Darden Restaurants Fiscal 2026 Q3 Earnings Call - Same-Restaurant Sales Outperformance Widens, Guidance Raised

Brian Harbour, Analyst, Morgan Stanley1: Hello, and welcome to the Darden Fiscal Year 2026 third quarter earnings call. Your line has been placed on listen only until the question and answer session. To ask a question, you may press star one on your touchtone phone and we ask you please ask one question, one follow-up, then return to the queue. This conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin.

Courtney Aquilla, Investor Relations, Darden Restaurants: Thank you, Kevin. Good morning, everyone, and thank you for participating on today’s call. Joining me are Rick Cardenas, Darden’s President and CEO, and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company’s press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. A supplemental materials presentation containing information shared on today’s call is available on the Financials tab in the Investors section of our website at darden.com. Today’s discussion includes certain non-GAAP measurements and reconciliations of these measurements are included in that presentation.

Looking ahead, we plan to release fiscal 2026 fourth quarter earnings on Thursday, June 25, before the market opens, followed by a conference call. During today’s call, all references to industry results refer to the Black Box Intelligence casual dining benchmark, excluding Darden. During the fiscal third quarter, average same-restaurant sales for the industry decreased 1.2% and average same-restaurant guest counts 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. Now I will turn the call over to Rick.

Brian Harbour, Analyst, Morgan Stanley3: 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’ve 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 continued 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 3 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. This led to new all-time high guest satisfaction score 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 7 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 the 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, cravable 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 entree for their dining experience and then they take a second entree home. To give guests even more reasons to enjoy it, this year’s offer features a new Rigatoni alla Vodka entree 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’s 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 million 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 Steakhouse. 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 advantages 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 Next Course 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 million worth of scholarships, helping them reach their educational goals. Finally, I wanna 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. Now, I’ll turn it over to Raj.

Brian Harbour, Analyst, Morgan Stanley2: 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 Fern. Same-restaurant 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 one hundred and twenty-seven million dollars 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 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 seventeen 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. LongHorn team remains focused on their strategy, driving strong results, delivering segment profit margin of 18.6% despite elevated beef costs.

Total sales at Fine Dining segment increased 4.3%, driven by positive same-restaurant sales of 2.1% and the addition of 2 net new restaurants. Their 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’ve 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-$10.67, including approximately $0.25 related to the addition of 53rd week. For the fourth quarter specifically, our annual outlook implies total sales growth of 13%-14.5%, which includes the extra fiscal week. Same-restaurant sales growth of 3.5%-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’ve 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 brands over the next 12-18 months. We believe the conversion 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 portfolio. Additionally, we intend to keep the restaurant teams from the conversion locations with the new brand or other Darden 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 75-80 new restaurants in addition to converting 14 Bahama Breeze locations to other Darden 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, and 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 outstanding 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. Now we’ll take your questions.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. We’ll now be conducting a question-and-answer session. If you’d like to be placed in the question queue, please press star one on your telephone keypad. If you’d like to remove your question from the queue, please press star two. A confirmation tone will indicate your line is in the question queue. As a reminder, we ask you please ask one question and one follow-up, then return to the queue. Our first question today is coming from Brian Bittner from Oppenheimer. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley2: 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%-5% range, which is very impressive. That’s 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.

Brian Harbour, Analyst, Morgan Stanley3: Can you help us understand what do you believe is driving the ability to lap these so far, at least with such ease, particularly at Olive Garden?

Brian Harbour, Analyst, Morgan Stanley2: Good morning, Brian. Let me start. You know, so let’s— As we look at guidance for next year, this is, you know, I think people are looking at this, you know, quarter to quarter, tougher comparisons toward the last year. But the way we think about it is what are the drivers of the business and how do we build, you know, continue to build growth or gain growth over time through the initiatives we have. I think we’ve shown that over time, we achieve what we commit to. We’ve been able to get, you know, show that we can grow.

As we look at specifically with respect to Olive Garden last year, you said it’s a tougher compare, but if you think about the drivers of growth last year were primarily two. One was Buy One, Take One returning for the first time since COVID, and second was the first party delivery. Well, guess what? Those two are still in place today. We are extending our Buy One, Take One by an additional week. Rick mentioned we’re also supporting that with additional media. You know, we build a plan and we build an estimate based on the initiatives we have in place, taking into consideration the macro factors. I think we feel good about what we’re guiding here. I don’t know if Rick you wanna add.

Brian Harbour, Analyst, Morgan Stanley3: Thanks for that, Raj. Just my quick follow-up is just related to the relationship of pricing and inflation. Can you talk about that as we’re moving forward into fourth quarter and then into 2027? I know you’re not giving exact guidance obviously for next year yet, but you know, you had some pretty meaningful gaps in that dynamic throughout this year, which seem to be narrowing now. Maybe you can just put some color on that for us.

Brian Harbour, Analyst, Morgan Stanley2: Yeah, Brian, look, I think we’ve had a pretty, you know, 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-threes and our pricing to be in that mid-threes. And I think if you look at our implied guide for Q4, you can see the power of that, right? When we start coming close to pricing close to inflation, you see the margins grow meaningfully, and that’s what you’re seeing in the implied guidance for the fourth quarter. We’ll share more about next year, but I think the way to think about it is we’ve given ourselves a lot of flexibility by underpricing inflation over several years.

