Darden Restaurants Aktie

Greetings, and welcome to the Darden Fiscal Year 2026 Fourth Quarter Earnings Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin.

Thank you, Kevin. Good morning, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO.

As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. A supplemental materials presentation containing information shared on today's call, is available on the Financials tab in the Investors section of our website at darden.com.

Today's discussion includes certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2027 first quarter earnings on Thursday, September 24, before the market opens, followed by a conference call.

During today's call, all references to industry results refer to the Black Box Intelligence casual dining benchmark excluding Darden. Black Box Intelligence updated its benchmarks in early May following changes to the underlying brand set. This restatement had an outsized impact on the casual dining benchmarks. The change moved to the average benchmarks up by 150 basis points for same-restaurant sales and 25 basis points for same-restaurant guest counts. Incorporating this restatement, average same-restaurant sales for the industry increased 1.4% and average same-restaurant guest counts decreased 1.8% during our fourth quarter.

This morning, we will share some brief remarks on the quarter and full year as well as the details of our financial results, discuss the power of Darden's portfolio and share our fiscal 2027 financial outlook. Now I'll turn the call over to Rick.

Thank you, Courtney. Good morning, everyone. The fourth quarter was a strong finish to an excellent year, one in which we significantly outperform the industry. Our restaurant teams continue to execute at a high level and their commitment to operational excellence help each of our brands deliver positive same-restaurant sales for the quarter. We know guests choose the brands they trust for key occasions. Several of our brands enjoyed record performance on Mother's Day, including the highest ever traffic day at Olive Garden and LongHorn Steakhouse and our guest satisfaction results continued to be at or near all-time highs [indiscernible] largest brands, Olive Garden, LongHorn and Yard House.

Olive Garden met our heightened expectations for the year, delivering 4% same-restaurant sales growth, which is above the high end of Darden's long-term framework. LongHorn delivered same-restaurant sales growth of over 7% for the year, reflecting their focus on food quality and execution. They ended the year by conducting their ninth annual Steak Master Series. Congratulations to [ Jesse Montalvo ] from the LongHorn Steakhouse in Riverview Florida, who claim the championship trophy.

Yard House grew total sales by $95 million compared to last year, driven in part by same-restaurant sales growth of 5.6% for the year. Performance of Olive Garden, LongHorn and Yard House this year is extremely impressive, marking the fifth consecutive year that all 3 brands have delivered positive same-restaurant sales. With our focus on growing our brands, we opened 71 new restaurants during the fiscal year, 6 more than initially planned at the beginning of the year, and our development team has built a strong pipeline of sites to support new restaurant growth. Raj will share more details about our growth plans in his remarks.

Additionally, our newest international franchising partners in Spain and India opened their first locations during the year. And our new partner in Canada plans to open their first new restaurant next week. Our franchising and international team has helped our new partners open restaurants more quickly, and they are on pace to open the most international locations in a single year in fiscal '27. Fiscal '26 marks our 31st year as a publicly traded company, and Darden has achieved an average annualized total shareholder return of 10% or greater for any 10 fiscal year period. when considering Darden's stock price appreciation plus dividend yield. This morning, I want to focus my comments on how we are able to do this and what gives me confidence for the future.

Full service dining is a variety-seeking category. And we have a collection of brands that give us reach across multiple dining occasions, guest demographics, price points, geographies and quizzing types while reducing reliance on any one brand, consumer segment, region or cuisine. Our brands play distinct and valuable roles. Olive Garden and LongHorn are the 2 most dominant brands in our portfolio with strong guest relevance and additional room for growth. Yard House, Cheddar's Scratch Kitchen and Chili's are incredibly popular brands with significant runway for growth. And Ruth's Chris Steak House the Capital Grille, ADVs and Season 52 are differentiated brands with positions in their respective categories and should have balanced growth over time.

Our portfolio creates the scale that enables our brands to benefit from our strategic platform. We have a shared operations philosophy anchored in food, service and atmosphere, enabled by the best people in the industry. And our 4 competitive advantages, allow our brands to compete more effectively and provide even greater value for their guests. One of these competitive advantages, the power of our scale, is demonstrated in our supply chain and technology stack, which enable our brands to deliver stronger performance than they could do on their own. For example, we source directly from producers and have our own dedicated food distribution network. This creates cost advantages for our brands and ensures an uninterrupted supply to our restaurants.

Our proprietary POS system serves as a nerve center of our integrated restaurant technology ecosystem, applications, including payroll, guest forecasting, labor management and much more provide key data, improve operations and make our restaurant managers jobs easier so they can spend more time focused on their guests and their team members. Our scale also helps from a marketing perspective. Across all our brands, we use digital marketing in a targeted, cost-effective way to build brand equity and support incremental sales. Our smaller brands benefit from the learnings generated from our larger brands, and because of our platform, they can tailor sophisticated media plans to their specific business needs.

Another one of our advantages are extensive data and insights, ensures we continually meet our guests' expectations and allows us to identify opportunities to improve the guest experience and drive incremental sales through continuous menu innovation across our brands. Olive Garden's new Lighter Portions menu is a good example as is their new protein-forward Calabrian Steak & Shrimp Bucatini that has quickly become a guest favorite. Data and insights have also grounded all the great work Yard House is done on menu optimization. The new burger, pizza and taco platforms they have rolled out over the past 3 years are easier to execute and receive higher guest satisfaction scores. Rigorous strategic planning is another one of our advantages, planning at the Darden enterprise level determines each brand's strategic role to ensure we have the right portfolio of brands, we align strategies and coordinate operations to maximize our portfolio's value. and we capture available synergies across our brands.

At the brand level, the strategic planning process helps us identify each brand's distinct advantages and cultivate differentiated positioning develop a deep understanding of each brand's guests and competitive landscape and ensure our brands adhere to their strategy so they compete effectively and grow share. We put significant emphasis on this work and the teams of our acquired brands consistently share that they have even greater clarity about the essence of their brand because of the time and level of rigor involved. The 5-year business plans our brands completed last year are also an important part of this process. And our teams continue to execute against those plans to drive shareholder value.

Of course, our brands and our platform only matter because of our final advantage. The people who bring them to life every day. Our founder, Bill Darden said, the greatest edge we have on our competitors is the quality of our employees reflected each day in the job they do, and that is still true today. We have outstanding teams across our 2,200 restaurants backed by our incredible restaurant support center teams. We have built a compelling employment proposition that is evidenced by our industry-leading retention and to preserve this advantage we leverage our unique ability to provide robust development opportunities given the breadth of our portfolio. Across operations in the restaurant support center, we can provide opportunities in brand-specific roles, shared support functions and restaurants across the country. This gives us the ability to move proven talent across brands and support new restaurant growth and gives us multiple options to develop high-potential talent.

One of the most powerful things about Darden is our ability to change our team members' lives. We give people the opportunity to grow and progress regardless of their first role with us. Many of our senior leaders, including me, began as hourly team members. That's why I'm extremely proud that we promoted 1,375 hourly team members into management roles in fiscal '26. Darden has a tremendous track record of success and it reflects the strength of our brands, the discipline of our strategy and the quality of our teams. With the right brand, strategy and teams in place, I'm confident we are well positioned to continue growing the business and creating long-term shareholder value.

In closing, I want to thank our over 200,000 team members for everything they do. I'm proud of the engagement across our teams and the impressive retention levels that help drive our success. I look forward to connecting with many of you during our General Manager and Managing Partner conferences over the next [indiscernible]. Now I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. We delivered a strong fourth quarter to close out a great year with total sales exceeding our expectations and annual earnings above the midpoint of our initial guidance. Results for the year reflect stronger-than-expected same-restaurant sales and faster new restaurant openings despite significant macro pressures, including beef inflation that was higher than expected for the year.

Throughout the year, we remain focused on what was within our control, balancing investments in the business with a measured approach to pricing -- approach to inflation. Stronger-than-expected sales allowed us to fund targeted investment to support growth and maintain pricing discipline by only partially offsetting elevated commodity costs, preserving our ability to provide strong value to our guests. That balance is reflected in our fourth quarter performance, where margin expansion came through in line with our expectations. In the fourth quarter, we generated $3.7 billion of total sales 13.7% higher than last year. This was driven by same-merchant sales growth of 4.6% with positive traffic growth, the addition of 43 net new restaurants which includes the permanent closure of 15 Bahama Breeze locations and the benefit of the 14 fiscal week.

Same-restaurant sales and same-restaurant guest counts each exceeded the industry benchmark by over 300 basis points for the quarter. Adjusted diluted net earnings per share from continuing operations increased 22.8% to $3.66. This includes a $0.25 contribution from the extra fiscal week. We generated $678 million of adjusted EBITDA and returned $310 million to shareholders through $172 million in dividends and $138 million of share repurchases.

Turning to the fourth quarter P&L compared to last year. Food and beverage expenses were flat as commodities inflation of approximately 3% and unfavorable mix was fully offset by pricing. Restaurant labor was 40 basis points lower, driven by productivity improvements and sales leverage even with total labor inflation of 3.2%. Restaurant expenses were flat. Marketing expenses were 10 basis points lower due to sales leverage. We had incremental marketing activity in the quarter that was funded by cost savings. This all resulted in restaurant level EBITDA for the quarter, improving 50 basis points to 22.1%, consistent with our expectations.

Adjusted G&A expenses were flat. Adjusted depreciation and amortization was 30 basis points lower due to sales leverage from the extra fiscal week. And our adjusted effective tax rate for the quarter was 12.8%. In total, our adjusted earnings from continuing operations were $422 million, which was 11.3% of sales.

In the fourth quarter, on a 13-week basis, all of our segments grew total sales and segment profit margin driven by positive same-restaurant sales. Olive Garden increased total sales for the quarter by 11.4%, with 7.5% from the extra fiscal week, the addition of 14 net new restaurants and same-restaurant sales growth of 2.4%. Traffic was positive, outpacing the industry by 200 basis points. The lighter portion section of the menu created an 80 basis point mix headwind to check. On a 2-year basis, Olive Garden same-restaurant sales increased 9.3%, demonstrating continued strong performance as they lapped high-growth quarter last year. Olive Garden continues to have industry-leading segment profit margin, delivering 24.3% for the quarter, which is 50 basis points higher than last year. This includes approximately 50 basis points of margin investment related to the addition of Lighter Portion section to the menu.

At LongHorn, total sales increased 21.9%, driven by same-restaurant sales growth of 9.5% and the addition of [ 27 ] net new restaurants and 8% from the extra fiscal week. LongHorn continues to increase market share with strong and sustained sales growth exceeding the industry's same-restaurant sales benchmark by 810 basis points this quarter. Over the past 3 years, LongHorn has grown same-restaurant sales by more than 20%, resulting in average unit volumes of $5.6 million. Segment profit margin for the quarter was 21.2% higher than 10 basis points above last year.

Total sales for the Fine Dining segment increased 10.9%, driven by 6.6% from the extra fiscal week, positive same restaurant sales of 1.9% and the addition of 6 net new restaurants. Segment profit margin was 20 basis points lower than last year. The inclusion of Memorial Day in the quarter is a significant drag on the segment profit margin for Fine Dining as it's traditionally a low volume week for this segment. On a 13-week basis, segment profit margin for Fine Dining was actually 20 basis points higher than last year. Total sales for the Other Business segment increased 9.8% with 7.7% from the extra fiscal week and positive same-restaurant sales of 4.6%, which was partially offset by the permanent closure of Bahama Breeze's restaurants.

Positive sales momentum and continued productivity improvements contributed to a 17.9% segment profit margin for the Other business segment, 40 basis points higher than last year. As we look at our annual results for fiscal 2026, we had same-restaurant sales growth of 4.5%, exceeding our expectations and outperforming the industry.

Total sales increased 9.4%, surpassing $13 billion for the first time in Darden's history. Adjusted diluted net earnings per share from continuing operations increased 11.4% and to $10.64. We delivered $2.2 billion in adjusted EBITDA from continuing operations, driven by strong sales growth. And we returned $1.4 billion to shareholders with $693 million in dividends and $675 million of share repurchases. Looking at our fiscal 2026 full year P&L, restaurant level EBITDA compressed 20 basis points caused by the significant headwind of elevated commodity costs and our deliberate approach to not fully price for these costs. This unfavorability was fully offset by the sales leverage on G&A and depreciation and amortization expenses, resulting in earnings after tax margin that was flat to last year.

Stepping back, our performance reflects the strength and durability of our business model. At the core of our model is a portfolio of differentiated brands supported by disciplined execution and a focus on delivering value to the guests, which allows us to generate balanced and sustainable growth over time. Our 5-year plan reflects this with all of our segments contributing to sales growth. Olive Garden will continue to grow as a steady and balanced contributor while the rest of our segments are expected to grow faster and play an increasingly meaningful role in driving incremental growth.

Over the past 7 years, our portfolio has become more balanced and more diversified. In fiscal 2019, Olive Garden represented 50% of sales and 55% of segment profit. By fiscal 2026, that mix has shifted to 42% of sales and 47% of segment profit. This change reflects the success of our portfolio strategy with roughly half of the shift driven by consistent growth at LongHorn and the other half from the rest of the brands in the portfolio, including acquisitions. Importantly, Olive Garden remains a strong and steady contributor while a broader set of brands now play a larger role in driving sales and earnings growth for Darden. We expect new restaurant growth across Darden to remain within the 3% to 4% range over time which is consistent with our long-term framework.

Olive Garden would trend towards the lower end of that range, LongHorn towards the higher end and our smaller brands growing at or above that range as they expand their footprint with Fine Dining continuing to grow opportunistically. We believe this mix shift over time can support a more diversified and resilient growth profile. Another important element of the model is our approach to pricing. While we have the ability to price, we have consistently taken a measured approach, pricing below inflation over time, to preserve our value proposition and support traffic. This discipline helps us maintain guest relevance, support long-term traffic growth and strengthen the durability of the business across different operating environments.

Looking at our performance since fiscal '19 relative to our long-term framework, we generated earnings after-tax growth of 7.5% and cash returns of 4.2%. This resulted in total shareholder returns of 11.7% as measured by EPS growth plus dividend yield. Our strong operating model generates significant and durable cash flows. Since fiscal 2019, we have delivered 9% annualized adjusted EBITDA growth. This also reflects balanced execution across each component of the framework and the total shareholder return that is within our target range despite the issuance of 9 million shares of common stock in fiscal '20 and other business disruptions from COVID.

Our consistent cash generation is expected to provide more than sufficient capacity each year to fund the core requirements of the business, including maintenance capital to sustain our existing asset base, continued growth of our dividend and investment in new restaurant development. The remaining cash flow is generally returned to shareholders through share repurchase while preserving our financial flexibility and maintaining a strong balance sheet. Our adjusted debt to EBITDA at the end of fiscal 2026 of 2.1x is within our targeted range of 2 to 2.5x and consistent with maintaining an investment-grade credit profile.

