for Olive Garden. So I know that there is going to be concern that growth gap will widen against the tougher comparisons. Do you see that gap widening or perhaps narrowing off of some of those artificial hurts that happened in the last quarter? And I will pass it on.

Rick Cardenas: Well, David, again, we are not as concerned with the gap widening or narrowing in our brands as long as the brands continue to grow. And the important gap widening for us is Olive Garden's gap to the industry. And Olive Garden's gap to the industry widened in our third quarter; LongHorn's gap widened even more. In the long run, though, the law of large numbers—Olive Garden and LongHorn will probably converge over time. I cannot say it is going to happen in Q4. I cannot say it is going to happen next year.

But over time, as long as we are not doing anything significantly different in promotional cadence or other things, you would expect those gaps to narrow a little bit. But maybe LongHorn will be above Olive Garden for a while. We just cannot tell you exactly when that will converge.

Operator: Thank you. Next question today is coming from Lauren Silberman from Deutsche Bank. Your line is now live.

Lauren Silberman: Thanks a lot. Congrats on the quarter. I am going to start with just the increasing gas prices. It sounds like you really have not seen much of an impact, given the quarter-to-date strength. But any thoughts on whether there could be a delayed reaction from consumers, and any color on what you have seen historically with high gas prices and how that has impacted different brands?

Rick Cardenas: Yes, Lauren. As quite a few of you have written, the data does not show a really strong correlation between gas prices and restaurant spending. I would say historically higher gas prices had more of an impact on durable goods and less of an impact on services. And I have been through a number of these cycles. When there is a sudden and significant price increase in gas, there can be a brief pullback, but that is usually in a few weeks. And if you recall, the sudden increase in gas prices were a couple of weeks ago. And we still had a pretty darn good quarter. The biggest driver we see in traffic for restaurants is GDP.

So if gas prices remain high for a long period of time and make a big impact to GDP, there may be some softness. But in general, we are not too worried about gas prices and will be able to react however we need to if they stay really high for a while.

Lauren Silberman: Great. Thank you for that. And just a follow-up on the Q4 guide. The 3.5% to 5% is a fairly wide range. Any color on what you are embedding through the rest of the quarter? I know there are a lot of moving pieces. Just trying to understand high end versus low end versus current trend. Thank you.

Raj Vennam: Yes, Lauren. I think it is just—look, what we are trying to embed is there is still some uncertainty, and the range is there to capture that level of uncertainty. But we feel like we are in a good place quarter to date, and that is taken into consideration. We are also taking into consideration the environment out there and just trying to make sure that we do not overpromise. So we are being thoughtful and taking into consideration all the factors that are out there.

Operator: Thank you. Next question is coming from Christine Cho from Goldman Sachs. Your line is now live.

Christine Cho: Hi, thank you so much. I would like to discuss beef prices, particularly as we look ahead to FY 2027. I think last call you mentioned you are starting to see some green shoots, but it seems spot prices are still trending upwards and news of the strike also seems to be an incremental headwind. Could you share your directional thoughts on beef and your locked-in rates for the next few quarters ahead? Thank you.

Raj Vennam: Hey, Christine. So let me start by saying, as far as fiscal 2027, we want to wait till June to provide more specifics. But I can tell you for Q4, we have 80% to 85% fixed price coverage. So we have, relative to the recent past, more coverage than we have been able to secure in the last several years. That is a good thing. The other thing is we are starting to see some willingness from suppliers to contract further. So we have started to lock in some things for fiscal 2027, probably well ahead of where we would have been a year ago or the last few years with respect to the next year.

But I want to wait till June to really share more specifics. Now the other thing around the price—look, there are a lot of dynamics happening on the supply side. So we are not expecting things to get significantly better on the supply side. But there is still double-digit demand destruction that we are seeing even in February in retail. Ultimately, where it lands will depend on what happens with demand as prices go up.

Christine Cho: Thank you so much. I would also like to circle back on the lighter portion menu rollout at Olive Garden. Any color on how the incidence rates trended since the launch? And is the mix impact tracking in line with your expectations? Also, any new learnings on the guests that are choosing these items? Does the uptake appear primarily value-driven or more health surge/GLP-1 motivated? Thank you.

Rick Cardenas: Hey, Christine. I would say we finished the launch in January, with the rest of divisions going live. And those divisions are seeing the same trends as the divisions that we launched earlier. The good news is we are seeing increased frequency in the guests that are ordering these lighter portions. We are seeing huge value scores and huge scores for portion size. So it is a combination of many things. We do know that the Olive Garden menu has abundant portions and “abundant” means different things to different people. When you get as much soup or salad as you want and as many breadsticks as you want, a lighter portion may be all you are looking for.