We feel like, you know, we have, if any, you know, across the industry, when you look at we have more power than anybody else in terms of being able to price to cover inflation. It’s more of how we choose to run the business, and we’ve always been focused on long-term. I think, you know, to the extent we’re achieving our long-term framework of 10%-15% TSR by pricing, you know, by not having to price as much, then we do that. I think, you know, you’ll hear more in the June call, but our framework calls for 10-15 and we’re, that’s what we aim to deliver.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question is coming from David Palmer from Evercore ISI. Your line is now live.

David Palmer, Analyst, Evercore ISI: Thanks. You know, a 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’s something else that would explain the gap that we see between those two brands in terms of comps?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, David, I’ll 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, and you heard that in some of the prepared remarks. They’ve also significantly underpriced beef costs in the grocery store over time. The guests are getting an amazing value when they go to LongHorn to eat. They’ve also done an amazing job in cooking their steaks. Going back to the quality, they’ve done an amazing job in cooking their steaks. Guests wanna come to a restaurant, and if you can’t cook a great steak, why are you open? LongHorn cooks a great steak well very close to 100% of the time. When they don’t, they take care of the guest.

You know, the gap between Olive Garden and LongHorn, it’s gonna fluctuate. This quarter, LongHorn had, I think, a little bit more pricing than Olive Garden did. They had a little bit more traffic growth than Olive Garden did. They also, you know, I’m not sure they were impacted quite as much by the weather as Olive Garden was. As you think about all of those things, you know, we don’t worry about one brand outperforming another brand. We have a portfolio of great brands, and there’s gonna be quarters that one brand outperforms another one, just like we generally outperform the industry. We’re very pleased with both of our brands, both Olive Garden and LongHorn, and the performance they’ve had. I think those can explain some of the big differences, unless Raj wants to add anything else.

Brian Harbour, Analyst, Morgan Stanley2: No, the only thing I’ll just add is, as Rick mentioned, we also manage the brands. Like, we know some of the things we do are depending on how we look at our performance across the portfolio. There were three fewer weeks of price point promotion at Olive Garden, and that’s a decision we made because of how strong we felt the quarter was going to be. You know, that alone is probably about 100 basis points impact to Olive Garden’s comps.

David Palmer, Analyst, Evercore ISI: Great. That’s helpful stuff. Do you see the gap between those two brands growing, or, I mean, you just called out something, a reason why it might narrow, but we see the comparisons getting tougher for Olive Garden. I know that there’s gonna 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? I’ll pass it on.

Brian Harbour, Analyst, Morgan Stanley3: Well, David, again, you know, we’re not as concerned with the gap widening or narrowing in our brands as long as the brands continue to grow. Olive Garden. The important gap widening for us is Olive Garden’s gap to the industry. Olive Garden’s gap to the industry widened in our third quarter. LongHorn’s gap widened even more. In the long run, though, you know, law of large numbers, Olive Garden and LongHorn will probably converge over time. I can’t say it’s gonna happen in Q4. I can’t say it’s gonna happen next year. Over time, you know, as long as we’re not doing anything significantly different in promotional cadence or other things, you would expect those gaps to narrow a little bit. Maybe LongHorn will be above Olive Garden for a while.

We just can’t tell you exactly when that’ll converge.

David Palmer, Analyst, Evercore ISI: Thank you. Next question today is coming from Lauren Silberman from Deutsche Bank. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley0: Thanks a lot. Congrats on the quarter. I’m gonna start with just the increasing gas prices. It sounds like you really haven’t 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’ve seen historically with high gas prices and how that’s impacted different brands?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Lauren. As quite a few of you have written, the data doesn’t 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. I’ve been through a number of these cycles. I don’t know how many. When there’s a sudden and significant price increase in gas, there can be a brief pullback, but that’s usually only a few weeks. If you recall, the sudden increase in gas prices were a couple of weeks ago, so you know, and we still had a pretty darn good quarter. The biggest driver we see in traffic for restaurants is GDP.

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’re not too worried about gas prices, and we’ll be able to react however we need to if they stay really high for a while.

Brian Harbour, Analyst, Morgan Stanley0: Great. Thank you for that. Just a follow-up on the Q4 guide, the 3.5%-5%, it’s a fairly wide range. Any color on what you’re embedding through the rest of the quarter? I know there’s a lot of moving pieces. Just trying to understand high end versus low end versus current trends. Thank you.

Brian Harbour, Analyst, Morgan Stanley2: Yeah, Lauren, I think it’s just, look, you know, what we’re trying to embed is just, there’s just still some uncertainty and the range is, you know, there to kind of capture that level of uncertainty. You know, we feel like we’re in a good place quarter to date, and that’s taken into consideration, but we’re also taking into consideration some, you know, just the environment out there and just trying to make sure that we don’t, you know, we don’t overpromise. We’re just trying to make sure that we’re being thoughtful and taking into consideration all the factors that are out there.

David Palmer, Analyst, Evercore ISI: Thank you. Next question is coming from Christine Cho from Goldman Sachs. Your line is now live.

Christine Cho, Analyst, Goldman Sachs: 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’ve mentioned you’re starting to see some green shoots, but since spot prices are still trending upwards and news of the strike also seems to be an incremental headwind, could you kind of share your directional thoughts on beef and your locked-in rates for the next few quarters ahead? Thank you.

