Darden Stock Dips as Olive Garden Growth Slows Despite EPS Beat

Darden Restaurants slipped about 1.4% to $211.42 on Thursday even after beating on the headline numbers, and the reaction says a lot about where investor patience is running thin these days.

The Olive Garden and LongHorn Steakhouse parent reported fiscal first-quarter results before the bell. Adjusted earnings came in at $2.05 per share on $3.2 billion in revenue, both essentially in line with Wall Street's targets, according to Zacks Equity Research.

Sales climbed 5.1% year-over-year, and the company ended the quarter with 2,218 company-owned restaurants across its brands.

The problem was underneath the headline. Net profit actually fell about 9% to $234.3 million from $257.9 million a year ago, as total operating costs jumped roughly 7% to $2.88 billion on higher food and labor expenses.

Operating income dropped to $319.3 million from $339.2 million, though last year's figure included a one-time $42 million gain from selling Olive Garden's Canada operations, which flatters the year-over-year comparison in Darden's favor.

Same-restaurant sales rose 3.1% on a blended basis company-wide, with every single segment posting positive growth, but the split between brands tells the real story.

Olive Garden, still Darden's biggest revenue driver at $1.33 billion in quarterly sales, grew comps just 1.1%, a sharp deceleration from the 2.4% pace in the prior quarter.

LongHorn Steakhouse, by contrast, posted a 6.2% comp gain and 10.9% overall sales growth, cementing its role as the company's clear momentum brand right now.

"The first quarter was a solid start to our fiscal year with each of our segments delivering positive same-restaurant sales." — Rick Cardenas, President and CEO, Darden Restaurants

Management left full-year fiscal 2027 guidance untouched, still projecting adjusted EPS of $11.10 to $11.35 for the year. That decision not to raise the bar despite a decent quarter appears to be exactly what spooked shares Thursday.

Investors had room to hope for an upgrade to that outlook and simply didn't get one.

For DRI holders, the Olive Garden slowdown is the number to actually watch, not the earnings beat itself. Olive Garden's scale means even a modest deceleration there can offset LongHorn's strength across the broader portfolio.

If that 1.1% comp trend continues sliding into the holiday quarter, it becomes a real drag on the stock's growth narrative heading into next year.

There's a cash-flow wrinkle worth flagging too. Operating cash flow declined meaningfully during the quarter, driven largely by working-capital pressure, even as the company kept buying back stock.

Darden repurchased roughly 1.1 million shares for $222.3 million. That's a company still returning capital to shareholders, but with less cushion than a quarter ago if commodity costs like beef keep climbing into winter.

Management also flagged a one-percentage-point sales headwind expected in the second quarter tied to the Thanksgiving holiday shift, with a corresponding benefit anticipated in the third quarter instead.

That timing quirk means investors shouldn't read too much into any single quarter's growth rate without adjusting for the calendar noise.

The setup here for retail investors: DRI is still up nearly 19% year-to-date, so Thursday's dip is a minor pullback, not a crisis.

A drop toward the $205 to $208 range, where shares traded before the summer run higher, would offer a more attractive entry point for investors who believe LongHorn's momentum can eventually offset Olive Garden's slowdown.

Keep an eye on next quarter's Olive Garden comps specifically, plus any signal from management on whether they'll finally lean into raising full-year guidance if trends hold through the holidays.

A guidance raise next quarter would likely be the catalyst that gets the stock back on offense with investors.

Bottom line: Darden's underlying business is fine, but Olive Garden's slowdown and management's caution on guidance are the reasons the market shrugged off an in-line quarter, not a signal to bail on the stock.