Now turning to our financial outlook for fiscal 2027. We expect total sales of $13.6 billion to $13.75 billion driven by same-restaurant sales growth of 2.5% to 3.5%, 75 to 80 gross new restaurant openings and 11 Bahama Breeze conversions during the year. Capital spending of approximately $875 million, total inflation of approximately 3%, which includes commodities inflation of approximately 3% and labor inflation of approximately 3.5%. In annual effective tax rate of approximately 13.5% and approximately 114 million diluted average shares outstanding for the year. All of this results in EBITDA of $2.26 billion to $2.29 billion, and diluted net earnings per share between $11.10 and $11.35. Additionally, our board approved an 8% increase to our regular quarterly dividend to $1.62 per share implying an annual dividend of $6.48.

In closing, we delivered a strong year supported by continued sales momentum. Over the last 5 fiscal years, we have consistently delivered earnings at or above the midpoint of our initial guidance, demonstrating our ability to deliver on our commitment. That consistency reflects the strength and resilience of our teams and their focus on controlling what we can control as we navigate changing environments. Together, these factors give us confidence in our ability to continue delivering consistent growth and long-term shareholder returns.

With that, we'll take your questions.

[Operator Instructions] First question today is coming from Lauren Silberman from Deutsche Bank.

Congratulations on the year. I wanted to just ask about the overall consumer environment. Obviously, a lot going on. Any color you can give on cadence of comps as you move through the quarter. anything you're willing to say on June, any impact from like the rising gas prices. Thoughts there.

Lauren, thanks for the feedback on the quarter and the year. In regards to consumer, we really haven't seen a whole lot of change based on what we've been saying for the last couple of quarters. Consumer spending remains pretty resilient. Overall, the mood with consumers is still a little cautious. But as we've said a couple of times before, the weaker consumer sentiment hasn't necessarily translated into reduced spending.

A little bit different this quarter, our casual brands saw an increase in visits year-over-year from all income groups including the bottom quintile. Some of that might have been tax refunds, but they did see some increase year-over-year from all income groups. We did see a little softness in guests under 35. But we're going to continue to control what we control, as Raj said. In regards to the cadence across the quarter, it was pretty consistent our same restaurant sales across the quarters by month were fairly consistent and into 2-year stack, it's almost the exact same number. So we felt pretty good about where we were, not necessarily going to comment on the quarter-to-date so far. It's only 3 weeks. And this is a little choppy because of our 53rd week and shifting calendar. So we're not going to comment on that right now.

Okay. That's understood. And any thoughts, I guess, more broadly in terms of how we should be thinking about the cadence of comp or EPS growth throughout fiscal '27?

Yes, Lauren, I think I would say as we get -- look at the year, I would expect that because of some of the cost situation we're in, in terms of year-over-year, we would expect that first quarter that would be kind of low to mid-single-digit EPS growth and then the rest of the quarter is fairly balanced on a 52-week basis from a growth perspective. It's really a function of some of the factors that are impacting year-over-year, specifically in the first quarter because that's when we expect to have the highest commodities inflation. I think we're expecting roughly 4% in the first quarter.

And then there's some other near-term costs that are just more onetime in nature that we'll have a little bit more pressure on the first quarter. But for the full year, for the rest of the quarter should be fairly even.

Our next question today is coming from Gregory Francfort from Guggenheim Partners.

I just want to ask maybe a little bit about LongHorn's comp performance. I mean, it keeps putting up really good numbers. And what do you think is driving that? And I guess how much of what's driving that can be applied to the other brands. I think the 5-year outlook as you guys maybe moving some of the portion of investments into the other brands. But is there anything else that's going on there that you think is a big part of the business and they can or cannot be taken over to the other brands you have?

Greg, thanks for the great feedback on LongHorn, too. So LongHorn had a 9.5% comp, what a great quarter, and Laura and her team are doing an excellent job driving that business.

A lot of that has been things that we've been doing for years. As we mentioned, we've made investments in food quality probably for the last 10 years. Several and investments continue to pay off. service is improving. The guests know they're getting high-quality stakes. When they come to Longhorn, our steaks were correctly scores are highest ever levels. And they get a great value. And it doesn't hurt that there's a high beef inflation in the market. And so the relative value looks a little bit better for LongHorn.

So -- and then specifically in Q4, we use a little social media that we do all the time, but we had a post that went very viral, and that was their teas bringing back land. And so they do land usually in the guests have been asking about it all year. All he did with teas and say, what you're looking for is coming. And then they sold more land -- we bought more land this year than last year and we sold out in half the time. So it was a strong performance. There are things that we can learn at Longhorn that take to other brands, but LongHorn's learn things from other brands to take the Longhorn. So not all of our brands are going to do a non-comp every quarter, but we've got a framework in a portfolio of brands that will let us meet that framework and hopefully exceed it every once in a while.

But we'll continue to learn. LongHorn, as you mentioned, has multiple sizes of most of their steaks. Olive Garden has a little bit on that. Protein is a little bit more important. And Olive Garden just introduced in a year, a pretty protein-forward dish. And we might see some more kind of protein communication at Olive Garden, but LongHorn is just doing a great job right now, and we're going to keep them going.

Next question is coming from Chris Carril from KeyBanc Capital Markets.

So just on the commodity basket guidance of 3%, can you expand a little bit more on that and touch on some of the specific drivers, specifically beef. And then I think you mentioned, Raj, 4% inflation in the 1Q. So any more on the cadence of commodity inflation expectations, that would be great.

Yes, Chris, I'd just say from a commodities perspective, as you look at the fiscal '27, one of the things that you're going to see -- we expect to see in the first quarter primarily beef is going to be somewhere in that mid- to high single digit because we're wrapping on pretty low inflation a year ago. We started to experience significantly higher inflation for beef in the -- starting in the second quarter last year. And for the full year, we ended up in the close to 12-ish percent for beef on the fiscal 2026.

As we look at we '27. Expect beef to be in the low single digits for the full year. In fact, we would expect somewhat deflation in the second quarter. So for the first half, I think we signaled low single-digit inflation, but that includes mid- to high in the first quarter and basically slight deflation in the second quarter. As far as other items, one of the things I know a lot of you are looking at is the chicken. We do a contract. And actually, what happens for us is over time, we are actually doing well -- our contracts help protect us from the volatility in the market. So we have been able to have much more stable pricing.

And if you look at the last 3 years, our costs on chicken have been fairly flat, whereas there's been a roughly 5% annual inflation in the broader market. And so those are some of the big drivers, I'd say I think seafood is still -- we expect seafood to be high single digits in the in the front half, but normalize as we get to the back half.

Our next question today is coming from Andrew Charles from TD Cowen.

I'm curious if the same-store sales guidance embeds expansion delivery, either via more brands adopting first party or perhaps brands with first-party adopting third party?

In regards to delivery, right now, we're still focused on the brands that have first-party delivery, Olive Garden, Cheddar's and Yard House. Chuy's already has third-party.

In regards to third-party delivery, there -- as we've mentioned many times, there's a few things that we don't like about third-party delivery, that model, but some of it been solved. Others we'd have to see addressed before we get into that. And I'll give you some examples, price transparency for our consumers so they know exactly what their entree costs in our restaurant versus getting it delivered control of the data and tips for our employees. Those are just 3 things. We've got others. And with the acquisition of Chuy's, we have greater insight in the third-party model and how that can impact restaurant sales, both positively and negatively.

So right now, we continue to focus on that first party in the -- in the restaurants that we have and the brands we have it with Uber Direct. But if a third party is ever going to be part of our business model, it must be sustainable for us in the long term. And our guidance does not contemplate any third-party delivery.

That's helpful. And my follow-up was just around marketing spend. So what we saw in the fourth quarter, should we expect another year in '27 increased activity, but less of an increase in cost as you find [indiscernible]?

Yes. I think -- so from a marketing perspective, we are -- we expect to make some investment even with some cost as most of the cost as we receive this year, next year, I think there's probably another $5 million to $6 million of cost saves. But we expect marketing expense to go up roughly 10 basis points. It will be -- from a dollars perspective, think of it as about a $25 million investment year-over-year, and that's contemplated in the guidance.

Next question today comes from Danilo Gargiulo from Bernstein.

First of all, at a very high level, I was wondering if you can give us some puts and takes of your guidance and perhaps where you have the highest conviction and where -- instead, you're monitoring a little bit more closely, and what will take you to the higher end of the guidance when we take it to the end guidance for '27?

Yes, Danilo, so let's start with our guidance of 2.5% to 3.5% for the year, which implies flat to positive traffic with check in the mid- to high 2% range. So with that as a starting point, you think about -- we're looking at 12 months, there are a lot of factors that can impact what can happen with the traffic. But we expect our pricing to be closer to inflation. So I mentioned -- we mentioned -- I mentioned that we expect our total inflation to be approximately 3%. Our pricing should be fairly close to that, and our check would be in that mid- to high-2s. And so that is the background.

As we think about the puts and takes, is obviously the broader macro that plays into that range. And if the macro ends up being much better, we'll end up on the higher end. And then there are initiatives that our brands have. That is -- again, I want to -- I don't want to harp on it for too long, but the reality is the portfolio of brands is a huge advantage when you think about planning and forecasting ahead and how we can pull different levers within -- across our portfolio to get to our commitments. And so broadly speaking, those are the things.

One thing I want to point out that I think might have been -- may not be as clear is we have a pretty big step-up in growth. So if you think about the fact that we're opening -- we're guiding to 75 to 80 gross openings, last year, we opened 71. But then you also have, in addition to that 75 to 80 gross openings, we also have 11 Bahama Breeze conversions. So when you add those 2 up, it's really from a development perspective and from a preopening perspective, we're actually going to have roughly 20 more openings year-over-year. So that will lead to some incremental preopening costs. And so when you take all that into consideration, that's roughly a $0.15 -- $15 million impact on our profit and a $0.10 EPS drag on the year. And this is really a growth costs, right, which are because there's a step change in the number of openings, and it includes the preopening costs and some year 1 inefficiencies.

And so when you actually look at that and still see that even with that headwind, our guidance implies EAT margin flat to positive. And if you will add that back, and I would actually put at margin 10-plus basis points expanding. So those are really the big components of how we're thinking about for the full year.

Great. And actually, you went on my follow-up question, which was on development, but more from an international standpoint. And I see that it's quite interesting that you're highlighting also in your presentation, the relevance of international within your strategic planning. So I'm wondering if you can maybe help us understand when will we see -- the highest in the next 2 to 3 years, when will we see the highest impact coming from the international expansion? And maybe if you can give us some sort of boundaries from EAT standpoint of the contribution that we could that -- we could be expecting from an expansion in international markets?

Danilo, just remember that our international expansion is franchising. So while it's not the same as opening an existing restaurant for us, we do get a good percentage of the sales from that. The EAT should grow as we continue to add franchise restaurants but we're talking single-digit pennies a year, a low end of that a year because you're talking 20 restaurants, 25 restaurants may be in a good year for openings. But it's a significant business for us. And Brad Smith and his team are doing a great job finding partners.

I would say, as I said in my prepared remarks, this will be the most international openings we've ever had at Darden. And we would expect to keep doing that every year for the next few years, and then we'll continue to find new partners. When we signed these last 3 deals, we signed them in June of last year, so basically a year ago. We signed 40 restaurants in part of India, 40 restaurants in Spain and 30 restaurants in Canada. And we had never signed a development deal for a country and opened it within 12 months and all 3 of them pretty much are going to open within 12 months. And we have more openings in those countries already coming. So we feel really good about where we are. But it's not going to be a monster driver of EAT growth. It will be a driver of EPS, but pretty small, but it's still positive.

Our next question today is coming from David Palmer from Evercore ISI.

Congratulations on your year. I wanted to ask you about -- on the same-store sales guidance for fiscal '27 and 2.5% to 3.5%. How are you generally thinking about that for Olive Garden? Is safe to say you're thinking slightly below, but so positive? And if so, how are you thinking about restaurant level margin for that brand this year, especially with what you're doing with the small plates? It seems like you're leaning in there. And do you think you can keep those margins stable this year? And I have a quick follow-up.

Yes, David, great question. I'll start by saying first of all, thank you for acknowledging. We did have a great year. So we're excited and happy about it.

From a -- you can imagine when we look at the portfolio, and we're saying 2.5% to 3.5%, you would expect, we expect Olive Garden to be closer to the lower end of that for the year. But that -- we still expect Olive Garden to have decent growth. And especially considering where the industry would be. And the way to think about it from a margin perspective is I just talked about how in Q4, they actually had a 50 basis point increase in segment profit margin even with the headwind of the lighter portion investment of 50 basis points.

As we look at the full year for next year, I would expect their margins to be flat to positive. So we don't expect the margins to go backwards. They've done a great job of managing costs in the rest of the P&L to be able to fund investments. And that's really what's great about Olive Garden. This is an engine that has been fueling growth for Darden through the cash generation that it does. And so it plays a big role in helping Darden portfolio be as successful as it's been.

Yes. Just a follow-up on Olive Garden. There's been a lot of things happening with that brand. You guys have had maybe with LongHorn, there's initiatives, but we don't see them as much. I mean, with Olive Garden, they've been highly visible initiatives, small plates, you've leaned in with delivery. What are you kind of leaning into fiscal '27? I'm sure you don't want to be doing much worse than the exit rate comp than the mid-2s going into this year. What's the team going to be really focusing on. What would be the story of '27 for that brand?

Yes, David. Raj kind of mentioned the story of the brand a little bit is their comps are going to be some somewhere in the 2.5% to 3.5% range, but probably closer to the bottom, and we're okay with that. We think that that's a good place for Olive Garden to be as long as they continue to make investments for the long term, so they can be running those comps for the next 20 years instead of doing something for 1.5 years.

Marketing [indiscernible] brand is well positioned to leverage news to drive traffic, and they're continuing to work on some news and you see that. LongHorn is a little less about using news to drive traffic. But Olive Garden is using news to drive traffic. And one of the ways we do that is we've got several initiatives to continue appealing to core guests. And Olive Garden's core guests were the fastest-growing part of Olive Garden in the last quarter, and that's important to us. But we're going to continue to follow our marketing filters, and you'll see some of that stuff over the next year. But remember, it's got to be simple to execute, can't be a deep discount and it's going to elevate brand equity.

But at the end of the day, all of [indiscernible] profitable sales growth, and Raj just mentioned that we're going to be somewhere in the flat to flat to positive segment profit for Olive Garden, even with the growth. So without getting into too many competitive things, you'll see some things at Olive Garden that you may have seen years ago or some people may have never seen. And so I think it's important to know that we're not going to just sit back and let Olive Garden do nothing and have a very low comp. We're going to have -- make sure they're doing the right things for Olive Garden in the long term and to help the other brands in the long term as well. So you should see some things this year that you may not have seen before or may haven't seen it a while.

Your next question today is coming from Sara Senatore from Bank of America.

I have a quick question and then about guidance and then a question about the quarter. But for the guidance, I just was wondering about the CapEx outlook. It looks like a bigger jump than the number of new units. Is that related to the -- I'm sorry, the conversions? Or is there something else going on there? Just trying to understand if it has to do with movie the shift in where your unit growth is coming from or more to do with the Bahama Breeze conversions.