Brian Harbour, Analyst, Morgan Stanley2: Hey, Christine. Let me start by saying, look, as far as fiscal 2027, we wanna wait till June to provide more specifics. You know, I can tell you for Q4, we have 85% fixed price coverage. This is, you know, really, pretty strong coverage relative to recent past. We haven’t been able to cover that much in the last several years, that’s a good thing. The other thing is we are starting to see some willingness from suppliers to contract further. 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 fiscal next year.

I would wanna wait till June to really share more specifics. Now the other thing around the price, look, there are a lot of dynamics in terms of happening on the supply side. You know, so we don’t, we’re not expecting things to get significantly better on the supply side. But look, there’s still double-digit demand destruction that we’re seeing even in February in retail, right? I think ultimately, where it lands will depend on what happens with demand as prices go up.

Christine Cho, Analyst, Goldman Sachs: Thank you so much. I’d like to also circle back on the lighter portion menu rollout in at Olive Garden. Any color on how the in-store rates trended since the launch, and is the mix impact kinda 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 kind of health or GLP-1 motivated? Thank you.

Brian Harbour, Analyst, Morgan Stanley3: Hey, Christine. I would say we finished the launch in January, mid-January of this year, with the rest of the divisions going live. Those divisions are seeing kind of the same trends as the divisions that we launched earlier. The good news is we’re seeing increased frequency in the guests that are ordering these lighter portions. We’re seeing huge value scores and huge scores for portion size. It’s 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 that you’re looking for.

Whether it’s GLP-1 related or not, I don’t think it’s just GLP-1s. I think a lot of people want smaller portions if you get all these other things. 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’s a significant increase in frequency. Last I’ll say is a lot of the preference is happening at the weekend lunch when we don’t have a lunch menu. So there’s a good reason for this lighter portion menu. Finally, the mix impact is about what we thought it would be. 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.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question today is coming from Eric Gonzalez from KeyBanc Capital Markets. Your line is now live.

Eric Gonzalez, Analyst, KeyBanc Capital Markets: Hi. Good morning. How should we think about marketing expense now in the 4Q in the context of the updated guidance you provided this morning? I presume you’ll wait to provide any detail on marketing expense for fiscal 2027 in June. Any thoughts on how you’re thinking about marketing at a higher level here in a potentially, you know, more volatile macro backdrop will be helpful.

Brian Harbour, Analyst, Morgan Stanley2: Yeah, Chris. I think we’ve been very clear throughout the year that we expect marketing to be within 10 basis points as a percent of sales last year. You know, that’s really how we’re looking at it because, you know, one of the things we had this year that we mentioned on the calls was we had an RFP for our media buy that translated into meaningful cost savings, actually, you know, north of 10 basis points as a percent of sales. That’s actually going, you know, helping us increase marketing activity even in quarters where you don’t see a growth as a percent of sales. We’re actually buying more because we have those savings to help.

Eric Gonzalez, Analyst, KeyBanc Capital Markets: Okay. Got it. Thank you. I guess maybe to give Olive Garden a little bit of a break here, but you know, maybe 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? Thanks.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Chris. As we mentioned, fine dining, all three fine dining brands were positive same-restaurant sales in the quarter. You know, it wasn’t just driven by Valentine’s Day. I don’t even think that would be a meaningful, maybe tens of basis points for the whole quarter for Valentine’s Day. We had a really good private dining, as we mentioned, for Capital Grille and Eddie V’s. I will say, this three-course prix fixe menu for Ruth’s Chris is really resonating. You know, we ran it for I think five or six weeks this year, this quarter, and it’s resonating with guests. We’re seeing guests that were lapsed to Ruth’s Chris come back, and we’re seeing guests that have ordered that come back.

We think this is a good platform for them, and we’re really pleased with the fact that fine dining, all the brands in fine dining were positive this quarter. It’s been a little bit of time since that’s happened. You know, we can’t tell you what we think going forward, but everything we have is kind of played in our guide, you know, our guide is a pretty strong guide. I would think that fine dining would be doing okay in the fourth quarter.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question today is coming from Sara Senatore from Bank of America. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley4: Wait. 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, a LongHorn had more price than Olive Garden, but just how the brands compared to the average.

Brian Harbour, Analyst, Morgan Stanley2: Yeah, Sara Senatore. At Olive Garden 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, which we don’t count as traffic, but that’s really for all intents and purposes, that is increasing traffic. If you take that into consideration, their traffic was up basically 100 basis points. 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.

I mean, the way we look at it is Olive Garden’s comps, while the traffic we print might be -0.4%, when you add back the weather and the catering, that’s basically a 2% comp on traffic. For LongHorn-

Brian Harbour, Analyst, Morgan Stanley4: I see.

Brian Harbour, Analyst, Morgan Stanley2: Yeah. For LongHorn-

Brian Harbour, Analyst, Morgan Stanley4: Okay.

Brian Harbour, Analyst, Morgan Stanley2: The same-restaurant sales of 7.2% included traffic of 3.3%.

Brian Harbour, Analyst, Morgan Stanley3: The check growth of 3.9%, pricing was 4.4%, so they had a negative mix of 50 basis points.

