Restaurant company Darden (NYSE: DRI) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 10.4% year on year to $3.04 billion. Its non-GAAP profit of $1.97 per share was 2% below analysts’ consensus estimates.
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Darden (DRI) Q3 CY2025 Highlights:
- Revenue: $3.04 billion vs analyst estimates of $3.04 billion (10.4% year-on-year growth, in line)
- Adjusted EPS: $1.97 vs analyst expectations of $2.01 (2% miss)
- Adjusted EPS guidance for the full year is $10.60 at the midpoint, missing analyst estimates by 0.9%
- Operating Margin: 11.1%, up from 9.8% in the same quarter last year
- Free Cash Flow Margin: 5.5%, similar to the same quarter last year
- Locations: 2,165 at quarter end, up from 2,040 in the same quarter last year
- Same-Store Sales rose 4.7% year on year (-1.1% in the same quarter last year)
- Market Capitalization: $24.34 billion
"We had a strong start to the fiscal year with same-restaurant sales and earnings growth that exceeded our expectations," said Darden President & CEO Rick Cardenas.
Company Overview
Founded in 1968 as Red Lobster, Darden (NYSE: DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
With $12.36 billion in revenue over the past 12 months, Darden is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost. However, its scale is a double-edged sword because there are only a finite of number places to build restaurants, making it harder to find incremental growth. For Darden to boost its sales, it likely needs to adjust its prices, launch new chains, or lean into foreign markets.
As you can see below, Darden grew its sales at a mediocre 6.3% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it barely increased sales at existing, established dining locations.
This quarter, Darden’s year-on-year revenue growth was 10.4%, and its $3.04 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 7% over the next 12 months, similar to its six-year rate. This projection is above the sector average and indicates its newer menu offerings will help support its historical top-line performance.
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Restaurant Performance
Number of Restaurants
Darden operated 2,165 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 6% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.
Darden’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.6% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its restaurant base.
In the latest quarter, Darden’s same-store sales rose 4.7% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.
Key Takeaways from Darden’s Q3 Results
EPS missed and Darden's full-year EPS guidance came in below expectations. Overall, this print was mediocre. Shares traded down 7% to $194.22 immediately following the results.
Is Darden an attractive investment opportunity at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