Yes, Sara. Let me start by breaking down the CapEx a little bit and then talk about the new units. That is where you're seeing the biggest increase. But if you look at the guidance of $875 million, roughly $25 million is related to the conversions. So then we're talking about $850 million. Close to $350 million is maintenance/IT investment. So it's basically maintaining our buildings technology investments, all of that. And roughly 500 is related to new unit growth.

So we talked about opening 75 to 80 this year, but we're also talked about trying to get into that 3% to 4% and building the pipeline for next year. So there is a pretty strong pipeline for next year and some of those costs come into this year. So that's really part of the reason why we're ending up where we are ending up. But it's -- trust us, we have a pretty strong filter for how we capital here at Darden. And we hold our brands and our development team to a pretty high standard, and our returns on new restaurants have been stellar. So we feel like this is a good use of capital.

And then I wanted to go back to the comment about seeing some growth from -- in spending from lower income consumers, I think that cohort has been declining in terms of traffic in prior quarters. I know you mentioned refunds. But is there anything -- as you think about kind of what brought them in with the smaller portion? Did that play a role because it's obviously also a smaller price points? I guess as you think about maybe value messaging perhaps more broadly, if anything changed in the quarter, we had heard that perhaps the Italian category maybe it was a little bit more promotional or more focused on value. So I just trying to kind of reconcile all of what I think I know about the industry, but maybe isn't the case.

I think you've said all the things, right? So there could be a lot of different things. I do believe that the tax refunds. We're a little bit of that. I'm not saying that that's the only reason. I think there are other reasons.

The Italian category being more promotional, I'm not sure I necessarily saw that. I think Olive Garden did what they did the year before, but maybe others did. But again, we have a big portfolio so we said the entire Casual Dining -- all of Casual Dining did pretty well across all the cohorts. It's just that the bottom quintile was positive year-over-year where the past they weren't. So that's why we wanted to highlight that. And we'll see if there's more reasons, but it's still early to determine exactly what the reasons were, but we feel pretty good about it.

Our next question today is coming from Brian Harbour from Morgan Stanley.

Yes. I guess like 3% commodity inflation seems pretty good in this environment where some things are really moving around a lot. I guess, is this sort of a prime example of where your scale really benefits things? And I guess sort of the distribution model you have, does that kind of reduce some of the cost versus what you might otherwise see or what some peers might see in this sort of environment?

Yes, absolutely. We've talked about the benefit of scale. And I think Rick, actually, in his prepared remarks specifically talked about the benefit of having our own distribution network and owning our own inventory and actually working directly with our suppliers and the scale benefit is meaningful, especially helps us protect us from a lot of volatility, and we're going to get because we can guarantee certain volumes, and that helps the suppliers feel about -- good about committing to certain prices.

So -- and I don't want to take away from our supply chain team does a great job. I mean they have done excellent job outperforming the market by mid- to high single-digit percentage points in multiple years. So that's a part of it is how our team is at negotiating and getting great deals for Darden, but the scale is really a factor, absolutely.

Raj, you're calling about more preopening and a little bit of kind of margin inefficiency from new units. I mean, I guess it doesn't sound like that's necessarily onetime. And I mean in future years, if you still saw a little bit of acceleration in unit growth. I assume that's not necessarily something that goes away. Were you suggesting that, that was more just related to the conversions this year and so therefore, it's not something you'd have in future years?

Yes, Brian, great point. Yes. So if you look at what I was suggesting is we're opening -- or stepping up basically because of conversion, it ends up being a 20-unit step-up roughly, whereas when you look at year-over-year from now to next year, even if you assume mid- to high percent of that target range we have for units, it will not be as big of a step up. So this is one -- this will be in the P&L. But year-over-year, you won't have the same headwind.

Our next question today is coming from Jon Tower from Citi.

Maybe just starting on Olive Garden. I know we talked a lot about it, but right now, you're featuring smaller prices and now they're part of the menu core. And it looks like protein is becoming a bigger piece of the venue at Olive Garden. I think at the moment, you're focusing on a hot honey chicken by, at least from an appetizer standpoint. So can you speak to how you're thinking about balancing what the consumer wants against these strong margins that the brand has had historically? It seems like some of these new items or LTOs which might be more protein-centric end up costing a little bit more. So how we should think about margins longer term for that segment?

Jon, I just want to make sure it's clear that we're we have the lighter portions menu, but we're not featuring anywhere. It's not like we're marketing it or doing anything. It's the guests are finding it as they go.

So -- but in terms of the protein, yes, we have a little bit more protein on some of these items on the menu. They're still at a good margin. And as we mentioned, next year, with these investments that we made and the Lighter Portions and even in some of the protein, we expect our margins to be flat to positive. And we'll continue to find other ways to help fund these things. But Olive Garden is going to be, we believe, a viable brand for a very long time. And in order to do that, we have to continue to make investments. We have to continue to evolve with what the consumer is looking for and they're looking for a little bit more protein right now. Who knows how long that will be, but they're looking for a little bit protein right now. And we can find ways to give them that at Olive Garden and at all of our other brands.

Again, that is the value of the portfolio that we have. We're not relying on any one brand, and we're not relying on any one cuisine. And so you think about LongHorn, you think about Yard House, Cheddar's, Chuy's, very protein-centric in those brands. So -- and all of our other brands. So it's -- let's not go too far and saying, Olive Garden needs to be LongHorn with protein, but they are going to have some protein on their menu. And they always do with promotions, they have some proteins. The chicken appetite that you mentioned is doing really well for them. and we'll see how we can keep that going.

Great. And then you just hit on the idea that the advantages you have as a portfolio company and I think throughout the presentation in the call today, you spoke to frankly, the strength of scale. So I'm curious if you could kind of refresh your thoughts around the M&A environment and specifically, how you see your portfolio growing over time outside of the existing brands that you have today?

Yes, Jon, I want to first start by saying that our long-term framework does not need acquisitions to help us hit that. So M&A doesn't have to be part of that framework, M&A could give top spin to that framework. We love the brands we have right now. We're focusing on the organic growth of these brands and building scale that way. If something comes up and our Board will discuss it.

But right now, we work with what we have in front of us, which is the brands we have today and converting those remaining Bahama Breezes. That's not a little bit of work. That's quite some work for our teams. It's going to be very valuable to us. but we're going to focus on the brands we have until there's another brand.

And next question today is coming from Dennis Geiger from UBS.

Two on [indiscernible], if I may. The first one, just on value perceptions of the brand. Any change in the scores there? I don't know if smaller places has helped on the value side of things or some of the other initiatives you've had in place, but just any updates on where value sits if you've observed any changes there of late?

Yes. Value is still pretty strong at Olive Garden. It's always been a strong brand for value, and it still is a strong brand for value. The Lighter Portions have very strong value. And again, it's not like half of our guests are ordering that Lighter Portions. I'm not going to tell you the preference. It's not anywhere near that. But those guests that are ordering lighter portions menu are coming back more frequently than they were before, and that frequency is continuing to build. So we believe that in the long term, we'll get even more value with whatever we put on the menu.

That is one of the biggest filters we have at Olive Garden with whatever we try to add, what is the value rate -- what is evaluating when we test it? Does that improve value or detract from value? And if it's attraction value, we won't put it on the menu. So we feel really good about where our branch value is.

Great. And just to slip in one on Olive Garden and the operational efforts. Just kind of the latest there, operational efforts overall speed of service. I know you've got some longer-term focused initiatives on this. But just any updates there? I'm not sure you can find better service anywhere relative to Olive Garden at least relative to the restaurant side visit. So I'm just curious if you think you're getting credit from the guests on the operations side of things? And maybe just what that opportunity looks like on the op side of things for the brand in '27?

Yes, Dennis. I would agree with you. I think Olive Garden give some of the best service in Casual Dining. So thanks for that. Olive Garden has made a pretty meaningful change in the last quarter in their speed. And they're focusing on it. They do a great job. John Wilkerson and his team of operators with Shane Elrod are doing an amazing job getting the message out to their team members on the importance of speed and what's happening.

And they are seeing a very quick change in their speed. And they're seeing great feedback from their guests. Their service scores and their pace of meal scores have gone up significantly. And they still have a lot more to do, by the way. So we believe Olive Garden can continue to move the needle on the speed along with our other brands. But Olive Garden is leading the way for Darden. And we're going to continue to learn from them and help to see what other brands can do from that.

Our next question is coming from [ Drew North ] from Baird.

Great. A lot of mine have been asked, but maybe one on pricing. Can you walk through some of the pricing figures by brand, at least Olive Garden and LongHorn in the fourth quarter? And then how you're thinking about the cadence of pricing through 2027? And either on a blended level or a little bit of perspective by brand as we think about the relationship between pricing and inflation? And then I have a follow-up.

Sure, Drew. So from -- for Q4, pricing was basically -- the blended pricing for Darden was 3.8%. Olive Garden was 2.8%. LongHorn was just over 5.3% or 5.4%. As we look at next year, I mentioned we expect pricing to be about 3%, which is we expect that to be more in line with inflation. From a quarterly cadence, we expect it to be slightly higher in the first half, higher than 3% in the first half and lower than 3% in the back half. And then I mentioned earlier already from an inflation, we expect first quarter to be the highest. And we expect Olive Garden to be lower pricing than Darden's pricing.

Very helpful. And then one on development. As we think about 2027 unit openings, I guess what are you seeing in terms of development costs or inflation there? And perhaps you can give us an update on how cash-on-cash returns are coming in for new openings relative to your targets as you've ramped up growth.

Yes. Drew, the inflation is actually holding up, I would say, of our construction costs in total have, I would say, fairly flatter. And actually, as we are opening -- going out to bid, we're finding that the bids are coming in a little bit better than our projection, our estimate that we approved. So that's a good sign.

So costs are holding up. I'm not going to say they're going down meaningfully, but they're not going up. From a return perspective, we feel really good. Cash on cash metric that can vary depending on how you choose to invest, whether you take TI or not and you do make your own capital, that kind of stuff and use your own capital. However, when we look at it even with all that and we look on average, our cash on cash is really strong. it's actually coming in ahead of our expectations. And then more importantly, when you look at the IRR and the net present value of these projects, these are significantly positive and IRR exceeding our cost of capital by multiple hundreds of basis points. So we feel really good about the growth portfolio, the performance of the new restaurants.

Our next question today is coming from Jim Salera from Stephens.

Raj, earlier, you broke out the components of the comp guidance for '27 have implied flat to modestly positive traffic. We've seen a sustained period of negative traffic for the industry, but obviously sustained outperformance for your brands. Can you just kind of walk us through what your expectations are for the industry in fiscal '27? And maybe how we should think about your ability to continue to either pull guests from other brands or perhaps pull them from other occasions? And just kind of walk us through that.

Yes. The way we think about it is really we focus on what we can control. We're not expecting any material change to industry performance. So our baseline assumption is industry is going to be where it's been. And then we are like trying to say, what can we do to take share. And I think if you look at last year, we had positive traffic for the year in an environment when the industry was negative. And we've done that for years.

And like you said, there are different initiatives our brands have to drive traffic, and that's really how we look at it. It varies from brand to brand. But I don't want to get too much into the details on what exactly we do. But ultimately, the biggest and most important thing is execution and superior execution, consistent execution, which I know is the fabric of how we think about it at Darden across all our brands.

Great. And then a quick follow-up. Earlier to the previous question, you had given the price for Olive Garden and LongHorn in the quarter. Can you just round that out and give us the traffic as well.

Quarter. If you look at the quarter, the pricing -- I mean, the check growth was 3.3%, traffic growth was 1.3%. Pricing was 3.8%. So basically about 50 basis points of mix on the quarter. And from Olive Garden, sales perspective, their traffic was up 20 basis points. Their check -- I mentioned pricing was in 2.8%. And then they had catering that was helping by about 50 basis points.

So really, if you look at catering and the traffic that would probably be -- think of it as 70 basis points of traffic at Olive Garden and a check growth of 1.5%. Lighter Portions, as I mentioned, were a headwind of 80 basis points. And then there was some negative mix of 30 basis points. From a LongHorn perspective, traffic was up 4.2% and their check was up 5.3%, basically in line with their pricing.

Our next question today is coming from Peter Saleh from BTIG.

I did want to come back to the conversation on LongHorn. The comps were the strongest we've seen in, I think, more than 3 years. Do you think there's any trade down there from fine dining or maybe any trade up? Or any more details you can provide on that would be helpful. And then I have a follow-up?

Peter, yes, there's probably some trade down from fine dining. There's also some trade-in from retail is what we think is happening. But when you think about frequency and fine dining versus frequency of LongHorn, you need quite a bit of trade to make it a real big difference, but -- and the size of LongHorn versus the rest of Fine Dining. But yes, there should there's some trade but I think it's more retail trade.

Got it. And then just following up on that. Are you still seeing the demand destruction of beef and retail? Is that an ongoing thing? Or has that gotten better or worse? Any details on that would be helpful as well.

Yes. I think it's -- I wouldn't say it has gotten meaningfully better, Peter. I think last month, we saw was 8.5% decline in the volume for steaks. So at retail, which is -- I think we were seeing as much as 11% at one point. So it's moderated a little bit, but still pretty high, 8.5%, and it's -- retail makes up roughly half of the total beef sales, I think. So it's a pretty meaningful -- still a meaningful step down.

Our next question today is coming from Jacob Aiken-Phillips from Melius Research.

I just wanted to ask a narrow question on beef risk management. You gave some helpful color on the cadence. But with the [indiscernible] are already tight, how do you think about disruption from [ screw worm ] and international cattle flows? And could -- is that more of a supply chain management issue? Or could it change pricing and margin framework?

Yes. Jacob, I think from -- on the screw one front, I would say we're seeing some of the same information you're all seeing. Our perspective is that the short-term risk to beef supplies is minimal. So really no meaningful impact to supply or pricing short term. And then the consumer demand seems to be holding up, meaning they're not significant -- USDA has done a great job of just talking about how the product be safe to consume.

So long term, risks are really could stem from restrictions to animal movement across the state lines. So that could potentially disrupt supply chains for a short period of time. But where we sit here, our supply chain teams are fairly good about the product side and the price. And that's why I think for this year, we're expecting basically a low single-digit inflation for beef.

Got it. And then just -- you mentioned some softness in guests among under 35. Can you just give us more color on that? Is it an affordability issue? Or is it more about how they're choosing occasions across different channels?

Jacob, it's hard to tell why they're down, but it is -- I would say that unemployment is the highest on those '20 to '25 so it's been in a long time. But there's no specific reason that we're hearing that the below 35 is down. And it's not a huge -- it's not as big a part of our business as the people that are above 35.

Our next question today is coming from Andrew Strelzik from BMO Capital Markets.

I know it doesn't get a lot of focus, but I wanted to ask a question on the other business segment, which had its best comp performance in a couple of years, both some momentum through the year. So I was hoping you could unpack what's been driving that better growth trajectory and how should we think about the durability of that into '27?

Yes, Andrew, I would say the other business, which is Yard House, Cheddar's, Seasons 52 and Chuy's. All of the brands were positive this quarter and really driven a lot by Yard House. Yard House and Cheddar's had a pretty darn good quarter. And we think that should be able to continue.