Brian Harbour, Analyst, Morgan Stanley4: Okay. Thank you. That’s very helpful. I guess just in terms of, you know, the decision to run, you know, fewer weeks of price point and promotions, as you said, you know, maybe 100 basis points. This quarter running an extra week of the Buy One, Take One and supporting it with more marketing, it, you know, presumably all those things were planned well in advance. I just wanted to kind of confirm that because I wasn’t sure if the decision to go from fewer weeks last quarter to more, you know, one more week this quarter indicated something about kind of the promotional intensity or what the results were versus your expectation. Just trying to kind of reconcile those two decisions.

Maybe it’s just tougher compares or something else entirely, but just curious about that.

Brian Harbour, Analyst, Morgan Stanley3: Yes, Sara. You know, we can’t move on a real big dime here. I would say as big as Olive Garden is, we can’t move on a real big dime here. We had planned both of those things quite a while ago. We had planned running fewer price pointed weeks in Q3 and planned on adding a week of Buy One, Take One in Q4, well early in this fiscal year, maybe even before the fiscal year started. The reason that we moved the three weeks out, we eliminated a promotion in the third quarter because we believed that weather would get back to a normal five-year average, and so we’d have some weather tailwinds for us this quarter. Well, they were headwinds. You know, that was just something that happened.

Raj kind of mentioned what would have happened if there wasn’t that kind of weather headwind. We would’ve had a 2 comp in traffic. We plan these 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 7 weeks, maybe 8 weeks, and then within a year or two it was up to 12. That was a decision and a planned decision we made. I can’t tell you the Buy One, Take One will get to 12 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.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question today is coming from Jon Tower from Citi. Your line is now live.

Jon Tower, Analyst, Citi: Hey, thanks for taking the questions. Maybe starting, could you dig into the delivery at Olive Garden during the quarter? I think you’ve been running about 4% mix last period. You know, did much change. Going forward, how are you thinking about pulsing it as you’re moving into the fourth quarter? Obviously, there’s a different macro dynamic happening right now and that’s a higher price. Well, not a high. There’s the delivery fees on top of it. So I’m just curious if there’s gonna be a brighter spotlight on that relative to previous quarters.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, John, a couple of things. Uber was 4.7% of sales for Q3. Now 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." In February, we added an offer to the Olive Garden delivery to free delivery like we did last year. You know, last year in Q3, we were roughly 0.8% in delivery. Last year in Q4, we were 3.5%. You saw that big jump when we started marketing delivery in Q4.

I would say that in Q4 this year, I’m not gonna tell you if we’re gonna do marketing and marketing for delivery, but if we do, it’d be a secondary message. I would think that the jump in delivery from Q3 this year to Q3 last year won’t be the same in Q4 because that’s when we had the big spike. We still believe that delivery should be a little bit higher than last year.

Jon Tower, Analyst, Citi: Okay, great. Maybe, you know, obviously, it sounds like the lighter fare or lighter portion menu at Olive Garden sounds like it’s a pretty good success early on. I’m just curious if as you’re looking across the rest of your brands, I know each one’s a little bit different, but is that an opportunity to bring to other brands within the portfolio or the guest is just a little bit different?

Brian Harbour, Analyst, Morgan Stanley3: Yeah. We’ve 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 and with a good lunch platform, smaller items, sandwiches, et cetera, that’s grown over time. They already have different sizes of some steaks. If you think about their filet, they’ve got two different sizes of filet. They got sirloins. You know, they’ve got two different kind of ribeyes, one’s bone-in, one’s not. They’ve got different sizes for chicken, different sizes for salmon. They kind of have a lot of that already. They are looking at other things that they can do to bring portions that might not be as big for people that don’t want such big portion.

The same thing with Ruth’s Chris. If you think about the three prix fixe menu at Ruth’s Chris, it’s one of their smaller filets, et cetera. 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 have kind of variety of size.

Brian Harbour, Analyst, Morgan Stanley1: Thank you, Lauren. The next question today is coming from Brian Harbour from Morgan Stanley. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley: Yeah, thanks. Good morning, guys. I guess let me ask just the income cohort question. Anything, you know, that you’d call out about income bands that may have shifted in the quarter and also, you know, in fine dining, is there any group that you think has kinda come back more?

Brian Harbour, Analyst, Morgan Stanley2: Hey, Brian. So from an income perspective, what we’re seeing is, there is growth across all households with income above 50K, and the biggest growth is coming from households over 150K. That’s just generally what we’re seeing across all brands. As we look at fine dining, we’re seeing decent growth as we start to go above 150K as well, but 200K plus is where we’re seeing the most growth. That’s where we see even bigger disparity between the below 75K, below 100K, and then the above 200 or 150K.

Brian Harbour, Analyst, Morgan Stanley: Okay. Got it. Thanks. Raj, just directionally, it, you know, it’s still your expectation, I think, that food cost pressure kinda continues to diminish a bit into the fourth quarter, I guess. Also, is there any reason that, you know, with the sales you’re doing, there wouldn’t be a little bit more leverage on the other restaurant expenses at this point?

Brian Harbour, Analyst, Morgan Stanley2: Well, I mean, look, let me step back. I don’t, you know, I hate for us to talk about a specific line item in the P&L, because there are multiple variables that can play, you know, a role in how, where we land for the end of the quarter. As we look at the business, the guidance that we provided for the fourth quarter implies margin growth. We’re going to get it from probably, at this point, probably pretty much every line on the P&L, but it doesn’t have to end up that way. We’re okay. Ultimately, we look at what’s the bottom line, right? I think we’re gonna show EBIT growth, EBIT margin growth.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Our next question is coming from Jeffrey Bernstein from Barclays. Your line is now live.

