Darden Restaurants (DRI -0.81%), the parent company of well-known dining brands like Olive Garden and LongHorn Steakhouse, announced its fiscal second-quarter 2025 earnings on December 19.
The company reported a 6.0% increase in total sales, reaching $2.9 billion, bolstered by same-restaurant sales growth of 2.4% and the addition of 39 net new restaurants. The adjusted EPS climbed to $2.03, a rise of 10.3% from the previous year's $1.84, after accounting for the costs related to the Chuy's acquisition.
Overall, the quarter showed robust growth, but the performance of Darden’s fine dining segment was a point of concern.
| Metric | Q2 2025 | Q2 2024 | Y/Y Change |
|---|---|---|---|
| Adjusted EPS | $2.03 | $1.84 | 10.3% |
| Total Sales | $2.89B | $2.73B | 6.0% |
Source: SEC filings.
Overview of Darden’s Business
Darden Restaurants operates a diverse portfolio of dining brands, including Olive Garden, LongHorn Steakhouse, and Ruth’s Chris Steakhouse. This diversity allows the company to cater to various customer preferences while minimizing risks associated with changing market dynamics. Located predominantly in the United States and Canada, Darden manages over 2,000 restaurants. Recent strategic acquisitions such as Tex-Mex chain Chuy's underline its focus on expanding and diversifying its market presence.
For Darden, key success factors include effective brand management, a robust supply chain, and strategic acquisitions that support growth. Each brand under Darden's umbrella is tailored to meet a specific set of consumer needs, ensuring operational efficiency and a consistent dining experience.
Notable Developments During the Quarter
In this quarter, Darden achieved noteworthy sales growth driven by key brands. Olive Garden and LongHorn Steakhouse posted same-restaurant sales growth of 2.0% and 7.5% respectively. These brands significantly contributed to the company's overall positive results. However, the fine dining segment saw a decline of 5.8% in same-restaurant sales. This drop can be attributed to economic factors that limit luxury spending, suggesting that consumers may be tightening their belts in high-end dining.
The acquisition of Chuy's influenced this quarter's results. Darden completed the purchase, incurring integration costs of $0.21 per share, which affected its short-term earnings. Despite these costs, the acquisition adds value to Darden’s brand diversity and market reach.
Operational costs rose, which was evident in the increases seen in restaurant labor and marketing expenses. Restaurant labor costs escalated from $880.9 million to $926.8 million, while marketing expenses jumped from $36.9 million to $48.8 million. These increased costs are important to monitor, as they can squeeze margins if sales growth doesn't sufficiently offset them.
In terms of shareholder returns, Darden declared a quarterly cash dividend of $1.40 per share and repurchased $142 million of its outstanding shares, showing a strong commitment to returning value to shareholders. The dividend remains a key part of Darden's long-term capital return strategy.
Looking Ahead
For fiscal 2025, Darden forecasts approximately $12.1 billion in sales, including Chuy's contributions. It anticipates same-restaurant sales to grow by about 1.5%. Darden’s capital spending is expected to be around $650 million, with plans to open 50 to 55 new restaurants, focusing on expanding the brand's footprint.
Despite the fine dining segment's current challenges, management expresses confidence in leveraging the company’s wide-ranging portfolio and strategic initiatives. They have outlined a projected diluted net earnings per share between $9.40 and $9.60 for the year, which excludes anticipated acquisition costs. The next quarter will be crucial to observing how well Darden can integrate Chuy's while weathering difficult market conditions.