At the levels of Yard House comp, I don't know, maybe, but we think they're doing a pretty good job. They've actually, over the last 3 years, as I mentioned on my prepared remarks, done a lot on their menu, especially on the things that really matter at a kind of a bar and a gathering place. They've really improved their burgers, they've really improved their tacos and their pizza platform, and they've got other things that they want to work on. But Cheddar's is the same thing. Cheddar's made -- has made and is making more improvements in their food and continue to improve their service. And we're going to focus on executing on both of those brands. Chuy's is in the middle of its integration and kind of on the back end of its integration. And now they're going to focus on using those tools that they know and continue to work on recipes to make sure there's consistency across all of the restaurants on execution of the recipes.

So we feel really good about those brands. And the trajectory that we have for them in their future growth. As I mentioned in my call, in the early part of the call that you should see a little bit more growth on those 3 brands in the future than you've seen from the past.

Okay. That was helpful. And then on the Olive Garden delivery side now that we're a year plus in, can you give us a sense for how you're thinking about mix potential there, incrementality and kind of the growth rate as we've lapped the national rollout?

Andrew, so from Uber as party delivery, when we look at where we were in Q4, we were basically around 4.7% of total sales, which is consistent with what we saw in Q3. So we don't expect this to be a meaningful driver incrementally year-over-year as we go into the future, but it's holding pretty fairly steady. The incrementality is still in line. We said roughly 50% incremental. That's what we think we're seeing. But Olive Garden off-premise in total this quarter was 27%. And so that's a pretty good place to be.

Our next question today is coming from John Ivankoe from JPMorgan.

The question is on both direct and indirect disruption that may have happened due to the recent Gulf crisis, was there anything in terms of supplier or other types of distribution surcharges? Anything at all that may have actually influenced COGS at direct or indirect in the fourth quarter in first quarter? And would you expect that any type of disruption that happened from that would have been short term that wouldn't occur beyond the very short term?

Yes, John, great question. So there was some impact, especially there is a fuel surcharge, as you can imagine, but there's a little bit of a lag in how that works its way through the system. So we would expect part of the Q1 inflation is some unfavorable impact due to that elevated fuel price is working their way through the system, and we expect that impact to ease through the fiscal year as prices come down.

down. But it was an impact, and it was -- when you look at it, especially through the lens of COGS inflation, it could be -- it was not -- it could be tens of basis points approaching 50, 60 basis points. So at the peak, but it seems like things are starting to come down, so that should help.

Okay. That's very helpful. And 50 to 60 basis points is certainly not nothing. And remind us where we are on the utility side. Obviously, a lot of utilities across the U.S. are contracted or regulated. So there might be some lag there. Just remind me where Darden stands on the utility front in a relatively near-term outlook.

Yes, John, actually, we saw some impact when naturalize, I guess, peak during February of this year. But since then, it's been fairly steady. Our utilities inflation has been more in that mid-single-digit range for the year. But as we go to next year, based on some of the contracts we have and some of the hedging we have in place, we expect it to be in that low to mid-single digits.

Our next question today is coming from Jim Sanderson from Northcoast Research.

Just one question on Olive Garden. I wanted to go back to the mix issue for the lighter portions. I think that's 80 basis points in the quarter. How do you see that evolving? Is that going to grow as more and more consumers take advantage of that menu option? Or is it relatively stable as you lap the launch next year?

Yes. Jim, I'd say we would expect that to come down a little bit. 80 basis points is probably the peak as more consumers come in, it will have some impact, but it's not going to be -- we don't expect it to be a lot more than maybe 10, 15 basis points, and that will still take a big increase in preference. The bigger part of it is year-over-year, we started with basically 40% of the system in Q1 last year.

And so there was about 30 basis point impact, I think, in Q1. So as we wrap on that, you get -- you would expect this quarter -- first quarter, for example, to be more of a 50 to 60 basis point headwind and work its way down as we go through the year as we wrap on the phases of launches that we had last year.

Our next question today is coming from Brian Vaccaro from Raymond James.

Just 2 quick ones. First, at Olive Garden, could you just elaborate a little bit more on how the Lighter Portions menu is performing? Rick, it sounds like that preference continues to build sequentially. But how's the customer using the platform? Any new learnings there? And then the follow-up, just a quick one on the guidance. Raj, what level of SG&A did you embed for the year in the fiscal '27 guidance?

Yes, Brian, the Lighter Portions menu, we're talking somewhere in the mid-single -- low to mid-single digits, total preference, but a lot of that is on the weekends at lunch, which is where we had eliminated lunch menus years ago. There's still some of that preference going on at dinner, but more of it is lunch on the weekends, and it helps to fill our restaurants again. And we'll start seeing other things.

As that -- as that grows, you should start seeing it spread across. And as we kind of potentially remerchandise it and how we talk about it, it might be it might continue to grow. That's why we think maybe tens of basis points in the future of mix, but not 80 like we talked about.

Yes. And Brian, on the SG&A, I'll separate SG&A because we separate marketing. We put that as part of the restaurant level EBITDA. For marketing, we expect it to go up about 10 basis points, and I think I mentioned roughly $25 million year-over-year. And then G&A, we expect it to be closer to just probably a little bit north of $500 million, but around $500 million. So -- and that can move a little bit based on what happens with mark-to-market.

Our next question is coming from Jeffrey Bernstein from Barclays.

Great. Rick and Raj, rather than ask a 10-part question and a follow-up. I do just want to share a personal note with my plan to retire in the back half of this calendar year. I just wanted to thank you and your predecessors for your partnership, learnings and insights over the past many years. I've always appreciated your longer-term perspective on the business, which is a rarity and I applaud your 30-plus-year chart demonstrating the 10-year average total shareholder return was above -- at or above 10%. I think that's something your peers likely strive for.

So I just wanted to congratulate you on a successful fiscal '26. Best of luck achieving similar in fiscal '27 and most importantly, sustaining for years to come. So I just want to thank you again. It has been an honor to work with you over all these years. Thank you.

Jeff, I want to say the same thing to you. Thanks for your questions and your comments, all these years, and thanks for believing in what we do and thinking about the long term. We're going to miss your questions. We're going to miss what you've done with us and helped us over the years. And I would say my predecessors would say the exact same thing if they were on this line.

Best of luck to you in your retirement. I was hoping you would ask a question or at least be on the call, and I look forward to hearing from you some other ways. You've got our e-mail addresses. Every once in a while, if you get the knack to listen to a call and you want to give us a call afterwards, that would be awesome, but I don't expect to do that. I expect you to have fun in your next endeavor. And I'll let Raj say what he wants to say.

Yes. No, thank you, Jeff. And I echo everything Rick said, and we've always enjoyed the partnership, and we really want to thank you for the time we had the opportunity to spend with you. and all the best with your next chapter in life. And we'll miss hearing you rise on this call.

We've reached end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks, Kevin. I want to remind you that we plan to release first quarter results on Thursday, September 24 before the market opens with the conference call to follow. Thanks for participating on today's call. Have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Hello, and welcome to the Darden Fiscal Year 2026 Third Quarter Earnings Call. [Operator Instructions] This conference is being recorded. If you have any objections, please disconnect at this time.

I will now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin.

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO.

As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission.

A supplemental materials presentation containing information shared on today's call is available on the Financials tab in the Investors section of our website at darden.com. Today's discussion includes certain non-GAAP measurements, and reconciliations of these measurements are included in that presentation.

Looking ahead, we plan to release fiscal 2026 fourth quarter earnings on Thursday, June 25, before the market opens, followed by a conference call. During today's call, all references to industry results refer to the Black Box Intelligence casual dining benchmark excluding Darden.

During the fiscal third quarter, average same-restaurant sales for the industry decreased 1.2% and average same-restaurant guest counts decreased 3%. Additionally, median same-restaurant sales for the industry increased 0.6% and median same-restaurant guest counts decreased 2.9%.

This morning, rick will share some brief remarks on the quarter.and Raj will provide details on our third quarter financial performance and share our updated fiscal 2026 financial outlook.

Now I'll turn the call over to Rick.

Thank you, Courtney. Good morning, everyone. We had a very strong quarter. We generated $3.3 billion of total sales, 5.9% higher than last year, driven by same-restaurant sales growth of 4.2%. We've been consistently outperforming industry same-restaurant sales, and this quarter our gap widened as each of our 4 largest brands exceeded the industry by more than 400 basis points.

All of our segments delivered positive same-restaurant sales as our restaurant teams continue to be brilliant with the basics, once again, leading to impressive guest satisfaction scores. Our restaurant team's ability to consistently deliver exceptional guest experiences is enabled by historically high team member and manager retention levels that we are seeing across our businesses.

We began the quarter with very strong holiday sales and several of our brands generated record Valentine's Day sales, reinforcing that guests choose the brands they trust for these special occasions. We also opened 6 new restaurants during the quarter and we remain confident in our ability to deliver our planned openings for the fiscal year.

Olive Garden delivered positive same-restaurant sales of 3.2% for the quarter driven by strong operational execution even with 3 fewer weeks of price pointed promotions than last year. The restaurant teams are focused on ensuring every guest is offered a free refill on breadsticks and soup or salad. This led to new all-time high guest satisfaction score for service and matched their all-time high for overall guest satisfaction.

In January, olive Garden completed the rollout of the lighter portion section of their menu, adding 7 more dishes under $15. This platform provides our guests with more choice by offering additional smaller portions of popular dishes at a lower price and is offered in addition to the Olive Garden's regular portion sizes. Since these are existing menu items, there is minimal operational complexity and the restaurant teams can execute at a high level. The lighter portion section of the menu is clearly resonating with our guests and our restaurant teams.

In February, Fan Favorites returned with Four-Cheese Manicotti for a limited time starting at $12.99. Olive Garden also reintroduced 2 past favorites, Ravioli di Portobello and Braised Beef Tortelloni, meeting strong guest affinity for familiar craveable dishes. Building on last year's successful introduction, olive Garden recently launched Buy One, Take One and is extending the offer for 1 additional week versus last year. With the same starting at price point of $14.99, guests can choose 1 entree for their dine-in experience and then take a second entree home.

To give guests even more reasons to enjoy it, this year's offer features a new Rigatoni alla Vodka entree for a limited time. Olive Garden is supporting Buy One, Take One with increased media.

At LongHorn Steakhouse, strict adherence to their strategy rooted in quality, simplicity and culture continues to drive their momentum as they delivered same-restaurant sales growth of 7.2%. The LongHorn team is deeply committed to ensuring every item they serve meets their high-quality standards. Already this year, they have recertified every manager on their culinary standards. And during the quarter, their directors of operations completed hands-on culinary training in order to expertly assess and coach the behaviors that drive consistent execution.

Longhorn's people bring the brand to life in their restaurants and their culture remains a clear differentiator in earning strong team member loyalty, which in turn helps drive guest loyalty. During the quarter, LongHorn was recognized as one of the best places to work by Glassdoor. This award is particularly meaningful as winners are determined solely based on the feedback provided by team members.

Longhorn also celebrated 5 new Grill Master Legends during the quarter. This program is a great example of the intersection of quality and culture, celebrating team members who have each grilled more than 1 million steaks over the course of their career, a milestone that typically takes more than 20 years to reach.

Same-restaurant sales for the Fine Dining segment grew 2.1% for the quarter. All 3 brands in this segment delivered positive same-restaurant sales driven by strong private dining sales growth at The Capital Grille NAVs and the continued success of the 3-course fixed price menu at Ruth's Chris Steak House. Within our Other Business segment, same-restaurant sales grew 3.9% during the quarter driven by very strong performance at Yard House and positive same-restaurant sales at Cheddar's Scratch Kitchen and Seasons 52.

The Yard House team has done a great job of leveraging their competitive advantages of a socially energized bar and distinctive culinary offerings with broad appeal to drive strong demand for Yard House as a social gathering space. During the quarter, more than half of their restaurants set new daily sales records on Valentine's Day. At Cheddar's, the team remains focused on strengthening their competitive advantages of wow price and speed. During the quarter, they maintained their #1 ranking for affordability among major casual dining brands within Technomic's industry tracking tool.

I am proud of our performance this quarter and confident in our ability to build on our sales momentum. We remain focused on executing our proven strategy, enabling us to grow sales, increase market share and make meaningful investments in our business while returning capital to shareholders.

We also continue to work in our pursuit of our shared purpose: to nourish and delight everyone we serve. One of the ways we do this for our team members and their families is through our Next Course Scholarship program. Next month, the Darden Foundation will award more than 90 postsecondary education scholarships worth $3,000 each to the children of Darden members. This is the fourth year of the program, and over that time, we have awarded more than $1 million worth of scholarships, helping them reach their educational goals.

Finally, I want to thank our team members for their continued hard work and dedication to creating memorable experiences for our guests every day. On behalf of our leadership team and the Board of Directors, thank you for everything you do.

Now I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. As Rick mentioned, in the third quarter, we generated $3.3 billion of total sales, 5.9% higher than last year driven by same-restaurant sales growth of 4.2% and the addition of 31 net new restaurants. Our same-restaurant sales exceeded the industry benchmark by 540 basis points during the quarter. Our sales momentum was strong throughout the quarter as we further expanded our positive gap to the industry.

Winter weather negatively impacted same-restaurant sales by approximately 100 basis points for the quarter with more than 40% of our restaurants having to close temporarily in January during winter storm [ Thorne ]. Same-restaurant sales adjusted for weather were greater than 5%, a strong performance in what is traditionally a high-volume order. Overall, our teams did a great job managing the business through the volatility created by weather.

Third quarter earnings were in line with our expectations, delivering mid-single-digit earnings per share growth. Adjusted diluted net earnings per share from continuing operations of $2.95 were 5.4% higher than last year. We generated $579 million of adjusted EBITDA and returned $300 million to our shareholders this quarter by paying $173 million in dividends and repurchasing $127 million in shares.

Now looking at our adjusted margin analysis compared to last year. Food and beverage expenses were 50 basis points higher, primarily due to elevated beef cost driving total commodities inflation of approximately 5% for the quarter. Restaurant labor was 20 basis points lower driven by productivity improvement as pricing was in line with total labor inflation of 3.3%. Marketing expenses were 10 basis points higher, consistent with our expectations due to incremental marketing activity. Restaurant expenses were 10 basis points lower due to sales leverage.

This resulted in restaurant level EBITDA of 21%, 30 basis points lower than last year as our pricing was 40 basis points below inflation. Adjusted G&A expenses were flat to last year. Leverage from sales growth was offset by 20 basis points of unfavorable mark-to-market expenses on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is fully offset in taxes. As a result, our adjusted effective tax rate of 12.1% was 130 basis points lower than last year. We generated $341 million in adjusted earnings from continuing operations, which was 10.2% of sales.

Looking at our segments. All segments grew sales and segment profit dollars for the quarter driven by positive same-restaurant sales. As Rick mentioned, we continue to make meaningful investments in the business, such as the lighter portion section of the Olive Garden menu. This, along with our measured approach in reacting to elevated beef costs, resulted in headwind to segment profit margin for the quarter relative to last year.