Jeffrey Bernstein, Analyst, Barclays: Great. Thank you very much. First question is just on the fiscal 2026 guidance. I know there’s only one quarter remaining, but you raised the total revenue growth guidance, you raised the comp and the unit growth guidance. Ex the incremental nickel, I guess, from the 53rd week, seems like the implied fourth quarter EPS guidance is still somewhat in line with the Street. I’m just wondering how you think about maybe what’s 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.

Brian Harbour, Analyst, Morgan Stanley2: Hey, Jeff. Look, I don’t wanna explain the Street’s model, right? I’m 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-$10.70. As we got through the year, our inflation was a lot higher than we thought, and we didn’t price for all of it. We had better comps than we thought in the plan, and so we took up comps to reflect that. Ultimately, we’re still delivering on the higher end. If you take the midpoint of it is higher than the midpoint of what we had initially guided.

The delta on the 53rd week is just a function of, you know, we had approximately $0.20, and now we’re saying approximately $0.25. You know, if you think about, you know, how the rounding works, a couple of pennies could make it approximately $0.20 versus approximately $0.25. Don’t read this as a $0.05 delta. It could be 1-2 pennies because of how it rounds. That’s why we said approximately. You know, so I’ll leave it at that.

Jeffrey Bernstein, Analyst, Barclays: Got it. So it sounds like greater comp, greater inflation, net-net, still a strong earnings year. Then as I think about that going into next year, I appreciate the color on the unit growth and the CapEx spend, but maybe more broadly speaking, and I know it’s just directionally at this point, but, and maybe you mentioned it earlier, is it fair to assume you think fiscal 2027 growth in line with your long-term algo? It seems like you’re entering fiscal 2027 with comps above kind of the 1.5%-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.

Brian Harbour, Analyst, Morgan Stanley2: Well, Jeff, I’d say, you know, we’ll share more about fiscal 2027 later, but I think what we’re targeting is trying to stay in that frame or at least achieve what we said as part of the framework. One and a half to three and a half for comps and three to four percent for new restaurant growth. And as you look at what we’re the initial indication for fiscal 2027, excluding the Bahama Breeze impact, we would expect it to be in that range of three to four percent for new unit growth contribution. And then part of the other that framework is EBIT margin flat to positive 20 basis points to get us to that EPS growth plus dividend yield of 10 to 15.

I think that’s kind of what we would plan for. Any given year it might be a little bit different, but that’s what we target long term. At this point, I don’t see a reason why we wouldn’t be there, but who knows? You know, we’ll give you an update in June.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Our next question today is coming from Jim Salera from Stephens. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley: Good morning, guys. Thanks for taking our question. Raj, earlier you had talked about double-digit demand destruction at retail for beef. I can’t help but draw a line between the strong results at LongHorn and then that commentary. Are you able to give us any context? Are you seeing consumers who forgo buying beef at the grocery store then showing up at-

Brian Harbour, Analyst, Morgan Stanley2: Hey, Jim, this is Rick. You know, in times of high beef prices in the grocery store, you generally see a little bit more consumer going to a restaurant to get their steak. When a consumer has to cook a very expensive steak at home and they mess it up.

Brian Harbour, Analyst, Morgan Stanley3: 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’s part of the reason, but I can’t tell you that we have data to say that a consumer says, "You know, I saw this price in grocery store. I decided not to do it. I’m gonna go to LongHorn instead." I mean, we’ve got great data. We’ve got the best data and insights in the space, but we don’t ask our guests that question, so we don’t know.

Jim Salera, Analyst, Stephens: Maybe one follow-up question, given the traffic outperformance for the Darden as a whole relative to the industry. How much of that is incremental frequency from existing guests who are just satisfied with, you know, the menu innovation and some of the portion size offerings versus you winning share from other peers within the group?

Brian Harbour, Analyst, Morgan Stanley2: Yeah. Look, we’re getting from both. When we look at our frequency, we are seeing frequency increase across the portfolio from the guests, but we’re also getting new guests. It’s a combination of that. It’s you know, just the data that we look at probably shows that a little bit more from increased frequency, you know, call it 60/40, I guess, or 65/35, in that range.

Jim Salera, Analyst, Stephens: Thank you. Our next question today is coming from Andrew Charles from TD Cowen. Your line is now live.

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

Brian Harbour, Analyst, Morgan Stanley3: Hey, Andrew. Growth at Olive Garden is about execution. I didn’t hear your very first word, so I wanna make sure I’m answering what growth you’re talking about at Olive Garden.

Andrew Charles, Analyst, TD Cowen: It was catering.

Brian Harbour, Analyst, Morgan Stanley3: Catering growth, you know, it’s a great deal at Olive Garden. 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. Catering is a very strong support for us, and it’s probably one of the best values at Olive Garden. We have a delivery part of catering that we do ourselves. It’s our highest-rated part of anything we do at Olive Garden. What guests want for catering is they wanna make sure they get the food that they ordered, they get it on time, and it’s a great value. Olive Garden checks all three boxes every time.