Whether it is GLP-1 related or not, I do not think it is just GLP-1s. I think a lot of people want smaller portions if you get all these other things. And as I said, portion size ratings have gone up significantly and value ratings have gone up significantly for those items. We have seen increased frequency in the guests that are ordering it. It is a significant increase in frequency. Last, I will say a lot of the preference is happening at the weekend lunch, when we do not have a lunch menu. So there is a good reason for this lighter portion menu. Finally, the mix impact is about what we thought it would be.

And Raj mentioned what the margin impact of the mix was, but the mix impact is about where we thought when we first launched the menu.

Operator: Thank you. Next question today is coming from Chris Carroll from KeyBanc Capital Markets. Your line is now live. Hi, good morning.

Chris Carroll: So how should we think about marketing expense now in the 4Q in the context of the updated guidance you provided this morning? And I presume you will wait to provide any detail on marketing expense for fiscal 2027 in June. But any thoughts on how you are thinking about marketing at a higher level here in a potentially more volatile macro backdrop would be helpful.

Raj Vennam: Yes, Chris, I think we have been very clear throughout the year that we expect marketing to be within 10 basis points as a percent of sales, versus last year. And that is really how we are looking at it because one of the things we had this year that we mentioned along the calls was we had an RFP for media-wide that translated into meaningful cost saves, actually north of 10 basis points as a percent of sales. So that is helping us increase marketing activity. Even in quarters where you do not see growth as a percent of sales, we are actually buying more because we had those savings to help.

Chris Carroll: Okay. Got it. Thank you. And then I guess, maybe to give Olive Garden a little bit of a break here but changing directions a little bit, can you comment on the improvement that you saw in the fine dining segment? How are you thinking about the segment going forward, and how much of a benefit to the comp in the quarter was from the strong Valentine's Day that you mentioned?

Rick Cardenas: Yes, Chris. As we mentioned, fine dining—all three fine dining brands were positive same-restaurant sales in the quarter. It was not just driven by Valentine's Day. I do not even think that would be meaningful—maybe tens of basis points for the whole quarter for Valentine's Day. We had really good private dining, as we mentioned, for The Capital Grille and Eddie V’s. And I will say this three-course prix fixe menu for Ruth's Chris is really resonating. We ran it for, I think, five or six weeks this quarter, and it is resonating with guests. We are seeing guests that were lapsed to Ruth's Chris come back and we are seeing guests that have ordered that come back.

So we think this is a good platform for them. And we are really pleased with the fact that fine dining—all the brands in fine dining—were positive this quarter. It has been a little bit of time since that has happened. We cannot tell you what we think going forward, but everything we have is contemplated in our guide, and our guide is a pretty strong guide. I would think that fine dining would be doing okay in the fourth quarter.

Chris Carroll: Thanks.

Operator: Thank you. Our next question today is coming from Sara Senatore from Bank of America. Your line is now live.

Sara Senatore: Quick housekeeping. I think I missed it. Can you run through the price and mix that were in the comp and maybe give a little bit of color on—I think you mentioned LongHorn had more price than Olive Garden—but just how the brands compared to the average?

Raj Vennam: At the Darden Restaurants, Inc. level, our comps were 4.2%. Our check growth was 3.5%. Pricing was basically 3.4%, so I think 10 basis points of positive mix. When you look at Olive Garden, their pricing was 2.8%, but they also had catering help. Catering grew by about 130 basis points. We do not count that as traffic, but for all practical purposes that is increasing traffic. So if you take that into consideration, their traffic was up basically 100 basis points. And then they had some investment, like we talked about—the investment in lighter portions impacted the check by roughly 60 basis points. Uber fees helped a little bit with about 50.

So the way we look at it is Olive Garden's comps—while the traffic we print might be negative 0.4%—when you add back the weather and the catering, basically a positive 2% comp on traffic. For LongHorn, the same-restaurant sales of 7.2% included traffic of 3.3% and check growth of 3.9%. Pricing was 4.4%, so they had a negative mix of 50 basis points.

Sara Senatore: Okay. Thank you. That is very helpful. And then in terms of the decision to run fewer weeks of price-point promotions—as you said, maybe 100 basis points—but then this quarter, running an extra week of the Buy One, Take One and supporting it with more marketing. Presumably, all those things were planned well in advance. I just wanted to confirm that because I was not sure if the decision to go from fewer weeks last quarter to one more week this quarter indicated something about the promotional intensity or what the results were versus your expectation. Just trying to reconcile those two decisions—or maybe just tougher compares or something else entirely—but just curious about that.