Total sales for Olive Garden increased by 4.7% driven by strong same-restaurant sales growth as well as the addition of 17 net new restaurants. The sales momentum continued from prior quarters with same-restaurant sales that outperformed the industry benchmark by 440 basis points. Olive Garden delivered a strong segment profit margin of 23% for the quarter, which was only 10 basis points below last year. This includes approximately 40 basis points of margin investment related to the addition of the lighter portion section of the menu and the impact of delivery fees.

At LongHorn, total sales increased 11.2% driven by same-restaurant sales growth of 7.2% and the addition of 22 net new restaurants. The sustained sales and traffic outperformance resulted in same-restaurant sales exceeding the industry benchmark by 840 basis points and same-restaurant traffic exceeding by 640 basis points. The LongHorn team remains focused on their strategy driving strong results, delivering segment profit margin of 18.6% despite elevated beef costs.

Total sales at Fine Dining segment increased 4.3% driven by positive same-restaurant sales of 2.1% and the addition of 2 net new restaurants. The segment profit margin of 22% was 50 basis points lower than last year. The Other Business segment sales increased 3.2% with positive same-restaurant sales of 3.9%, partially offset by the permanent closure of Bahama Breeze restaurants. Segment profit margin of 15.6% was flat to last year.

Turning to our financial outlook for fiscal 2026. We've updated our guidance to reflect year-to-date results and expectations for the fourth quarter. We now expect total sales growth for the year of approximately 9.5%, same-restaurant sales growth of approximately 4.5%, approximately 70 new restaurant openings, commodities inflation of approximately 4%, an effective tax rate of approximately 12.5% and adjusted diluted net earnings per share of $10.57 to $10.67, including approximately $0.25 related to the additional 53rd week.

For the fourth quarter specifically, our annual outlook implies total sales growth of 13% to 14.5%, which includes the extra fiscal week. Same restaurant sales growth of 3.5% to 5% incorporates the strong trends we have seen through the first 3 weeks of March. We expect adjusted diluted net earnings per share between $3.59 and $3.69.

As previously announced, we've completed the exploration of strategic alternatives for the Bahama Breeze brand and determined that 14 locations will permanently close and the remaining 14 will be converted to other Darden brands over the next 12 to 18 months. We believe the commercial locations are great sites that will benefit several of the brands in our portfolio.

Our team members remain a priority throughout this process. A majority of team members, including more than 70% of managers who are impacted by the permanent closures, have already been placed in new roles within the Darden portfolio. Additionally, we intend to keep the restaurant teams from the conversion locations with the new brand or other Darden brands. We do not expect these actions to have a material impact on our financial results.

Now looking forward to fiscal 2027. I would like to provide our thoughts on a few items. First, we expect to open between 75 and 80 new restaurants in addition to converting 14 Bahama Breeze locations to other Darden brands. Next, we expect to spend approximately $850 million of capital on the following: approximately $475 million for new restaurants, approximately $25 million for the 14 Bahama Breeze conversions and approximately $350 million related to ongoing restaurant maintenance, refresh and technology. Finally, we anticipate an effective tax rate of approximately 13.5% for fiscal 2027 and total interest expense of approximately $200 million.

In closing, I want to commend our teams for their outstanding efforts in serving our guests. Their dedication is reflected in the strong financial results we delivered and our continued outperformance to the industry. We remain confident in our ability to grow sales, manage costs and deliver value to our guests and shareholders.

Now we'll take your questions.

[Operator Instructions] Our first question today is coming from Brian Bittner from Oppenheimer.

Just as it relates to your same-store sales guidance, the implied outlook for the fourth quarter is that 3.5% to 5% range, which is very impressive. And that's happening despite much tougher comparisons, I think, of nearly 400 basis points in the fourth quarter. I think investors in general have been pretty worried about this multi-quarter stretch of tougher comparisons upcoming. So can you help us understand what do you believe is driving the ability to lap these, so far at least with such ease, particularly at Olive Garden?

Brian, let me start. So as we look at guidance for next year, I think people are looking at this quarter-to-quarter tougher comparisons towards this last year. But the way we think about it is what are the drivers of the business and how do we continue to build growth or gain growth over time through the initiatives we have? And I think we've shown that over time, we achieve what we commit to. We've been able to show that we can grow.

And so as we look at specifically with respect to Olive Garden last year, you said it's a tougher compare. But if you think about the drivers of growth last year were primarily true, too. One was Buy One, Take One coming and returning for the first time since COVID and second was the third-party delivery. Well, guess what? Those 2 are still in place today. And we are extending our Buy One, Take One by an additional week and, Rick mentioned, we're also supporting that with additional media.

So we build a plan and we build an estimate based on the initiatives we have in place, taking into consideration the macro factors. And I think we feel good about what we're guiding here. And I don't know, Rick, if you want to...

And just my quick follow-up is just related to the relationship of pricing and inflation. Can you talk about that as we're moving forward into fourth quarter and then into 2027? I know you're not giving exact guidance obviously for next year yet. But you had some pretty meaningful gaps in that dynamic throughout this year, which seem to be narrowing now. So maybe you can just put some color on that for us.

Yes, Brian. Look, I think we've had a pretty big underpricing of inflation through the first 3 quarters. As we get to Q4, we expect our pricing to catch up to inflation. We expect overall inflation to be in the mid-3s and our pricing to be in that mid-3s. And I think if you look at our implied guide for Q4, you can see the power of that, right? When we start coming close to pricing close to inflation, you see the margins grow meaningfully. And that's what you're seeing in the implied guidance for the fourth quarter.

We'll share more about next year. But I think the way to think about it is we've given ourselves a lot of flexibility by underpricing inflation over several years. And we feel like we have -- across the industry when you look at, we have more power than anybody else in terms of being able to price to cover inflation. It's more of how we choose to run the business. And we've always been focused on long term. And I think to the extent we're achieving our long-term framework of 10% to 15% TSR by not having to price as much, then we do that.

But I think you'll hear more in the June call. But our framework costs were 10% to 15%, and that's what we aim to deliver.

Our next question is coming from David Palmer from Evercore ISI.

Quick question and a follow-up. How would you generally explain the same-store sales growth gap between LongHorn and Olive Garden? Is that really simply about the energy around protein and perhaps a little bit of the underpricing of beef costs lately? Or do you think there's something else that would explain the gap that we see between those 2 brands in terms of comps?

Yes, David, I'll start by saying Longhorn has been on a very long path to continue to improve their business to make sure that the guests get a great quality product every day, and you heard that in some of the prepared remarks. They've also significantly underpriced beef costs in the grocery store over time. So the guests are getting an amazing value when they go to Longhorn to eat. Going back to the quality, they've done an amazing job in cooking their steaks. Guests want to come to a restaurant. And if you can't cook a great steak, why do you open?

And LongHorn cooks a great steak well, very close to 100% of the time. And when they don't, they take care of the guest. So the gap between Olive Garden and LongHorn is it fluctuates. And this quarter, LongHorn, I think, had a little bit more pricing than Olive Garden did. They had a little bit more traffic growth than Olive Garden did. And I'm not sure they were impacted quite as much by the weather as Olive Garden.

But so as you think about all of those things, we don't worry about one brand outperforming another brand. We have a portfolio of great brands. And there's going to be quarters that one brand outperforms another one just like we generally outperform the industry. So we're very pleased with both of our brands, both Olive Garden and LongHorn and the performance they've had. But I think those can explain some of the big differences. And if Raj wants to add anything else.

No. The only thing I'll just add is, as Rick mentioned, we also manage the brands just like -- some of the things we do are depending on how we look at our performance across the portfolio. So there were 3 fewer weeks of price-pointed promotion at Olive Garden. And that's a decision we made because of how strong we felt the quarter was going to be. And that alone is probably about 100 basis points impact to Olive Garden's comps.

Great. That's helpful stuff. Do you see the gap between those 2 brands growing? Or I mean, you just called out something of a reason why it might narrow, but we see that the comparisons getting tougher for Olive Garden. So I know that there's going to be concern that, that growth gap will widen against the tougher comparisons. Do you see that gap widening or perhaps narrowing off of some of those artificial hurts that happened last quarter? And I'll pass it on.

Well, David, again, we're not as concerned with the gap widening or narrowing in our brands as long as the brands continue to grow. And the important gap widening for us is Olive Garden's gap to the industry. And Olive Garden's gap to the industry widened in our third quarter. LongHorn's gap widened even more. In the long run, though, law of large numbers, Olive Garden and LongHorn will probably converge over time. I can't say it's going to happen in Q4. I can't say it's going to happen next year.

But over time, as long as we're not doing anything significantly different in promotional cadence or other things, you would expect those gaps to narrow a little bit. But maybe LongHorn will be above Olive Garden for a while. We just can't tell you exactly when that will converge.

Next question today is coming from Lauren Silberman from Deutsche Bank.

Congrats on the quarter. I'm going to start with just the increasing gas prices. It sounds like you really haven't seen much of an impact given the quarter-to-date strength. But any thoughts on whether there could be a delayed reaction from consumers? And any color on what you've seen historically with high gas prices and how that's impacted different brands?

Yes, Lauren, as quite a few of you have written, the data doesn't show a really strong correlation between gas prices and restaurant spending. I would say historically, higher gas prices had more of an impact on durable goods and less of an impact on services. And I've been through a number of these cycles. I don't know how many. When there is a sudden and significant price increase in gas, there can be a brief pullback. But that's usually in a few weeks.

And if you recall, the sudden increase in gas prices were a couple of weeks ago, and we still had a pretty darn good quarter. The biggest driver we see in traffic for restaurants is GDP. So if gas prices remain high for a long period of time and make a big effect in GDP, there may be some softness. But in general, we're not too worried about gas prices and we'll be able to react however we need to if they stay really high for a while.

Great. And just a follow-up on the Q4 guide, the 3.5% to 5%. It's a fairly wide range. Any color on what you're embedding through the rest of the quarter? I know there's a lot of moving pieces. Just trying to understand high end versus low end versus current trends.

Yes. Lauren, I think it's just, look, what we're trying to embed is just there's still some uncertainty and the range is there to kind of capture that level of uncertainty. But we feel like we're in a good place quarter-to-date and that's taken into consideration. But we're also taking into consideration just the environment out there and just trying to make sure that we don't overpromise. So we're just trying to make sure that we're being thoughtful and taking into consideration all the factors that are out there.

Next question is coming from Christine Cho from Goldman Sachs.

I would like to discuss beef prices particularly as we look ahead to FY '27. I think last call, you've mentioned you're starting to see some green shoots, but seems spot prices are still trending upwards and news of the strike also seems to be an incremental headwind. Could you kind of share your directional thoughts on these and your locked in rates for the next few quarters ahead?

Christine, so let me start by saying, look, as far as fiscal 2027, we want to wait until June to provide more specifics. But I can tell you, for Q4, we have 85% fixed price coverage. So we have actually -- this is really pretty strong coverage relative to recent past. We haven't been able to cover that much in the last several years. So that's a good thing.

The other thing is we are starting to see some willingness from suppliers to contract further. So we have started to lock in some things for fiscal '27 probably well ahead of where we would have been a year ago or the last few years with respect to the next year. But I want to wait until June to really share more specifics.

Now the other thing around the price, look, there are a lot of dynamics in terms of happening on the supply side. And so we're not expecting things to get significantly better on the supply side. But look, there's still double-digit demand destruction that we're seeing even in February in retail, right? So I think, ultimately, where it lands will depend on what happens with demand as prices go up.

I'd like to also circle back on the lighter portion menu rollout at Olive Garden. Any color on how the incident rates trended since the launch? And is the mix impact kind of tracking in line with your expectations? Also any new learnings on the guests that are choosing these items? Does the uptick appear primarily value-driven or more kind of health or GLP-1 motivated?

Christine, I would say we finished the launch in mid-January of this year with the rest of the divisions going live. And those divisions are seeing kind of the same trends as the divisions that we launched earlier. The good news is we're seeing increased frequency in the guests that are ordering these lighter portions. We're seeing huge value scores and huge scores for portion size. So it's a combination of many things.

We do know that the Olive Garden menu has abundant portions, and abundant means different things to different people. And so when you get as much soup or salad as you want and as many breadsticks as you want, a lighter portion is maybe all that you're looking for, whether it's GLP-1 related or not. I don't think it's just GLP-1s. I think a lot of people want smaller portions if you get all these other things. And as I said, portion size ratings have gone up significantly and value ratings have gone up significantly for those items.

And we have seen increased frequency in the guests that are ordering it. It's a significant increase in frequency. Last, I'll say, is a lot of the preference is happening at the weekend lunch when we don't have a lunch menu. So there's a good reason for this lighter portion menu. Finally, the mix impact is about what we thought it would be. And Raj mentioned what the margin impact of the mix was, but the mix impact is about where we thought when we first launched the menu.

Next question today is coming from Chris Carril from KeyBanc Capital Markets.

So how should we think about marketing expense now in the 4Q in the context of the updated guidance you provided this morning? And I presume you'll wait to provide any detail on marketing expense for fiscal '27 in June. But any thoughts on how you're thinking about marketing at a higher level here in a potentially more volatile macro backdrop would be helpful.

Yes, Chris, I think we've been very clear throughout the year that we expect marketing to be between 10 basis points as a percent of sales last year. And that's really how we're looking at it because one of the things we had this year that we mentioned on the call was we had an RFP for a media buy that translated into meaningful cost saves, actually north of 10 basis points as a percent of sales. So that's actually helping us increase marketing activity even in quarters. Where you don't see a growth as a percent of sales, we're actually buying more because we had those savings to help.

Okay. Got it. And then, I guess, maybe to give Olive Garden a little bit of a break here but maybe changing directions a little bit. Can you comment on the improvement that you saw in the Fine Dining segment? How are you thinking about the segment going forward? And how much of a benefit to the comp in the quarter was from the strong Valentine's Day that you mentioned?

Yes. Chris, as we mentioned, Fine Dining, all 3 Fine Dining brands were positive same-restaurant sales in the quarter. It wasn't just driven by Valentine's Day. I don't even think that would be meaningful, maybe tens of basis points for the whole quarter for Valentine's Day. We had a really good private dine, as we mentioned, Capital Grille and Eddie V's.

And I will say this 3-course price fixed menu for Ruth's Chris is really resonating. We ran it for, I think, 5 or 6 weeks this quarter, and it's resonating with guests. We're seeing guests that were lapsed to Ruth's Chris come back and we're seeing guests that have ordered that come back. So we think this is a good platform for them. And we're really pleased with the fact that all the brands in Fine Dining were positive this quarter. It's been a little bit of time since that's happened.

And we can't tell you what we think going forward. But everything we have is contemplated in our guide, and our guide is a pretty strong guide. So I would think that Fine Dining would be doing okay in the fourth quarter.

Our next question today is coming from Sara Senatore from Bank of America.

Quick housekeeping. I think I missed it. Can you run through the price and mix that were in the comp? And maybe give a little bit of color on, I think you mentioned, LongHorn have more price than Olive Garden, but just how the brands compared to the average?

Yes, Sara. So at the Darden level, our comps were 4.2%, our check growth was 3.5%, our pricing was basically 3.4%. So I think 10 basis points of positive mix. When you look at Olive Garden, their pricing was 2.8%, but they also had catering help. Catering grew by about 130 basis points, which we don't count it as traffic, but that's really for all practical purposes, that is increasing traffic.

