Darden (DRI) Q1 FY26 Earnings: Strong Growth Boosted by One-Time Gain

Darden Restaurants (NYSE: DRI), the parent company of popular chains like Olive Garden and LongHorn Steakhouse, recently released its financial results for the first quarter of fiscal year 2026. To understand the company's performance, let's take a closer look at the numbers from its latest 10-Q filing with the SEC.

Overall, Darden reported a robust start to its fiscal year, with significant growth in both revenue and profit. Sales for the quarter, which ended August 24, 2025, climbed 10.4% year-over-year to reach $3.04 billion. This top-line growth translated into an even stronger bottom line, as net earnings jumped 24.4% to $257.8 million, or $2.19 per diluted share.

To visualize how Darden's revenue flows through its business to generate profit, the following chart breaks down the company's income statement.

A Closer Look at Profitability

While the headline numbers are impressive, a one-time event significantly contributed to the profit surge. The company recorded a $42 million pre-tax gain from the sale of eight Olive Garden locations in Canada. This single transaction accounts for a substantial portion of the quarter's earnings growth. Without this gain, the increase in net income would have been much more modest.

When we look at the core operational costs as a percentage of sales, the picture is relatively stable:

• Food and beverage costs slightly decreased from 30.7% to 30.5%, indicating effective cost management despite inflation.
• Restaurant labor costs ticked up slightly from 32.3% to 32.4%, reflecting the ongoing challenge of managing labor expenses in the restaurant industry.

This stability in core costs, combined with the asset sale, helped boost Darden's operating income by 26% to $339.2 million.

Performance Across the Brands

Darden's portfolio of restaurants showed varied performance during the quarter. The company's segments include Olive Garden, LongHorn Steakhouse, Fine Dining (The Capital Grille, Eddie V's), and Other Business (Cheddar’s Scratch Kitchen, Yard House, Chuy's, etc.).

• Olive Garden and LongHorn Steakhouse remain the workhorses, with sales growing 7.6% and 8.8%, respectively. Their segment profit margins remained healthy, though LongHorn's saw a slight dip from 18.0% to 17.4%.
• The Fine Dining segment showed signs of slowing momentum. Sales grew just 2.7%, and more importantly, Same-Restaurant Sales (SRS)—a key metric that measures sales at locations open for at least a year—was slightly negative at -0.2%. This could suggest that consumers are becoming more cautious with high-end discretionary spending.
• The Other Business segment was a standout, with sales surging 22.5%, partly driven by the recent acquisition of Chuy's. This segment also posted healthy SRS growth of 3.3%.

The Takeaway

Darden Restaurants started its fiscal year on a strong footing, delivering solid revenue growth driven by its largest brands. While a one-time asset sale significantly inflated the quarter's profit growth, the underlying business appears healthy. The company continues to actively manage its portfolio and return value to shareholders through dividends and $182.7 million in share repurchases during the quarter.

Looking ahead, the key challenges will be managing persistent labor costs and navigating the potential for a consumer pullback in the fine dining sector. The performance of its core, value-oriented brands like Olive Garden will be critical to sustaining this momentum.