Darden profit dips to $2.05 a share, but only because of last year's Canada gain; Olive Garden grows 1.1%

Darden Restaurants (DRI) reported fiscal first-quarter sales up 5.1% to $3.2 billion and earnings from continuing operations of $2.05 a share, down from $2.19 a year earlier, according to its earnings release. Same-restaurant sales rose 3.1%. Results narrowly missed analysts' estimates and the stock fell 5% in early premarket trading, CNBC reported. By 8:52 a.m. the decline had narrowed to 0.5%, at $212.59, according to Nasdaq. Darden reaffirmed its full-year outlook of $11.10 to $11.35 a share.

The profit drop is an accounting echo

"Profit slips" is technically right and practically misleading. Last year's quarter included a $42 million gain from selling Olive Garden's Canadian restaurants. Darden's own reconciliation takes that out, along with small deal and closure costs, and last year's adjusted figure becomes $1.97 a share. On that basis, this year's $2.05 is up 4.1%.

The operating line tells the same story. Reported operating margin fell to 10.0% of sales from 11.1%. Remove the $42 million gain from last year and the prior-year margin was about 9.8%, so the margin actually improved, by our calculation from the release. Interest costs, up 11% to $50.3 million, took some of that back.

Where the real weakness is

Olive Garden, still the largest brand, grew same-restaurant sales just 1.1%. Its total sales rose 2.2%, about the same pace as the 2.1% growth in its restaurant count, to 953 from 933 a year ago. Segment profit margin slipped to 20.4% from 20.6%.

LongHorn Steakhouse did the heavy lifting: same-restaurant sales up 6.2%, total sales up 10.9% to $860.9 million and segment profit up 14.6%, with the margin widening to 18.0% from 17.4%. Fine dining, which includes The Capital Grille and Ruth's Chris, grew 1.6%, and its margin narrowed to 13.0% from 13.5%.

The cost line independent restaurants will recognize

Food and beverage costs rose 6.0%, faster than sales, and climbed to 30.8% of revenue from 30.5%. Darden offset that on labor, which fell to 32.1% of sales from 32.5%. That is the trade a chain with purchasing scale and scheduling software can make. An independent restaurant usually cannot: it pays closer to list price for the same beef and cheese, and its labor is already stretched thin.

So a chain the size of Darden losing a quarter of a point of margin to food costs is a warning for smaller operators, who typically absorb the same inflation with less room to cut elsewhere.

CheckThisBiz, a directory of 7.7 million independent US businesses with chains and franchises excluded, lists 605,380 independent restaurants, led by California (79,108), Texas (54,058) and New York (51,387). They buy from the same food supply chain as Olive Garden and LongHorn, without the volume discounts.

For owners working through their own menu pricing and food-cost targets, our restaurant playbook lays out how the numbers fit together.

Darden also bought back 1.1 million shares for $222.3 million in the quarter and declared a dividend of $1.62 a share, payable Nov. 2.

Sources: Darden Q1 fiscal 2027 release (SEC); CNBC; WSJ; Nasdaq quotes. Margins and cost ratios are our calculations from the release. This is market information, not investment advice.