Rick Cardenas: Yes, Sara. As big as Olive Garden is, we cannot move on a real big dime here. We had planned both of those things quite a while ago. So we had planned running fewer price-pointed weeks in Q3 and planned on adding a week to Buy One, Take One in Q4 well early in this fiscal year—maybe even before the fiscal year started. The reason that we eliminated a promotion in the third quarter was because we believed that weather would get back to a normal five-year average, and so we would have some weather tailwinds for us this quarter. Well, there were headwinds. That was just something that happened.

As Raj mentioned, if there was not that kind of weather headwind, we would have had a 2% comp in traffic. So we plan these a long time ahead of time. This is not a reaction to promotional intensity anywhere else. If you recall, when we added Never-Ending Pasta Bowl, we came back, I think it was seven weeks—maybe eight weeks—and then within a year or two, it was up to twelve. That was a decision and a plan—decisions we made.

I cannot tell you the Buy One, Take One will get to twelve weeks, but I can tell you that when we launched Buy One, Take One last year, we never intended it to be as short as it was.

Operator: Next question today is coming from Jon Tower from Citi. Your line is now live.

Jon Tower: Hey, thanks for taking the questions. Maybe starting—could you dig into the delivery for Olive Garden during the quarter? I think you have been running about 4% mix last period. Did much change? And going forward, how are you thinking about pulsing it as you are moving into the fourth quarter? Obviously, there is a different macro dynamic happening right now and there are delivery fees on top of it. So I am just curious if there is going to be a brighter spotlight on that relative to previous quarters?

Rick Cardenas: Yes, Jon, a couple of things. Uber was 4.7% of sales for Q3. We did do some media support. When we took that four-week promotion out—so three weeks less price-pointed—we took that one out in January. We replaced it with just a delivery message that had no offer. It was just “Hey, Olive Garden delivers.” And then in February, we added an offer to the Olive Garden delivery—free delivery—like we did last year. Last year in Q3, we were roughly 0.8% in delivery. Last year in Q4, we were 3.5%. So you saw that big jump when we started marketing delivery in Q4.

I would say that in Q4 this year, I am not going to tell you if we are going to do marketing for delivery, but if we do, it would be a secondary message. And I would think that the jump in delivery from Q3 this year to Q3 last year will not be the same in Q4 because that is when we had the big spike. But we still believe that delivery should be a little bit higher than last year.

Jon Tower: Okay. Great. And maybe, it sounds like the lighter portion menu at Olive Garden is a pretty good success early on. As you are looking across the rest of your brands, is that an opportunity to bring to other brands within the portfolio, or are the guests just a little bit different?

Rick Cardenas: Yeah, we have said this before. I think LongHorn has done some of this already. LongHorn did this at lunch years ago and lunch is growing pretty fast with a good lunch platform—smaller items, sandwiches, etc.—that has grown over time. They already have different sizes of some steaks. If you think about their filet, they have two different size filets. They have sirloins. They have two different kinds of ribeyes—one is bone-in, one is not. They have different sizes for chicken, different sizes for salmon. So they kind of have a lot of that already.

They are looking at other things they can do to bring portions that might not be as big for people that do not want such big portions. The same thing with Ruth’s Chris—if you think about the prix fixe menu at Ruth's Chris, it is one of their smaller filets, etc. So we have opportunities in all of our brands to look at something like this. It might not be as broad as we do at Olive Garden because most of these menus in other brands already have a variety of sizes.

Operator: Thank you. The next question today is coming from Brian Harbour from Morgan Stanley. Your line is now live.

Brian Harbour: Yes, thanks. Good morning, guys. I guess maybe I will just ask the income cohort question. Anything that you would call out about income bands that may have shifted in the quarter and also in fine dining, is there any group that you think has come back more?

Raj Vennam: Hey, Brian. From an income perspective, what we are seeing is there is growth across all households with income above $50k, and the biggest growth is coming from households over $150k. That is generally what we are seeing across all brands. As we look at fine dining, we are seeing decent growth as we start to go above $150k as well, but $200k-plus is where we are seeing the most growth. And that is where we see even bigger disparity between the below-$75k, below-$100k, and then the above-$200k or $150k.

Brian Harbour: Okay. Got it. Thanks. Raj, just directionally, it is still your expectation, I think, that food cost pressure kind of continues to diminish a bit into the fourth quarter. Also, is there any reason that with the sales you are doing, there would not be a little bit more leverage on the other restaurant expenses at this point?