Andrew Charles, Analyst, TD Cowen: Gotcha. Raj, is it fair to assume that a good portion of the converted Bahama Breeze’s 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?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Andrew, this is Rick. I wouldn’t say it’s fair to assume that the most of the conversions will be Olive Garden. There’s 14 conversions. Olive Garden is pretty much almost everywhere Bahama Breeze is. I would say it’s fair to assume that the fewest that Olive Garden will have a couple maybe, but they won’t have a lot of them.

Jim Salera, Analyst, Stephens: Thank you. Our next question is coming from David Tarantino from Baird. Your line is now live.

David Tarantino, Analyst, Baird: 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 53rd week or maybe you don’t need to adjust and still hit that target range? I guess, could you clarify whether we should be making any adjustments to your comment?

Brian Harbour, Analyst, Morgan Stanley2: Yeah, David, I would say we always look at it on a 52 to 52 ’cause that’s the right comparison. You know, you know, what is the 53rd? What is it gonna look like? I mean, you’ll find out in June. I mean, at this point, you know, long term, it’s really 52 to 52 is the right comparison.

David Tarantino, Analyst, Baird: Great. Thank you. I guess my real question, Raj, is about the commodity cost outlook. I appreciate you don’t wanna give specifics for next year, but just wondering directionally if the spike in oil prices and hence distribution costs is gonna have any material impact on the outlook for commodity costs, you know, for you and for the industry for that matter. I guess, you know, you would probably have a competitive advantage with your supply chain, but just any thoughts on that topic would be helpful.

Brian Harbour, Analyst, Morgan Stanley2: David, I don’t wanna speculate, but I will. You know, 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’re sitting now, for next year directionally should be better than that, even with some of the recent news, but we’ll provide an update in June.

Jim Salera, Analyst, Stephens: Thank you. Our next question is coming from Danilo Gargiulo from Bernstein. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley5: 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’re doing, where you are in the market, or is that something that you’re seeing across the board for the industry? Was that the primary driver for the labor productivity improvement that you’ve seen this quarter? If that’s the case, for how long do you expect the low turnover to last?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, 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 aren’t 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’ve got more productive employees doing the job. You’ve got less need to hire and train.

We do still train, but we train them, cross-train them, but 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 or better pricing or better food.

Brian Harbour, Analyst, Morgan Stanley5: Thank you. 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, you know, with pricing above inflation, you know, the guest count could be more reduced. I’m wondering what kind of initiative, even at a high level, do you think you could be deploying in 2027 to perhaps counterbalance this and still have a guest-driven growth for your brands? Thank you.

Brian Harbour, Analyst, Morgan Stanley2: Danilo, I think, let me start, and then maybe Rick can add to that. I don’t want to signal anything specific to 2027 with respect to pricing versus inflation. What we’re talking about is we’ve given ourselves a lot of room over the last essentially since COVID, by underpricing the full service CPI by almost 1,200 basis points, even grocery by 400 basis points. You know, we feel like if we need to take price, we can take it, and we can be smart about it without impacting the guests. Part of the reason being, cumulatively, we’re in a much better place. Our relative value position is really strong.

We don’t necessarily think if there is a year where we take a little bit more or actually in line with price, that’s not all of a sudden that becomes a headwind to guest count. That’s not how we view it.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Danilo, I would say I would add to that. Yeah, even if we price at inflation, and we anticipate commodities being a little bit better over time, then it wouldn’t be a huge price for next year if we do that. I would also add that, again, we keep investing in our team, in our product, in what we serve to the guest. I would say that those investments build on themselves over time, and guests notice the value that they get. Our brands, most of our brands are at record high guest satisfaction, record high affordability, record high values for those brands. I would say that we’ve got just continued operational execution.

As we’ve said, you know, we’ll continue to look at our media spend and become more effective with that media spend, but still, increase slightly, like we’ve said, about 10 basis points or so, and 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 don’t think what we would do with price would be a tremendous drawdown to the guest count.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question today is coming from Gregory Francfort from Guggenheim Partners. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley6: Hey, Rick, this may be a little bit out of left field, but just, I’m curious your thoughts on some of these AI tools that are coming on, how much you’re using them at corporate, what that’s unlocking for you from an analytics perspective. Just any thoughts on kinda what may be changing inside your business with what’s going on.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Greg, not quite out of left field. You know, but I’m gonna say something about AI to say that at the core, we are and we always will be a hospitality-driven company, which means you need people. We’re a people-focused business, so we’re gonna need them. Our team’s doing an incredible job every day. What we’re using AI and machine learning for is to give our team member, our guests or our managers, I’m sorry, our managers, a much better forecast for their business so they can schedule better, plus we’re using tools to make them write better schedules. They can order food better. Because 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’re doing things here in the support center to improve on tasks that are repetitive using AI to start projects faster, to get things done faster. We have yet to take any jobs out because of AI. We’ve got 200,000 employees in this company, and only about 1,000 of them work here. The other 200,000 work in the restaurant, and I would say we’re probably not gonna lose any team members in the restaurant because of AI. We’re gonna make their jobs better. We’re gonna make the guest experience better. I would say that ultimately, the approach for AI for us is about amplifying the expertise for our people, not replacing them, as I said. It helps us deliver on exceptional service, and that’s what we’ll keep doing.

The last I’ll say is we’ve got a great team in IT here, over 200 people strong, and they’re 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, and even some things that we’ve been looking to do for years that we were struggling to get done, AI is getting it done a lot faster. That’s where you’re gonna see the benefit of AI, but you probably won’t see it specifically, because it’s not gonna be necessarily so guest forward.