So if you take that into consideration, their traffic was up basically 100 basis points. And then they had some investment, like we talked about the investment in lighter portions impacted the check by roughly 60 basis points. Uber fees helped a little bit with about 50. So I mean, the way we look at it is Olive Garden's comps, while the traffic we print might be negative 0.4%, when you add back the weather and the catering, that's basically a positive 2 comp on traffic.

And for LongHorn, the same-restaurant sales of 7.2% included traffic of 3.3% and the check growth of 3.9%, pricing was 4.4%. So they had a negative mix of 50 basis points.

Okay. That's very helpful. And then I guess just in terms of the decision to run fewer weeks of price point and promotions as you said, maybe 100 basis points, but then this quarter running an extra week of the Buy One, Take One and supporting it with more marketing. Presumably, all those things were planned well in advance.

But I just wanted to kind of confirm that because I wasn't sure if the decision to go from fewer weeks last quarter to 1 more week this quarter indicated something about kind of the promotional intensity or what the results were versus your expectation. Just trying to kind of reconcile those 2 decisions or maybe just tougher compares or something else entirely, but just curious about that.

Yes, Sara. I would say, as big as Olive Garden is, we can't move on a real big time here. We had planned both of those things quite a while ago. So we had planned running fewer price pointed weeks in Q3 and planned on adding a week of Buy One, Take One in Q4 well early in this fiscal year, maybe even before the fiscal year started. And the reason that we moved 3 weeks out, we eliminated a promotion in the third quarter because we believed that weather would get back to a normal 5-year average and so we'd have some weather tailwinds for us this quarter.

Well, there were headwinds. So that was just something that happened. And Raj kind of mentioned what would have happened if there wasn't that kind of weather headwind. We would have had a 2 comp in traffic. So we planned these long time ahead of time. This is not a reaction to promotional intensity anywhere else. If you recall, when we added Never Ending Pasta Bowl, we came back, I think, it was 7 weeks, maybe 8 weeks. And then within a year or 2, it was up to 12.

So that was a decision and a planned decision we made. I can't tell you that Buy One, Take one will get to 12 weeks. But I can tell you that when we launched Buy One, Take One last year, we never intended it to be as short as it was.

Next question today is coming from Jon Tower from Citi.

Maybe starting, could you dig into the delivery at Olive Garden during the quarter? I think you've been running about 4% mix last period. Did much change? And going forward, how are you thinking about pulsing it as you move into the fourth quarter? Obviously, there's a different macro dynamic happening right now and at a higher price -- well, not high. There's the delivery fees on top of it. So I'm just curious if it's going to be a brighter spotlight on that relative to previous quarters.

Yes, Jon, a couple of things. Uber was 4.7% of sales for Q3. Now we did do CS support. So when we took that 4 week promotion out, so 3 weeks less price pointed when we took that one out in January, we replaced it with just a delivery message that had no offer. It was just, hey, olive Garden delivers. And then in February, we added an offer to the Olive Garden delivery to free delivery like we did last year. And so last year in Q3, we were roughly 0.8 in delivery. Last year in Q4, we're 3.5%.

So you saw that big jump when we started marketing delivery in Q4. So I would say that in Q4 this year, I'm not going to tell you if we're going to do marketing for delivery. But if we do, it would be a secondary message. And I would think that the jump in delivery from Q3 this year to Q3 last year won't be the same in Q4 because that's when we had the big spike. But we still believe that delivery should be a little bit higher than last year.

Okay. Great. And maybe, obviously, it sounds like the lighter fare or lighter portion menu at Olive Garden, it sounds like it's a pretty good success early on. I'm just curious, as you're looking across the rest of your brands, I know each one is a little bit different, but is that an opportunity to bring to other brands within the portfolio? Or is the guest just a little bit different?

Yes. We've said this before. I think LongHorn has done some of this already. LongHorn did this at lunch years ago and lunch is growing pretty fast. And with a good lunch platform, smaller items, sandwiches, et cetera, that's grown over time. And they already have different sizes of some steaks. So if you think about their filet, they've got 2 different sizes of filet. They got sirloins. They've got 2 different kind of ribeyes, one's bone-in and one's not. They've got different sizes for chicken, different sets for salmon.

So they kind of have a lot of that already. But they are looking at other things that they can do to bring portions that might not be as big for people that don't want such a big portion. The same thing with Ruth's Chris. If you think about the price fixed menu at Ruth's Chris, it's one of their smaller filets, et cetera. So we have opportunities in all of our brands to look at something like this. It might not be as broad as we do at Olive Garden because most of these menus in the other brands have kind of variety of size.

Next question today is coming from Brian Harbour from Morgan Stanley.

I guess maybe just the income cohort question. Anything that you'd call out about some income bands that may have shifted in the quarter? And also in Fine Dining, is there any group that you think has kind of come back more?

Brian, so from an income perspective, what we're seeing is there is growth across all households with income above $50,000. And the biggest growth is coming from households over $150,000. That's just generally what we're seeing across all brands. As we look at Fine Dining, we're seeing decent growth as we start to go above $150,000 as well, but $200,000 plus is where we're seeing the most growth. And that's where we see even bigger disparity between the below $75,000, below $100,000 and then the above $150,000.

Okay. Got it. Raj, just directionally, so it's still your expectation, I think that food cost pressure kind of continues to diminish a bit into the fourth quarter. I guess, also, is there any reason that with the sales you're doing, there wouldn't be a little bit more leverage on the other restaurant expenses at this point?

So I think we would expect to get -- I mean, look, let me step back. I hate for us to talk about a specific line item on the P&L because there are multiple variables that can play a role in where we land for the end of the quarter. But as we look at the business, the guidance that we provided for the fourth quarter implies margin growth. And we're going to get it from, at this point, probably pretty much every line on the P&L. But it doesn't have to end up that they way. We're okay. Ultimately, we look at what's the bottom line, right? I think we're going to show good margin growth.

Our next question is coming from Jeffrey Bernstein from Barclays.

Great. First question is just on the fiscal '26 guidance. I know there's only 1 quarter remaining, but you raised the total revenue growth guidance, you raised the comp and the unit growth guidance. But ex the incremental $0.05, I guess, from the 53rd week, it seems like the implied fourth quarter EPS guidance is still somewhat in line with The Street. I'm just wondering how you think about maybe what's preventing the greater EPS upside, especially as total inflation guidance seems to be unchanged? Just trying to get a sense for how you think about that going from the top line to the bottom line as we think about at least the upcoming quarter. .

Jeff, look, I don't want to explain the Street's model, right? I'm focused on what we built as a plan. And if you look at our initial guidance at the beginning of the year, we said our guidance was $10.50 to $10.70. And as we got through the year, our inflation was a lot higher than we thought and we didn't price for all of it. But we had better comps than we thought in the plan. And so we took our comps to reflect that. But ultimately, we're still delivering on the higher end. If you take the midpoint of it, it is higher than the midpoint of what we had initially guided.

The delta on the 53rd week is just a function of we had approximately $0.20 and now we're seeing approximately $0.25. If you think about the how rounding works, a couple of pennies could make it approximately $0.20 versus approximately $0.25. So don't read this as a $0.05 delta. It could be 1 to 2 because of how it rounds. And that's why we said approximately. So I'll leave it at that.

Got it. So it sounds like greater comp, greater inflation, net-net, still a strong earnings year. And then as I think about that going into next year, I appreciate the color on the unit growth and the CapEx spend. But maybe more broadly speaking, and I know it's just directionally at this point, and maybe you mentioned it earlier, is it fair to assume you think fiscal '27 growth in line with your long-term algo? It seems like you're entering fiscal '27 with comps above the 1.5% to 3.5% long-term target. Maybe you could share the current annual EPS sensitivity to an incremental point of comp. Any color at least directionally on how we should think about fiscal '27 versus the long term would be great. .

Well, Jeff, I would say we'll share more about fiscal '27 later, but I think what we're targeting is trying to stay in that frame or at least achieve what we said as part of the framework, so 1.5% to 3.5% for comps and 3% to 4% for a new restaurant growth. And as you look at what were the initial indication for fiscal '27, excluding the Bahama Breeze impact, we would expect it to be in that range of 3% to 4% for new unit growth contribution. And then part of the that framework is keep margin flat to positive 20 basis points to get us to that EPS growth plus dividend yield of 10% to 15%. And I think that's kind of what we would plan for. Any given year it might be a little bit different, but that's what we target long term. At this point, I don't see a reason why we wouldn't be there, but who knows? We'll give you an update in June. .

Our next question today is coming from Jim Salera from Stephens.

Raj, earlier, you had talked about double-digit demand destruction at retail for beef. And I can't help but draw a line between the strong results at LongHorn and then that commentary. So are you able to give us any context? Are you seeing consumers who forego buying beef at the grocery store then showing up at LongHorn in a way that's actually a tailwind to your traffic at LongHorn because they're nervous about preparing it so they show up to have you prepare it for them instead?

Jim, this is Rick. In times of high prices in the grocery store, you generally see a little bit more consumer going to a restaurant to get their steak. When a consumer has to cook a very expensive steak at home and they mess it up, they still have to eat it. When a consumer goes to a restaurant and orders a steak and we mess it up, we eat it and they still eat a great steak. So I think that's part of the reason, but I can't tell you that we have data to say that consumer says, I saw this price in the grocery store, I decided not to do it. I'm going to go to LongHorn instead. I mean, we've got great data. We've got the best data and insights in the space. But we don't ask I guess that question so we don't know. .

And then maybe one follow-up question given the traffic outperformance for the Darden as a whole relative to the industry. How much of that is incremental frequency from existing guests who are just satisfied with the menu innovation and some of the portion size offerings versus you winning share from other peers within the group?

Yes. Look, we're getting from both. When we look at our frequency, we are seeing frequency increase across the portfolio from the guests. But we're also getting new guests. So it's a combination of that. The data that we look at probably shows that a little bit more from increased frequency, call it, 60-40, I guess, 65-35, in that range.

Our next question today is coming from Andrew Charles from TD Cowen.

Rick, catering Olive Garden continues to grow pretty nicely despite lapping several quarters since the large growth began. So what do you attribute that to?

Andrew, growth at Olive Garden is about execution. So I didn't hear the very first word. So I want to make sure I'm answering what growth you're talking about at Olive Garden.

It was catering.

Catering growth. Catering growth, it's a great deal at Olive Garden. And we do an amazing job at getting it to the guest at the exact time they want it, and we have a good digital platform to do it. So catering is a very strong support for us and it's probably one of the best values at Olive Garden. And then we have a delivery part of catering that we do our self-delivery. It's our highest-rated part of anything we do at Olive Garden. So what guests want for catering is they want to make sure they get the food that they ordered, they get it on time and it's a great value. And Olive Garden checks all 3 boxes every time.

Got you. And then, Raj, is it fair to assume that a good portion of the converted Bahama Breezes will be Olive Gardens just given similar square footage combined as well as Olive Garden is one of your highest ROIC brands for new stores?

Yes, Andrew, this is Rick. I wouldn't say it's fair to assume that most of the conversions will be Olive Garden. There's 14 conversions. Olive Garden is pretty much almost everywhere Bahama Breeze is. So I would say it's fair to assume that Olive Garden will have a couple maybe, but they won't have a lot of them.

Our next question is coming from David Tarantino from Baird.

First, a clarification on Raj's comments about next year and the total shareholder return being in line with your normal. Are you adjusting for the lapping of the 53rd week or maybe you don't need to adjust and still hit that target range? But I guess, could you clarify whether we should be making any adjustments to your comment?

Yes, David, I would say we always look at it on a 52-to-52 because that's the right comparison. But versus the 53rd, what is it going to look like, I mean, you'll find out in June. I mean, at this point, long term, it's really 52 to 52 is the right comparison.

Great. And I guess my real question, Raj, is about the commodity cost outlook. I appreciate you don't want to give specifics for next year. But just wondering directionally if the spike in oil prices, and hence, distribution costs is going to have any material impact on the outlook for commodity cost for you and for the industry for that matter and, I guess, you would probably have a competitive advantage with your supply chain. But just any thoughts on that topic would be helpful.

David, I don't want to speculate. But if you look at where we are expecting the inflation for commodities for this year to be, which is 4%, our thinking from where we're sitting now for next year directionally should be better than that even with some of the recent news. But we'll provide an update in June.

Our next question is coming from Danilo Gargiulo from Bernstein.

Rick, I was wondering if you can elaborate more on the turnover rate being particularly low. Is that a function of what you're doing, where you are in the market? Or is that something that you're seeing across the board for the industry? And was that the primary driver for the labor productivity improvement that you've seen this quarter? And if that's the case, for how long do you expect the low turnover to last?

Yes, Danilo, I would say our turnover, our retention has continued to outpace the industry. Ours is getting better, faster than the industry is. And I would attribute that to a great employment proposition that we provide. We give our team members opportunities to grow, and that gives them a chance to come into the industry and get life-changing manager jobs and above. And so almost all of our brands are at record turnover levels and the ones that aren't are pretty darn close. And the industry data is getting a little bit better.

So when we think about labor, low turnover helps labor costs because you've got more productive employees doing the job, you've got less need to hire and train. We do still train, but we train them, cross-train them, but we spend less money on new hire training. So that should help us. As long as we keep our turnovers moving in the right direction, then our labor productivity should get slightly better. We may invest some of that. As we mentioned, we always find ways to invest in the guests. And if we get some things that are much better than we would expect, we would probably give some of that back to the consumer in the form of either better service or better pricing or better deals.

And then from Raj's comments earlier, one could infer that maybe 2027 could be more elevated pricing versus 2026, a little bit above inflation perhaps. And historically with pricing above inflation, the guest count could be more reduced. And so I'm wondering what kind of initiative at a high level, do you think you could be deploying in 2027 to perhaps counterbalance this and still have a guest-driven growth for your brands?

Danilo, let me start and then maybe Rick can add to that. So I don't want to signal anything specific to '27 with respect to pricing versus inflation. What we're talking about is we've given ourselves a lot of room over the next -- essentially since COVID by underpricing the full-service CPI by almost 1,200 basis points, even grocery by 400 basis points. And so we feel like if we need to take price, we can take it and we can be smart about it without impacting the guests, part of the reason being cumulatively, we're in a much better place.

Our relative value position is very strong. So we don't necessarily think in the year -- if there is a year where we take a little bit more or actually in line with price, that all of a sudden, that becomes a headwind to guest count. That's not how we view it.

And Danilo, I would add to that, even if we price out inflation and we anticipate commodities being a little bit better over time, then it wouldn't be a huge price for next year if we do that. But I would also add that, again, we keep investing in our team, in our product, in what we serve to the guest. I would say that those investments build on themselves over time, and guests notice the value that they get. Most of our brands are at record high guest satisfaction, record high affordability, record high values for those brands.

So I would say that we got just continued operational execution. And as we've said, we'll continue to look at our media spend and become more effective with that media spend but still increase slightly, like we've said about 10 basis points or so. We'll probably do the same thing next year, could be even more so depending on how impactful that marketing spend is. So we should have some things that help counterbalance anything we do at price. But as Raj said, we don't think what we would do at price would be a tremendous drawdown to the guest count.