Raj Vennam: I think we would expect to get some. Let me step back. I hate for us to talk about a specific line item in the P&L because there are multiple variables that can play a role in where we land for the end of the quarter. But as we look at the business, the guidance that we provided for the fourth quarter implies margin growth. And we are going to get it from probably—at this point—pretty much every line on the P&L. It does not have to end up that way. Ultimately, we look at the bottom line. I think we are going to show EPS growth and margin growth.

Operator: Thank you. Our next question is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Jeffrey Bernstein: Great. Thank you very much. First question is just on the fiscal 2026 guidance. I know there is only one quarter remaining, but you raised the total revenue growth guidance, you raised the comp and the unit growth guidance, but ex the incremental nickel, I guess, from the fifty-third week, it seems like the implied fourth quarter EPS guidance is still somewhat in line with the Street. I am just wondering how you think about maybe what is preventing the greater EPS upside, especially as total inflation guidance seems to be unchanged.

Just trying to get a sense for how you think about that going from the top line to the bottom line as we think about at least the upcoming quarter?

Raj Vennam: Hey, Jeff. Look, we are not—I do not want to explain the Street’s model. I am focused on what we built as a plan. If you look at our initial guidance at the beginning of the year, we said our guidance was $10.50 to $10.70. As we got through the year, our inflation was a lot higher than we thought, and we did not price for all of it. But we had better comps than we thought in the plan. So we took up comps to reflect that. Ultimately, we are still delivering on the higher end. If you take the midpoint of it, it is higher than the midpoint of what we had initially guided.

The delta on the fifty-third week is just a function of—we had approximately $0.20, and now we are saying approximately $0.25. If you think about how the rounding works, a couple of pennies could make it approximately $0.20 versus approximately $0.25. So do not read this as a $0.05 delta. It could be $0.01 to $0.02 because of how it rounds. That is why we said approximately. I will leave it at that.

Jeffrey Bernstein: Got it. So it sounds like greater comp, greater inflation—net-net, still a strong earnings year. And then as I think about that going into next year, I appreciate the color on the unit growth and the CapEx spend. But more broadly speaking—and I know it is just directionally at this point—is it fair to assume you think fiscal 2027 growth in line with your long-term algo? It seems like entering fiscal 2027 with comps above the 1.5% to 3.5% long-term target. Maybe you could share the current annual EPS sensitivity to an incremental point of comp. Any color at least directionally on how we should think about fiscal 2027 versus the long term would be great.

Raj Vennam: Well, Jeff, I would say we will share more about fiscal 2027 later, but what we are targeting is trying to stay in that framework—or at least achieve what we said is part of the framework. One and a half to three and a half for comps, and 3% to 4% for new restaurant growth. As you look at the initial indication for fiscal 2027, excluding the Bahama Breeze impact, we would expect it to be in that range of 3% to 4% for new unit growth contribution. Part of the other framework is EBIT margin flat to positive 20 basis points to get us to that EPS growth plus dividend yield of 10% to 15%.

That is what we would plan for. Any given year, it might be a little bit different. But that is what we target long term. At this point, I do not see a reason why we would not be there, but we will give you an update in June.

Jeffrey Bernstein: Thanks.

Operator: Our next question today is coming from Jim Salera from Stephens. Your line is now live. Good morning, thanks for taking our question. Raj, earlier you had talked about double-digit demand destruction at retail for beef. And I cannot help but draw a line between the strong results at LongHorn and then that commentary. So are you able to give us any context? Are you seeing consumers who forego buying beef at the grocery store then showing up at LongHorn in a way that is actually a tailwind to your traffic at LongHorn because they are nervous about preparing it, so they show to have you prepare it for them instead?

Rick Cardenas: Hey, this is Rick. In times of high beef prices in the grocery, you generally see a little bit more consumer going to a restaurant to get their steak. A consumer has to cook a very expensive steak at home and if they mess it up, they still have to eat it. When a consumer goes to a restaurant and orders a steak and we mess it up, we eat it, and they still eat a great steak. I think that is part of the reason, but I cannot tell you that we have data to say that a consumer says, “I saw this price in the grocery store. I decided not to do it.

I am going to go to LongHorn instead.” We have great data. We have the best data and insights in the space, but we do not ask our guests that question, so we do not know.

Operator: And then maybe one follow-up question. Given the traffic outperformance for Darden Restaurants, Inc. as a whole relative to the industry, how much of that is incremental frequency from existing guests who are just satisfied with the menu innovation and some of the portion size offerings, versus you winning share from other peers within the group?