Brian Harbour, Analyst, Morgan Stanley6: Thanks for the perspective. Appreciate it.

Brian Harbour, Analyst, Morgan Stanley3: Sure.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Our next question is coming from Jeff Farmer from Gordon Haskett. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley7: Thanks. You guys mentioned that Uber was, I think, roughly 4.7% of mix at Olive Garden. I am curious in terms of the concept’s total off-premise mix, so including to-go and catering.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Jeff, I think we’re at 29%. That’s about three points higher than last year. Last year was 26%. Recall, Q3 is typically high off-premise because of catering we talked about earlier, and just generally a high off-premise quarter.

Brian Harbour, Analyst, Morgan Stanley7: Okay. Just same question for LongHorn off-premise mix?

Brian Harbour, Analyst, Morgan Stanley3: I think LongHorn was 15% for the quarter, which was a point higher than last year. Yeah.

Brian Harbour, Analyst, Morgan Stanley7: Okay. Thank you, guys.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question is coming from Dennis Geiger from UBS. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley8: Great. Thanks, guys. Curious about any updated thoughts on, tax rebates, stimulus benefits, or kind of any latest expectation you have based on anything you’ve observed so far to date?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Dennis, it’s still a little early. Most of the refunds are gonna happen in basically March and April, but we did see some of the refunds coming in in February. We know that per recipient, the tax rate refunds are higher. But I will say everything we know is contemplated in our guidance. Last thing I’ll 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.

Brian Harbour, Analyst, Morgan Stanley8: Great. Thanks, Rick. Just quick on the operational stuff and that speed of service initiative, which I know is longer term in nature. I feel like I’ve observed it in the Olive Garden. Just curious if any update to share there and kind of where the guest and the employee feedback is, if anything to share.

Brian Harbour, Analyst, Morgan Stanley3: Well, I’m glad if you experienced it at the Olive Garden. They’ve really started to make a good push on it in this year’s Q3. They’re doing some things in different restaurants to test initiatives to get the roadblocks out of the way for speed. I will say that at Olive Garden, there’s 50,000 servers, so 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 don’t have to be technology tools. It’s 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 guests the speed and the pace that they want?

Olive Garden is making some moves, and I think those moves are gonna get even bigger in the upcoming quarters, and our other brands are following suit. Olive Garden’s moving a little bit earlier, but the other brands are gonna 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. It’s a little bit faster than where we are. We’re gonna get to the ideal time. It’s gonna take a while. The guest impact of that will be seen two different ways. In the short term, it’s gonna be better throughput on the high-volume days.

In the long term, it’s gonna be guests coming for us for occasions they weren’t coming before. That second one is long term, and it’s gonna take a while. It’s gonna take time for the guests to realize that, "Hey, I’ve got 45 minutes to go to lunch, but in total, and I need to get in and out of there in 30. Can I do it?" If they don’t believe they can do it today, I want them to believe they can do it in a few years. When they can, they’re gonna come back a lot more often. I just used lunch as an example. It’s not just about lunch.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live.

Brian Harbour, Analyst, Morgan Stanley9: Hey, thanks for taking the question. Apologies if I missed this, but you lowered the commodity inflation guidance from 4-5% down to 4%. What was the driver of that within the basket? And was that more 3Q related or 4Q related? And then I guess related to that, you know, keeping the overall inflation at 3.5%, was there anything as an offset to the lower commodity inflation, or is that just kind of rounding?

Brian Harbour, Analyst, Morgan Stanley3: Yeah, Andrew, it’s really rounding because we see approximately 3.5%. As we look at, you know, when you look at commodities specifically, there was some favorability. Most of the favorability that we have, which is 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 digits. We had some offset on the favorable dairy, that’s helping partially offset. I would say those are the two drivers in terms of the change. We’re talking about tens of basis points of change because we were saying, I think earlier, 4%-4.5%, and now we’re approximately 4% for the year. Yeah.

Brian Harbour, Analyst, Morgan Stanley9: Got it. Okay. Then, with the step up in new units for next year, I know it’s only, you know, 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.

Brian Harbour, Analyst, Morgan Stanley3: Yeah, it’s a little bit more. As we look at 75-80, I’d say 50-55 is going to come from those two brands. But then, you know, probably the mid-single digits for the rest of the brands. As you look at, I’d say Yard House, Cheddar’s and Chuy’s will probably all have mid-single digit unit growth, number of units. And then the rest will come from fine dining. Yeah, Andrew, I would add that over the long-term, you should see over time, not right away, you should see more of our growth as a percent growth coming from the smaller brands. You think about Chuy’s, you think about Yard House, think about Cheddar’s.

They’ve got to be at the higher end of our framework or more, because Olive Garden is gonna 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 gonna grow faster over the long term, is what we said. In the first few years in that, Olive Garden is gonna drive some of the growth.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Next question today is coming from John Ivankoe from J.P. Morgan. Your line is now live.

Christine Cho, Analyst, Goldman Sachs0: Hi, thank you so much. Yeah, the question is on operations. You know, obviously, you know, perfect isn’t possible in the real world. I wanted to see the percentage of restaurants that you thought were operationally excellent today. You know, I think the converse of that is the percentage of restaurants that you may have an opportunity to significantly improve your operational improvement, especially as the labor market might be more willing for you to do so.