Our next question today is coming from Gregory Francfort from Guggenheim Partners.

Rick, this may be a little bit out of left field, but just I'm curious your thoughts on some of these AI tools that are coming on, how much you're using them at corporate, what that's unlocking for you from an analytics perspective. Just any thoughts on kind of what may be changing inside your business with what's going on?

Yes, Greg, not quite out of left field. But I'm going to start anything about AI to say that at the core, we are and we always will be a hospitality-driven company, which means you need people. So we're a people-focused business so we're going to need them. But our team is doing an incredible job every day. What we're using AI, machine learning for is to give our team member, our managers a much better forecast of their business so they can schedule better, plus we're using tools to that to make them write better schedules. They can order food better. Because the best thing you can do as a manager is to have a great forecast so you can staff your restaurant right and have the right amount of food.

That said, we're doing things here in the support center to improve on tasks that are repetitive, using AI to start projects faster to get things done faster. But we have yet to take any jobs out because of AI. We've got 200,000 employees in this company and only about 1,000 of them work here. The other 200,000 work in the restaurant. And I would say we're probably not going to lose any team members in the restaurant because of AI. We're going to make their jobs better. We're going to make the guest experience better. But I would say that ultimately, the approach for AI for us is about amplifying the expertise for our people, not replacing them, as I said. It helps us deliver on exceptional service, and that's what we'll keep doing.

And the last I'll say is we've got a great team in IT here, over 200 people strong. And they're using it to write code faster, to get a lot of savings in what they do so that we can have more tools for our teams at a faster pace. And even some things that we've been looking to do for years that we were struggling to get done, AI is getting it done a lot faster. So that's where you're going to see the benefit of AI. But you probably won't see it specifically because it's not going to be necessarily so guest forward.

Our next question is coming from Jeff Farmer from Gordon Haskett.

You guys mentioned that Uber was, I think, roughly 4.7% of mix at Olive Garden. But I am curious in terms of the concept's total off-premise mix, including to-go and catering.

Yes, Jeff, I think we were at 29%, and that's about 3 points higher than last year. I think last year was 26%. Recall, Q3 is typically high off-premise because of catering, we talked about earlier, and just generally a high off-premise quarter.

Okay. And then just same question from LongHorn off-premise mix?

I think LongHorn was 15% for the quarter, which was 1 point higher than last year, yes.

Next question is coming from Dennis Geiger from UBS.

Curious if any updated thoughts on tax rebate, stimulus benefits or kind of any latest expectation you have based on anything you've observed so far to date?

Yes, Dennis, it's still a little early. Most of the refunds are going to happen in basically March and April, but we did see some of the refunds coming in, in February. We know that per recipient, the tax refunds are higher. But I will say everything we know is contemplated our guidance. The last thing I'll say is we do know that when checks drop, we see the impact. And we had some of that impact in February, but it was pretty small amounts in February.

Great. Rick, and then just quick on the operational stuff and that speed of service initiative, which I know is longer term in nature. I feel like I've observed it in the Olive Garden. Just curious if any update to share there and where the guest and the employee feedback is, if anything to share?

Well, I'm glad you've experienced it at the Olive Garden. They really started to make a good push on it in this year's Q3. And they're doing some things in different restaurants to test initiatives to get the roadblocks out of the way for speed. And I would say that at Olive Garden, there's 50,000 servers. And so how do you convince 50,000 people that they have to change the way they do things and then help give them the tools to do that. And they don't have to be technology tools.

It's how do you get the soups out and breadsticks out faster, so the first course out faster? How do you ensure that you give the guest the speed and the pace that they want? Olive Garden is making some moves, and I think those moves are going to get even bigger in the upcoming quarters. And our other brands are following suit. Olive Garden is moving a little bit earlier, but the other brands are going to get there. And our goal is to get this experience in the time that the guests believe is ideal. And right now, the ideal time is a little bit faster than what all of casual dining is doing and it's a little bit faster than where we are.

So we're going to get to the ideal time. It's just going to take a while. And the guest impact of that will be seen 2 different ways. In the short term, it's going to be better throughput on the high-volume tough days. In the long term, it's going to be guests coming for us for occasions they weren't coming before. And that second one is long term and it's going to take a while. It's going to take time for the guests to realize that, hey, I've got 45 minutes to go to lunch in total, and I need to get in and other in 30. Can I do it? If they don't believe they can do it today, I want them to believe they can do it in a few years. And when they can, they're going to come back a lot more often. And I just used lunch as an example. It's not just about lunch.

Our next question is coming from Andrew Strelzik from BMO Capital Markets.

Apologies if I missed this, but you lowered the commodity inflation guidance from 4% to 5% down to 4%. What was the driver of that within the basket? And was that more 3Q related or 4Q related? And then I guess related to that, keeping the overall inflation of 3.5%, was there anything as an offset to the lower commodity inflation? Or is that just kind of rounding?

Yes, Andrew, it's really rounding because we see approximately 3.5%. But when you look at commodity specifically, there was some favorability. Most of the favorability that we have versus the prior estimate is in beef. I think we expected Q4 to be more in the double-digit range and it ended up being high single digits. And we had some offset on the favorable dairy that's helping partially offset. So I would say, those are the 2 drivers in terms of the change. Again, we're talking about tens of basis points of change because we were saying, I think, earlier 4% to 4.5% and now approximately 4% for the year. .

Got it. Okay. And then with the step-up in new units for next year, I know it's only a handful incrementally, but should we assume that most of those Olive Garden and LongHorn? Or is that a little more broad-based? Anything to call out there?

Yes, it's a little bit more. As we look at 75 to 80, I'd say 50 to 55 is going to come from those 2 brands, but then probably mid-single digits for the rest of the brands. So as you look at, I say, Yard House, Cheddar's and Chuy's will probably all have mid-single-digit unit growth, number of units. And then the rest will come from Fine Dining.

Yes, Andrew, and I would add that over the long term, you should see over time, not right away, you should see more of our growth as a percent growth coming from the smaller brands, so you think about Chuy's, Yard House, think about Cheddar's, they've got to be at the higher end of our framework or more because Olive Garden is going to be within that framework somewhere, probably at the lower end. So in order for us to get to that framework and to get a more balanced portfolio, those other brands are going to grow faster over the long term is what we said. So in the first few years in that, olive Garden is going to drive some of the growth.

Our next question today is coming from John Ivankoe from JPMorgan.

The question is on operations. And obviously, perfect is it possible in the real world. So I wanted to see the percentage of restaurants that you thought were operationally excellent today. And I think the converse of that is percentage of restaurants that you may have an opportunity to significantly improve your operational improvement, especially as the labor market might be more willing for you to do so.

John, I can't give you an exact number here. But let's just use the 80/20 rule. I would say 80% of the restaurants are operating great and maybe 20% have some room to improve. It's probably less than that. I will say that our dissatisfaction, which we measure guest satisfaction, but our dissatisfaction at our brands are pretty much at all-time lows. And I'm talking about low single-digit dissat in our big brands. And that is pretty amazing when you consider where dissatisfaction rates can be in casual dining and any dining or any...

Yes. definitely. And yes, listen, some people aren't going to be happy with Perfect. So low single digits is very good. Let me ask you a separate question in the interest of time. Greg asked about AI. And I think, specifically on a corporate level, you mentioned having AI-driven forecasts for general managers.

But within quick service a number of these different companies are talking about basically assistance for the general manager to help them do their jobs better even beyond forecasting, your labor allocation, food prep, what have you. Does that make sense for casual dining broadly? Does that make sense for Darden? And is that something you might be working on and see as an opportunity?

Absolutely, John. And I did mention that it's forecasting, but it is about food prep and labor management and other things. So I probably didn't put it all in there, but it's all part of that. And I think whatever we can do to make the general manager and the restaurant managers' job easier to get them out of the office and with our guests and with our team members is what AI can help do. What I did say is we won't have it to our guests are actually seeing it in their face. But we're using a lot of that stuff already.

Our next question is coming from Brian Vaccaro from Raymond James.

Just a quick one for me. It's really a question on the casual dining segment. And it's pretty striking how your outperformance gap has widened significantly in recent quarters. So maybe if you could just talk about this widening gap between the winners and losers in the segment. Are you starting to see a tick up in closures or think we might be on the precipice of seeing that? Or just any other thoughts you have on this widening gap.

[Technical Difficulty]

We do experience some technical difficulties. Just give me a moment, please. while I get the speakers back on the line, please. Ladies and gentlemen, please do not disconnect. We are reconnecting the speakers at this point. One moment, please, while we reconnect to speakers. Once again, we are experiencing technical difficulties, please continue to hold. Do not disconnect. We do appreciate your patience in this matter.

And Brian, you're still in queue, my friend, just stand by, okay.

Can you hear us now?

Yes, we can. please go ahead.

Okay. All right. All right. Sorry. I don't know if, John, you got my whole answer.

We didn't hear anything, Rick. This is Brian Vaccaro. Do you want me to ask the question again? Or did you get it all? .

No, I got it John, the question about AI for John. Did you get that answer? That's what I want to make sure.

Yes, we got cut off on that, I think. So you can finish up that maybe, and then I'll ask my question. .

I do apologize. Brian, your question was next, and then that's when we got cut off. Do you want to proceed from there?

You heard it all then, John. Okay. Go ahead, Brian. .

Okay. Okay. Great. So yes, just a question on the casual dining segment, and it's pretty shrinking how your outperformance gap has widened significantly in recent quarters. So maybe you could just talk about this widening gap between the winners and losers in the segment. And are you starting to see a tick up in closures or think we might be on the precipice of seeing something like that? Just any broader thoughts on this widening gap.

Brian, I would say I'm really pleased that, that gap keeps widening. There are winners and losers in every industry and especially in categories like ours, which aren't super high-growth category. There's always going to be winners and losers, and we plan to be winners. Are we seeing a lot more closings? I wouldn't say we're seeing more closing. We're seeing some bankruptcies, but that generally happens over time. We've been on the precipice of big closings for years. And maybe one day it will happen. I just don't know. I don't know what other companies are thinking about in their plans in the future.

But restaurants that have -- individual restaurants that continue to lose margin and continue to lose traffic, eventually, they can't pay the rent. So some of those will close and the good brands will kind of pick up the slack and add restaurants. But we're just going to keep performing the way we have no matter what the situation is out there. And if restaurants close, we'll be the beneficiaries.

All right. That's helpful. And then last quick one. Just Raj, sorry if I missed it, but where do you see your G&A shaking out for the year in your updated guidance?

Yes, Brian, I think we're still looking at approximately $500 million for the full year. Q4, that implies heavier G&A in Q4 for a couple of reasons. One, we have an extra week. Call it, that's roughly $10 million. And because of the growth we have, the most of the growth -- as you look at year-over-year growth on sales and earnings, we have pretty strong growth implied especially on the earnings in Q4. And so that leads to higher incentive comp. And so between those two, I think Q4 is probably -- you're thinking roughly about $30 million higher than Q3.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Courtney for any further or closing comments.

This concludes our call. I want to remind you that we plan to release fourth quarter results on Thursday, June 25, before the market opens with the conference call to follow. Thanks for participating.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Darden Restaurants Q2 Fiscal Year 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to Courtney Aquilla, Vice President, Finance and Investor Relations. Courtney, please go ahead.

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO.

As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in the filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is available on the Financials tab in the Investors section of our website at darden.com.

Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2026 third quarter earnings on Thursday, March 19, before the market opens, followed by a conference call.

During today's call, all references to industry results refer to the Black Box Intelligence Casual Dining benchmark, excluding Darden. During our fiscal second quarter, average same-restaurant sales for the industry grew 1.3% and average same-restaurant guest count decreased 0.4%. Additionally, median same-restaurant sales for the industry grew 1.9% and median same-restaurant guest counts decreased 0.5%.

This morning, Rick will share some brief remarks on the quarter, Raj will provide detail on our second quarter financial performance and share our updated fiscal 2026 financial outlook. Then Rick will close with some final comments.

Now I'll turn the call over to Rick.

Thank you, Courtney. Good morning, everyone. We had a strong quarter that exceeded our sales expectations as each of our segments delivered positive same-restaurant sales. Commodity headwinds were stronger than we anticipated as beef prices remained at historically high levels throughout the quarter. Our restaurant teams did a great job of being brilliant with the basics during the quarter, driving record or near record guest satisfaction scores across all of our brands.

At the Darden level, we continue to leverage our 4 competitive advantages to enable our brands to compete effectively and continue providing strong value to our guests. The power of our scale enables us to continue to price below inflation over the long term and not pass all the costs on to our guests while the breadth of our portfolio enables our brands to stick to their strategy, even if they are overly impacted by a single commodity.

We opened 17 new restaurants during the quarter and are on pace to exceed our planned openings for the full fiscal year. These new restaurants opened faster than planned, collectively contributing 40 additional operating weeks versus our plan for the quarter. This is a testament to the outstanding job Todd Burrowes and the entire development team, led by Marc Braun, have done to strengthen our pipeline.

Olive Garden delivered positive same-restaurant sales of 4.7% for the quarter, driven by the success of the Never Ending Pasta Bowl promotion and first-party delivery, combined with strong operational execution that led to all-time high guest satisfaction scores. For the fourth consecutive year, the starting price for Never Ending Pasta Bowl was $13.99. Preference was strong and refill rates reached a record high, demonstrating that guests continue to find abundance and meaningful value at Olive Garden in this environment.

First-party delivery, through our partnership with Uber Direct, continue to drive strong results. This channel attracts younger, more affluent guests to crave Olive Garden at home, value convenience and order more frequently. These guests have a higher check average than dine-in guests. Uber Direct sales represented 4% of total sales for the quarter, and approximately half of that was incremental.

As we have discussed on recent calls, across the portfolio, we are placing a greater emphasis on sales growth and reinvesting to drive long-term success. At Olive Garden, the success of first-party delivery is helping fund investments such as the addition of the lighter portion section on our menu, which features 7 existing dishes with a smaller portion and a lower price. This section is designed to give guests more choices and is offered in addition to the Olive Garden's regular portion sizes.

Olive Garden has seen a double-digit increase in affordability perceptions from guests who order from the lighter portions menu and an increase in frequency among these guests, which should help build traffic over time. 40% of restaurants offered this menu during the quarter, and they added another 20% of locations early in the third quarter. Olive Garden plans to complete the rollout system-wide in January.

As we begin the third quarter, the Olive Garden team is poised to build on their momentum. They are currently offering 2 fan favorites for a limited time, ravioli di portobello and braised beef tortellini. Thousands of Olive Garden fans requested the return of these iconic dishes, which included multiple online petitions to bring them back.

Turning to LongHorn Steakhouse. The team's ongoing commitment to their strategy rooted in quality, simplicity and culture continue to guide their success as they delivered strong top line momentum, driven by same-restaurant sales growth of 5.9%. Their relentless focus on executing every dish on their menu to their high standards was reflected in an all-time high [indiscernible] score for the quarter. Their ability to consistently operate at this high level is enabled by having one of the most experienced teams in the industry. In fact, LongHorn further strengthened their impressive retention by setting their record low for team member turnover during the quarter.