Raj Vennam: Yes, look, we are getting from both. When we look at our frequency, we are seeing frequency increase across the portfolio from the guest. But we are also getting new guests. So it is a combination of that. The data that we look at probably shows a little bit more from increased frequency—call it 60/40, 65/35 in that range.

Operator: Thank you. Our next question today is coming from Andrew Charles from TD Cowen. Your line is now live.

Andrew Charles: Great. Thank you. Rick, catering at Olive Garden continues to grow pretty nicely despite lapping several quarters since large growth began. So what do you attribute that to?

Rick Cardenas: Hey, Andrew. Growth at Olive Garden is about execution. I did not hear your very first word. I want to make sure I am answering what growth you are talking about.

Raj Vennam: It was catering.

Rick Cardenas: Catering growth. Catering is a great deal at Olive Garden, and we do an amazing job at getting it to the guest at the exact time they want it. We have a good digital platform to do it. So catering is a very strong support for us, and it is probably one of the best values at Olive Garden. And we have a delivery part of catering that we do ourselves—delivery. It is our highest-rated part of anything we do à la carte. What guests want for catering is they want to make sure they get the food that they ordered, they get it on time, and it is a great value. Olive Garden checks all three boxes. Every time.

Andrew Charles: Gotcha. And then, Raj, is it fair to assume that a good portion of the converted Bahama Breezes will be Olive Gardens, just given similar square footage combined as well as Olive Garden is one of your highest ROIC brands for new stores?

Rick Cardenas: Yes, Andrew, this is Rick. I would not say it is fair to assume that most of the conversions will be Olive Garden. There are 14 conversions. Olive Garden is pretty much almost everywhere Bahama Breeze is. So I would say it is fair to assume that Olive Garden will have a couple maybe, but they will not have a lot of them.

Operator: Thank you. Our next question is coming from David Tarantino from Baird. Your line is now live.

David Tarantino: Hi, good morning. First a clarification on Raj's comments about next year and the total shareholder return being in line with your normal framework. Are you adjusting for the lapping of the fifty-third week, or maybe you do not need to adjust and still hit that target range? Could you clarify whether we should be making any adjustments to your comment?

Raj Vennam: Yes, David. I would say we always look at it on a 52-to-52 because that is the right comparison. What the fifty-third will look like—you will find out in June. At this point, long term, 52-to-52 is the right comparison.

David Tarantino: Great. Thank you. And I guess my real question, Raj, is about the commodity cost outlook. I appreciate you do not want to give specifics for next year, but I am wondering directionally if the spike in oil prices and hence distribution cost is going to have any material impact on the outlook for commodity costs for you—and for the industry for that matter? I guess you probably have a competitive advantage with your supply chain, but any thoughts on that topic would be helpful.

Raj Vennam: David, I do not want to speculate, but if you look at where we are expecting the inflation for commodities for this year to be, which is 4%, our thinking from where we are sitting now for next year, directionally, should be better than that—even with some of the recent news. But we will provide an update in June.

Operator: Thank you. Our next question is coming from Danilo Gargiulo from Bernstein. Your line is now live.

Danilo Gargiulo: Thank you. Rick, I was wondering if you can elaborate more on the turnover rate being particularly low. Is that a function of what you are doing, where you are in the market, or is that something that you are seeing across the board for the industry? And was that the primary driver for the labor productivity improvement that you have seen this quarter? And if that is the case, for how long do you expect low turnover to last?

Rick Cardenas: Yes, Danilo. I would say our turnover—our retention—has continued to outpace the industry. Ours is getting better faster than the industry is. I would attribute that to a great employment proposition that we provide. We give our team members opportunities to grow, and that gives them a chance to come into the industry and get life-changing manager jobs and above. Almost all of our brands are at record turnover levels, and the ones that are not are pretty darn close. The industry data is getting a little bit better. So when we think about labor, low turnover helps labor costs because you have got more productive employees doing the job. You have less need to hire and train.

We do still train, but we cross-train them. We spend less money on new-hire training. That should help us as long as we keep our turnovers moving in the right direction. Then our labor productivity should get slightly better. We may invest some of that. As we mentioned, we always find ways to invest in the guest. If we get some things that are much better than we would expect, we would probably give some of that back to the consumer in the form of either better service, better pricing, or better food.

Danilo Gargiulo: Thank you. And then from Raj's comments earlier, one could infer that maybe 2027 could be more elevated pricing versus 2026, a little bit above inflation perhaps? Historically, with pricing above inflation, the guest count could be more reduced. I am wondering what kind of initiatives—even at a high level—you think you could be deploying in 2027 to perhaps counterbalance this and still have a guest-driven growth for your brands? Thank you.