Brian Harbour, Analyst, Morgan Stanley3: Hey, John, I can’t give you an exact number here, but let’s just use the 80/20 rule. You know, I would say 80% of the restaurants are operating at a great, and maybe 20 have some room to improve. It’s probably less than that. I will say that our dissatisfaction, which we measure guest satisfaction, but our dissatisfaction at our brands are pretty much at all-time lows. So, and I’m talking about low single-digit dissats in our big brands. That is pretty amazing when you consider where dissatisfaction rates can be in casual dining or in any dining or any service.

Christine Cho, Analyst, Goldman Sachs0: Okay.

Brian Harbour, Analyst, Morgan Stanley3: Go ahead.

Christine Cho, Analyst, Goldman Sachs0: Yeah, definitely. Yeah, listen, some people, you know, aren’t 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 know, you mentioned having AI-driven forecasts for general managers, but within quick service, a number of these different companies are talking about, you know, basically assistance for the general manager to help them do their jobs better, even beyond forecasting, you know, labor allocation, food prep, what have you. Does that make sense, you know, for casual dining broadly, does that make sense for Darden? Is that something you might be working on and see as an opportunity?

Brian Harbour, Analyst, Morgan Stanley3: Absolutely, John. I did mention that it’s a forecasting, but it is about food prep and labor management and other things. We have. I probably didn’t put it all in there, but it’s all part of that. I think 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. You know, what I did say is we won’t have it until our guests are actually seeing it in their face. We’re using a lot of that stuff already.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. Our next question is coming from Brian Vaccaro from Raymond James. Your line is now live.

Christine Cho, Analyst, Goldman Sachs1: Hi. Thanks. Just a quick one for me. It’s really a question on the casual dining segment, and it’s pretty striking how your outperformance gap has widened significantly in recent quarters. Maybe you could just 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? Or just any other thoughts you have on this widening gap?

Brian Harbour, Analyst, Morgan Stanley1: Ladies and gentlemen, please stand by. We do experience some 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. Brian, you’re still in queue, my friend. Just stand by, okay?

Christine Cho, Analyst, Goldman Sachs1: Okay. Thank you.

Brian Harbour, Analyst, Morgan Stanley3: Can you hear us now?

Brian Harbour, Analyst, Morgan Stanley1: Yes, we can. Please go ahead.

Brian Harbour, Analyst, Morgan Stanley3: Okay. All right. Sorry. I don’t know if John, you got my whole answer, but

Christine Cho, Analyst, Goldman Sachs1: We didn’t hear anything, Rick. This is Brian Vaccaro. Do you want me to ask the question again, or did you get it all?

Brian Harbour, Analyst, Morgan Stanley3: No, I got it. John. Oh, the question about AI for John? Did you get that answer is what I wanna make sure. Or did we get cut off?

Christine Cho, Analyst, Goldman Sachs1: Oh, continue. Yeah, we got cut off on that, I think. You can finish up that maybe, and then I’ll ask my question.

Brian Harbour, Analyst, Morgan Stanley1: I do apologize. Brian, I just wanted to let you know your question was next, and then that’s when we got cut off. You wanna proceed from there?

Brian Harbour, Analyst, Morgan Stanley3: Oh, you heard all that, Jon? Okay. All right. Go ahead, Brian.

Christine Cho, Analyst, Goldman Sachs1: Yeah, just a question on the casual dining segment, and it’s pretty striking how your outperformance gap has widened significantly in recent quarters. Maybe you can just 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? Just any broader thoughts on this widening gap.

Brian Harbour, Analyst, Morgan Stanley3: Hey, Brian. I would say I’m really pleased that our gap, that gap keeps widening. There are winners and losers in every industry. You know, especially in categories like ours, which aren’t super high growth categories, there’s always gonna be winners and losers, and we plan to be winners. Are we seeing a lot more closings? I wouldn’t say we’re seeing more closings. We’re seeing some bankruptcies, but that generally happens over time. We’ve been on the precipice of a big closing for years, and maybe one day it’ll happen. I just don’t know. I don’t know what other companies are thinking about in their plans in the future. You know, individual restaurants that continue to lose margin and continue to lose traffic, eventually they can’t pay their rent.

Some of those will close, and we’ll, you know, the good brands will kind of pick up the slack and add restaurants. We’re just gonna keep performing the way we have no matter what the situation is out there. If restaurants close, we’ll be the beneficiaries.

Christine Cho, Analyst, Goldman Sachs1: All right, that’s helpful. 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? Thanks again.

Brian Harbour, Analyst, Morgan Stanley2: Yeah, Brian, I think we’re still looking at approximately $500 million for the full year. Q4, that implies you know, higher, heavier G&A in Q4 for a couple reasons. One, we have an extra week, call it, that’s roughly $10 million. Because of the growth we have, you know, as you look at year-over-year growth on sales and earnings, we have pretty strong growth implied, especially on the earnings in Q4, and so that leads to higher incentive comp. Between those two, I think Q4 is probably, you’re thinking roughly about $30 million higher than Q3.

Brian Harbour, Analyst, Morgan Stanley1: Thank you. We’ve reached the end of our question and answer session. I’d like to turn the floor back over to Courtney for any further closing comments.

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

Brian Harbour, Analyst, Morgan Stanley1: Thank you. That does conclude today’s teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.