Raj Vennam: Danilo, let me start and then maybe Rick can add to that. I do not want to signal anything specific to 2027 with respect to pricing versus inflation. What we are talking about is we have given ourselves a lot of room essentially since COVID, by underpricing the full-service CPI by almost 1,200 basis points, and even grocery by 400 basis points. So we feel like if we need to take price, we can take it, and we can be smart about it without impacting the guest. Part of the reason being, cumulatively, we are in a much better place. Our relative value position is really strong.

So we do not necessarily think if in a year we take a little more—or actually in line with inflation—that suddenly that becomes a headwind to guest count. That is not how we view it.

Rick Cardenas: Yes, and Danilo, I would add that even if we price at inflation, and we anticipate commodities being a little bit better over time, then it would not be a huge price for next year if we do that. I would also add that we keep investing in our team, in our product, and in what we serve to the guest. Those investments build on themselves over time and guests notice the value that they get. Most of our brands are at record-high guest satisfaction, record-high affordability, record-high value scores. We have continued operational execution.

As we have said, we will continue to look at our media spend and become more effective with that media spend, but still increase slightly—like we have said, about 10 basis points or so. We will probably do the same thing next year, could be even more depending on how impactful that marketing spend is. We should have some things that help counterbalance anything we do with price. As Raj said, we do not think what we would do with price would be a tremendous drawdown to the guest count.

Operator: Thank you. Our next question is coming from Gregory Francfort from Guggenheim Partners. Your line is now live.

Gregory Francfort: Hey, Rick. This may be a little bit out of left field, but I am curious your thoughts on some of these AI tools that are coming on—how much you are using them at corporate, what that is unlocking for you from an analytics perspective? Any thoughts on what may be changing inside your business with what is going on?

Rick Cardenas: Yes, Greg. Not quite out of left field. I am going to start by saying that at the core, we are and we always will be a hospitality-driven company, which means you need people. We are a people-focused business, so we are going to need them. Our teams are doing an incredible job every day. We are using AI and machine learning to give our managers a much better forecast of their business so they can schedule better, plus we are using tools to help them write better schedules. They can order food better.

The best thing you can do as a manager is to have a great forecast so you can staff your restaurant right and have the right amount of food. That said, we are doing things here in the support center to improve tasks that are repetitive—using AI to start projects faster, to get things done faster. But we have yet to take any jobs out because of AI. We have got 200,000 employees in this company and only about a thousand of them work here. The other 200,000 work in the restaurant, and I would say we are probably not going to lose any team members in the restaurant because of AI. We are going to make their jobs better.

We are going to make the guest experience better. Ultimately, the approach for AI for us is about amplifying the expertise of our people, not replacing them. It helps us deliver exceptional service and that is what we will keep doing. We have a great team in IT here—over 200 people strong—and they are using it to write code faster, to get a lot of savings in what they do so that we can have more tools for our teams at a faster pace. Even some things that we have been looking to do for years that we were struggling to get done, AI is getting it done a lot faster.

That is where you are going to see the benefit of AI. But you probably will not see it specifically because it is not necessarily guest-facing.

Gregory Francfort: Thanks for the perspective. Appreciate it.

Rick Cardenas: Sure.

Operator: Thank you. Our next question is coming from Jeff Farmer from Gordon Haskett. Your line is now live.

Jeff Farmer: Thanks. You guys mentioned that Uber was I think roughly 4.7% of mix at Olive Garden. But I am curious in terms of the concept’s total off-premise mix—so including to-go and catering.

Raj Vennam: Yes, Jeff. I think we are 29%. That is about 3 points higher than last year. Last year was 26%. Recall, Q3 is typically a high off-premise quarter because of catering we talked about earlier and just generally high off-premise in the quarter.

Jeff Farmer: And then just same question for LongHorn off-premise mix?

Raj Vennam: I think LongHorn was 15% for the quarter, which was a point higher than last year.

Operator: Thank you. Next question is coming from Dennis Geiger from UBS. Your line is now live.

Dennis Geiger: Curious if any updated thoughts on tax rebates, stimulus benefits, or any latest expectation you have based on anything you have observed so far to date?

Rick Cardenas: Yes, Dennis. It is still early. Most of the refunds are going to happen in basically March and April, but we did see some of the refunds coming in February. We know that per recipient, the tax refunds are higher. Everything we know is contemplated in our guidance. Last thing I will say is we do know that when checks drop, we see the impact. We had some of that impact in February, but it was pretty small amounts in February.

Dennis Geiger: Great. Thanks, Rick. And then just quick on the operational stuff and that speed of service initiative, which I know is longer term in nature. I feel like I have observed it in the Olive Garden. Any update to share there and where the guest and the employee feedback is, if anything to share?

Rick Cardenas: Well, I am glad you experienced it at the Olive Garden. They really started to make a good push on it in this year's Q3. They are doing some things in different restaurants to test initiatives to get the roadblocks out of the way for speed. At Olive Garden, there are 50,000 servers. How do you convince 50,000 people that they have to change the way they do things, and then help give them the tools to do that? They do not have to be technology tools. It is how do you get the soup, salad, and breadsticks out faster—so the first course out faster?

How do you ensure that you give the guest the speed and the pace that they want? Olive Garden is making some moves, and I think those moves are going to get even bigger in the upcoming quarters, and our other brands are following suit. Olive Garden is moving a little bit earlier, but the other brands are going to get there. Our goal is to get this experience in the time that the guests believe is ideal. Right now, the ideal time is a little bit faster than what all of casual dining is doing, and it is a little bit faster than where we are. So we are going to get to the ideal time.

It is going to take a while. The guest impact of that will be seen two different ways. In the short term, it is going to be better throughput on the high-volume days. In the long term, it is going to be guests coming to us for occasions they were not coming before. That second one is long term, and it is going to take a while. It is going to take time for the guests to realize that, “Hey, I have got 45 minutes to go to lunch in total, and I need to get in and out of there in 30.

Can I do it?” If they do not believe they can do it today, I want them to believe they can do it in a few years. When they can, they are going to come back a lot more often. I just use lunch as an example. It is not just about lunch.

Operator: Thank you. The next question is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live.

Andrew Strelzik: Hey, thanks for taking the question. Apologies if I missed this, but you lowered the commodity inflation guidance from 4% to 5% down to 4%. What was the driver of that within the basket? And was that more 3Q related or 4Q related? And then, keeping the overall inflation at 3.5%, was there anything as an offset to the lower commodity inflation? Is that just rounding?

Raj Vennam: Yes, Andrew, it is really rounding because we see approximately 3.5%. When you look at commodities specifically, there was some favorability. Most of the favorability that we have versus the prior estimate is in beef. I think we expected Q4 to be more in the double-digit range, and it ended up being high single digit. We had some favorability on dairy that is helping partially offset. Those are the two drivers in terms of the change. Again, we are talking about tens of basis points of change because we were saying earlier 4% to 4.5%, and we are now approximately 4% for the year.

Andrew Strelzik: Okay. Thank you. And then, with the step-up in new units for next year, I know it is only a handful incrementally, but should we assume that most of those are Olive Garden and LongHorn? Or is that a little more broad-based—anything to call out there? Thank you.

Raj Vennam: Yes. As we look at 75 to 80, I would say 50 to 55 is going to come from those two brands. Then probably mid-single digits for the rest of the brands as you look at—I would say Yard House, Cheddar's, and Cheddar’s will probably all have mid-single-digit unit growth—number of units. The rest will come from fine dining.

Rick Cardenas: Yes, and I would add that over the long term, you should see—over time, not right away—more of our growth as a percent growth coming from the smaller brands. Think about Cheddar’s, think about Yard House. They have got to be at the higher end of our framework or more because Olive Garden is going to be within that framework somewhere—probably at the lower end. In order for us to get to that framework and to get a more balanced portfolio, those other brands are going to grow faster over the long term—is what we said. In the first few years, Olive Garden is going to drive some of the growth.

Operator: Thank you. Next question today is coming from John Ivankoe from JPMorgan. Your line is now live.

John Ivankoe: Hi. Thank you so much. The question is on operations. Obviously, perfect is impossible in the real world. What percentage of restaurants do you think are operationally excellent today? And conversely, what percentage of restaurants do you think have an opportunity to significantly improve operationally, especially as the labor market might be more willing for you to do so?

Rick Cardenas: Hey, John. I cannot give you an exact number here, but let us just use the 80/20 rule. I would say 80% of restaurants are operating great and maybe 20% have some room to improve. It is probably less than that. I will say that our dissatisfaction—which we measure in guest satisfaction—our dissatisfaction at our brands is pretty much at all-time lows. I am talking about low single-digit dissats in our big brands, and that is pretty amazing when you consider where dissatisfaction rates can be in casual dining and any dining.

Raj Vennam: Or any service.

Operator: Go ahead.

John Ivankoe: Yes. Definitely. Some people are not going to be happy with perfect, so low single digits is very good. Let me ask you a separate question in the interest of time. Greg asked about AI and I think specifically on a corporate level. You mentioned having AI-driven forecasts for general managers. But within quick service, a number of these different companies are talking about assistance for the general manager to help them do their jobs better even beyond forecasting—your labor allocation, food prep, what have you. Does that make sense for casual dining broadly? Does that make sense for Darden Restaurants, Inc.? And is that something you might be on and see as an opportunity?

Rick Cardenas: Absolutely, John. I did mention forecasting, but it is about food prep and labor management and other things. I probably did not put it all in there, but it is all part of that. Whatever we can do to make the general manager and the restaurant manager's job easier—to get them out of the office and with our guests and with our team members—is what AI can help do. What I did say is we will not have it where our guests are actually seeing it in their face. But we are using a lot of that stuff already.

Operator: Thank you. Our next question is coming from Brian Vaccaro from Raymond James. Your line is now live.

Brian Vaccaro: Hi, thanks. Just a quick one for me. It is really a question on the casual dining segment. It is pretty striking how your outperformance gap has widened significantly in recent quarters. Maybe talk about this widening gap between the winners and losers in the segment. Are you starting to see a tick-up in closures or think we might be on the precipice of seeing that? Any other thoughts you have on this widening gap?

Operator: Ladies and gentlemen, please standby.

Operator: We are experiencing technical difficulties. Just give me one moment please while I get the speakers back on the line. Ladies and gentlemen, please stand by. Ladies and gentlemen, please do not disconnect. We are reconnecting the speakers at this point. One moment please while we reconnect the speakers. Once again, we are experiencing technical difficulties. Please continue to hold. Do not disconnect. We do appreciate your patience in this matter.

Operator: And Brian, you are still in queue, my friend. Just standby. Okay?

Courtney Aquilla: Okay. Thank you. Can you hear us now?

Operator: Yes, we can. Please go ahead.

Operator: Alright.

Rick Cardenas: Alright. Sorry. I do not know if, John, you got my whole answer, but—

Brian Vaccaro: We did not hear anything, Rick. This is Brian Vaccaro. Do you want me to ask the question again, or did you get it all?

Rick Cardenas: No. I got John—the question about AI for John? Did you get that answer? That is what I want to make sure of.

Danilo Gargiulo: We got cut off on that, I think. So you can finish up that maybe, and then I will ask my question.

Operator: I do apologize. We did get Brian—just wanted to let you know your question was next, and then we got cut off. So you want to proceed from there?

Rick Cardenas: Oh, you heard all the John? Okay. Alright. Go ahead, Brian.

Brian Vaccaro: Okay. Great. So, yeah, just a question on the casual dining segment, and it is pretty striking how your outperformance gap has widened significantly in recent quarters. Maybe you could talk about this widening gap between the winners and losers in the segment. Are you starting to see a tick-up in closures? Or think we might be on the precipice of seeing something like that? Any broader thoughts on this widening gap?

Rick Cardenas: Hey, Brian. I would say I am really pleased with our gap. That gap keeps widening. There are winners and losers in every industry. Especially in categories like ours, which are not super high-growth categories, there are always going to be winners and losers, and we plan to be winners. Are we seeing a lot more closings? I would not say we are seeing more closings. We are seeing some bankruptcies, but that generally happens over time. We have been on the precipice of a big closing for years, and maybe one day it will happen. I just do not know. I do not know what other companies are thinking about in their plans in the future.

But restaurants that have individual restaurants that continue to lose margin and continue to lose traffic eventually cannot pay their rent. Some of those will close. The good brands will pick up the slack and add restaurants. We are just going to keep performing the way we have no matter what the situation is out there. If restaurants close, we will be the beneficiaries.

Brian Vaccaro: Alright. That is helpful. And then last quick one, just, Raj, sorry if I missed it, but where do you see your G&A shaking out for the year in your updated guidance?

Raj Vennam: Yes, Brian. I think we are still looking at approximately $500 million for the full year. For Q4, that implies higher, heavier G&A in Q4 for a couple reasons. One, we have an extra week—call it roughly $10 million. And because of the growth we have—as you look at year-over-year growth on sales and earnings—that leads to higher incentive comp. We have pretty strong growth implied, especially on earnings, in Q4. Between those two, think roughly about $30 million higher than Q3.

Brian Vaccaro: Thank you.

Operator: We have reached the end of our question-and-answer session. I would like to turn the floor back over to Courtney for any further or closing comments.

Courtney Aquilla: This concludes our call. I want to remind you that we plan to release fourth quarter results on Thursday, June 25, before the market opens with a conference call to follow. Thanks for participating.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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