The investments LongHorn has made in food quality, combined with their grilling expertise, have built strong guest loyalty. And to further build on their leadership in food quality, LongHorn brought back a guest favorite for the holidays, their 14 ounce, 7-Pepper Crusted New York Strip with brown butter sauce, which was met with enthusiastic reviews by guests and social media influencers.

Same-restaurant sales for our Other Business segment grew 3.1% during the quarter, driven by strong performance at Yard House. During the quarter, Yard House's Oktoberfest event returned for the fifth year. This event continued to deepen guest engagement and drive results through limited-time menu offerings that strengthen Yard House's competitive advantages of a socially energized bar and distinctive culinary with broad appeal. The event also featured a $5 refillable beer stein that was a hit with guests, with all steins selling out within the first few weeks.

Also during the quarter, Yard House began rolling out first-party delivery through our partnership with Uber Direct. While the impact on total sales won't be as significant as what we've seen at Olive Garden, the team is pleased with the initial results and plans to continue rolling it out to additional restaurants in the third quarter.

Same-restaurant sales for the Fine Dining segment grew 0.8% for the quarter, driven by strong performance at Ruth's Chris Steak House and improving trends at The Capital Grille. As guests continue to seek price certainty, Ruth's Chris brought back its limited time offer, featuring a 3-course menu for $55. It was a key driver of sales and traffic growth and featured a new 8-ounce prime fit cut strip and 2 guest favorites, Stuffed Chicken and Salmon & Shrimp. Each entree came with a super salad, an individual side and a dessert.

The Capital Grille's Wagyu & Wine event returned during the quarter, featuring a choice of a Dave Phinney wine and Wagyu Burger for $35. This event delivered strong guest preference and sales momentum at The Capital Grille continued to grow throughout the quarter.

I am pleased with our performance as we move back into the back half of our year. Our brand teams have the appropriate plans in place and the power of Darden positions us well to win in a competitive environment.

Now I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. As Rick mentioned, the second quarter was another strong sales quarter for Darden with top line momentum exceeding our expectations. While elevated commodity costs, driven by beef, were a significant headwind for the quarter, we priced 130 basis points below inflation as we remain committed to providing strong value to our guests. This large investment in underpricing inflation resulted in restaurant-level margins being below last year. The near record beef costs have sustained longer than we anticipated and are likely to remain elevated into the third quarter, with some relief as we get into the fourth quarter.

In the second quarter, we generated $3.1 billion of total sales, 7% higher than last year, driven by same-restaurant sales growth of 4.3%, the addition of 30 net new restaurants and the acquisition of Chuy's in October of last year. Both our same-restaurant sales and same-restaurant guest counts were in the top decile of the industry again this quarter. Same-restaurant sales exceeded the industry benchmark by 300 basis points and the positive gap widened throughout the quarter.

Adjusted diluted net earnings per share from continuing operations of $2.08 were 2.5% higher than last year. We generated $466 million of adjusted EBITDA and returned $396 million to our shareholders this quarter by paying $174 million in dividends and repurchasing $222 million in shares.

Now looking at our adjusted margin analysis compared to last year. Food and beverage expenses were 90 basis points higher, primarily due to elevated beef costs driving total commodities inflation of approximately 5.5% for the quarter.

Restaurant labor was 10 basis points higher with total labor inflation of 3.3%. Restaurant labor in our comparable restaurants was favorable to last year, driven by productivity improvements that more than offset pricing below labor inflation. Restaurant expenses were 10 basis points higher as sales leverage was more than offset by Uber Direct fees and brand mix with the addition of Chuy's.

Marketing expenses were 10 basis points lower due to sales leverage. We had incremental marketing activity in the quarter that was funded by cost savings. This all resulted in restaurant-level EBITDA of 18.7%.

Adjusted G&A expenses were 60 basis points favorable, driven by leverage from sales growth and lower incentive compensation accrual as well as favorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this favorability is fully offset in the tax line. Our adjusted effective tax rate for the quarter was 13.2%, and we generated $243 million in adjusted earnings from continuing operations, which was 7.8% of sales.

Looking at our segments, all segments grew sales for the quarter, driven by positive same-restaurant sales. The high beef cost pressured segment profit margins at all of our segments, except for Olive Garden. Total sales for Olive Garden increased by 5.4%, driven by strong same-restaurant sales and traffic growth as well as the addition of 11 net new restaurants. The sales momentum continued from prior quarters with same-restaurant sales in the top decile of the industry and outperformed the industry benchmark by 340 basis points.

Olive Garden delivered a strong segment profit margin of 21.8% for the quarter, which was 30 basis points above last year, even with an approximate 20 basis points of margin investment related to the lighter portions menu and the continued impact of delivery fees.

At LongHorn, total sales increased by 9.3%, driven by same-restaurant sales growth of 5.9% and the addition of 21 new restaurants. The sustained sales and traffic outperformance resulted in same-restaurant sales and traffic in the top decile again this quarter. The LongHorn team is doing a great job of staying focused on their strategy and maintaining momentum despite elevated beef costs. Our measured approach in reacting to inflation resulted in pricing 320 basis points below inflation at LongHorn that resulted in segment profit margin of 16.2%.

Total sales at Fine Dining segment increased 3.3%, driven by positive same-restaurant sales and the addition of 3 net new restaurants. High beef costs also had a large impact on the brands in the segment, resulting in segment profit margin of 14.8%, 280 basis points lower than last year.

The Other Business segment sales increased 11.3%, with positive same-restaurant sales of 3.1% and the acquisition of Chuy's benefiting part of the quarter. The positive sales growth and the continued productivity improvements in multiple brands within this segment were not enough to fully offset the elevated commodity pressures from beef and the impact of delivery fee. This resulted in segment profit margin of 13.4%, 60 basis points lower than last year.

Turning to our financial outlook for fiscal 2026. We have updated our guidance to reflect the year-to-date performance, the evolving commodities environment and the expectations for the back half of the year. We now expect total sales growth for the year of 8.5% to 9.3%; same-restaurant sales growth of 3.5% to 4.3%; 65 to 70 new restaurant openings; total capital spending of $750 million to $775 million; total inflation of approximately 3.5%, with commodities inflation of 4% to 5%; and approximately 116.5 million diluted average shares outstanding. All other aspects of our guidance remain unchanged, including adjusted diluted net earnings per share between $10.50 and $10.70, of which approximately $0.20 is related to the addition of 53rd week.

We expect earnings per share growth in the third and fourth quarters to sequentially improve as the gap between pricing and total inflation narrows in the back half of the year. Specifically, for the third quarter, we expect earnings per share growth in the mid-single digits compared to the third quarter of last year.

In summary, we're pleased with our strong top line performance and continued industry outperformance this quarter. While our pricing strategy and amid elevated commodity costs has impacted margins in the near term, we believe it's the right approach to support our long-term success. As we move through the rest of the fiscal year, we remain confident in our ability to grow sales, manage costs and deliver value to our guests and shareholders.

Now I'll turn it back to Rick.

As I reflect on our performance, I'm reminded of the power of the platform we built over time and our ability to navigate whatever comes our way. When you look at our company, there are 3 key attributes that we believe make Darden a great company and a great stock.

First, our winning strategy grounded in our 4 competitive advantages and our commitment to managing the business for the long term has led to a long track record of success. Over our 30-year history as a public company, Darden has achieved annualized total shareholder return of 10% or greater for any 10 fiscal year period when considering Darden stock appreciation plus dividend yield.

Second, we have a clear road map to grow our portfolio of iconic brands, which includes 2 dominant brands, 3 high-potential growth brands and several balanced brands that are leaders in their respective categories. And third, our strong commitment to disciplined capital stewardship enables us to return capital to shareholders while making appropriate investments in the business for long-term success.

I'm incredibly proud of the results we continue to deliver for our shareholders, and we remain committed to executing our strategy to drive shareholder value now and for generations.

Finally, I want to take a moment to acknowledge the recent passing of Darden's first CEO, Joe Lee. Joe was the visionary leader whose leadership helped shape not only Darden, but the entire casual dining industry. I was fortunate to work with Joe. And one of the things that always stood out to me was the care and compassion he had for his people. He always said, if you take care of your people, they will take care of your guests. Those words remain fundamental to Darden's culture today and they are especially meaningful during the holidays.

Now is the busiest time of the year in our restaurants, and I'm so proud of our 200,000 team members who do such a remarkable job of nourishing and delighting everyone they serve. On behalf of our entire leadership team and the Darden Board of Directors, thank you to all of our team members for everything you do. I wish you and your families a happy holiday season.

Now we'll take your questions.

[Operator Instructions] Our first question today is coming from Brian Bittner from Oppenheimer.

Happy holidays, and congratulations on solid top line results. First question is on the lighter portions menu and the strategy as you rolled that out to 100% of the Olive Garden restaurants here in January. How impactful do you think this will be to sales just based on what you've seen so far? Is it something that we're actually going to be able to identify here from the outside? Or is it more of an impact to internal metrics, like value perception, et cetera?

Brian, it is an impact to internal metrics, value perception, affordability and the right portion size. But we will see some impacts to sales in a couple of ways. In the long term, as we said, we've got higher frequency in the guests that are ordering this versus the guests that aren't. And the guests that aren't are increasing frequency as well. So this is a good top spin.

In the short term, there will be a little bit of check mix. So as Raj mentioned, in the second quarter, we had about 20 basis points of mix from -- 20 to 30 basis points of mix from the lighter portion. As we roll it out to more restaurants, there will be a little bit of bigger mix impact, but that's being offset by other things we have with the strong performance of delivery. It might not be necessarily in mix offset but in total sales.

So we believe this is the right thing to do for our guests in the short term and the long term. And that's why we've actually accelerated the rollout.

And my follow-up is on labor and the margins on labor. Over the last couple of quarters, you've seen some labor margin deleverage despite growing comps over 4% the last couple of quarters. What do you attribute this to? Because historically, you've been able to better leverage labor margins on these type of comps. Is there any specific investments going into labor or mix issues within the brands worth pointing out? And how are you thinking about the ability to maybe better leverage labor margins moving forward?

Brian, this is Raj. So from a labor margin perspective, I think I said in my prepared remarks, if you actually look at our comparable restaurants, which is where we obviously had the same-restaurant sales growth, you have actually labor leveraging. We actually saw labor improve year-over-year. Even with us underpricing inflation, because labor inflation, as I said, was about 3.3%, our pricing was 2.6%, so we were able to offset that underpricing inflation and drive labor leverage through productivity improvements.

The reason you don't see it at the total Darden level is because of the growth over the last year and the acquisition of Chuy's. And so that's really what you got to look at the brand mix combined with some of the nuances. So it's more, I would say, idiosyncratic versus a systematic issue. We actually feel like as we go through the back half, you should start to see labor start to be more of a good guy.

Next question is coming from David Palmer from Evercore ISI.

Congrats on this, particularly this Olive Garden same-store sales result in the quarter, which should help with concerns about that brand lapping the tough comparisons coming up in the fourth quarter. But I'm wondering what does your guidance generally anticipate with regard to Olive Garden comps going into that quarter? Are you factoring any benefit from fiscal stimulus? And just generally, what do you think you'll be doing in general to help maximize your chances of keeping positive comps going over those tough comparisons? And I have a quick follow-up.

Yes, David, thanks for those comments. So from a same-restaurant sales perspective, if you look at our guidance, we talked about, for the full year, 3.5% to 4.3%, which essentially means roughly 2.5% to 4% in the back half, which would imply basically flat traffic at the midpoint of that range. I don't want to get specifically into the brands, but here is how we think about the total.

When we look at the -- take into consideration the first half of the year, some macro uncertainty, but potential consumer spending benefit from the fiscal stimulus in early 2026, and we have several initiatives at the brand levels to drive sales. We feel like the outlook we provided is reasonable. And so I think that's really all I have to say on that front.

The other thing I'm curious about is how you're thinking about pricing versus the path of inflation on beef and steak. Clearly, I think you said something about your pricing was trailing inflation by 3 points or more. I think I didn't quite catch that at LongHorn. So I'm just wondering about whether you think that -- does your guidance anticipate additional pricing at LongHorn through the rest of the year? Any thoughts on that?

David, so yes, on the pricing front, let me start at a bigger picture and then get back to LongHorn specifically. So we did price for the quarter, at the Darden level, was about 130 basis points below inflation. And we do expect that to cut in half by the time we get to third quarter and actually catch up to inflation as we get to fourth quarter, primarily because, one, we're taking some pricing, but also we expect inflation to come down, especially as we go into the fourth quarter.

And specifically at LongHorn, yes, I don't expect LongHorn to have underpricing by 320 basis points as you move forward. We'll take some modest price increases. But that's the benefit of the portfolio, right? We've talked about -- Rick mentioned this in his prepared remarks, that when there is some near-term pressure on one of the commodities, the portfolio provides the air cover to be able to kind of deal with this for the near term.

And so all that said, look, our bias is to minimize pricing. And we'll do what we think is right to protect the guest, even if that means some margin erosion in the near term. Primarily, we're talking about second and third quarter, because we expect margin growth as we get into the fourth quarter.

Our next question today is coming from Brian Harbour from Morgan Stanley.

Raj, can you maybe just talk more about the beef piece and what kind of gives you the confidence that starts to come down by 4Q?

Brian, I guess maybe let me start with what happened in the second quarter and how we're transitioning and how we see this. Because beef prices peaked in our fiscal second quarter, and they were well above the normal seasonal trends due to supply constraints that stem from packer cutbacks and halted Mexican cattle imports due to the screwworm outbreak.

We have seen retail demand destruction accelerate over the past few months. And we think November was actually down about 14% demand, volume down in steak. Prices have started to improve in recent weeks, and we've been able to take some coverage for the back half. I think this morning we showed about 45% coverage for the back half. And actually, as we're speaking, our team is getting a little bit more coverage. And so that's -- and the prices that were -- the coverage we're getting at is at the levels that are in line with our updated thinking, and all of that is contemplated in our guidance.

If you look at what happened in the near term, prices are expected to ease a little bit as beef production actually increased to near prior year levels the last couple of few weeks, driven by packer profitability and lower cattle prices. Now there are -- there is enough inventory on feedlot to support the recent production increase.

Okay. That's helpful. With first-party delivery, is 4% of sales, is that kind of where you're expected to be at this point? Or I guess what else do you think could continue to push that higher, if you, in fact, want that? Are you still seeing sort of sequential increases in delivery mix?

Yes, Brian, we're really pleased with 4%. As you recall, we didn't do any marketing -- you didn't know that, but we didn't do any marketing in Q2, and we're at 4%. I think the way that would increase is if we do some more marketing and get more people into it. But it's tracking pretty closely to our overall to-go business. And we feel good where that is with the incrementality we're getting. But if we want to drive that up, we have some options on the marketing side.

Your next question today is coming from Jacob Aiken-Phillips from Melius Research.

So I wanted to ask on Olive Garden delivery. You said about half of the 4% was incremental. But as delivery grows, do you expect the incremental share to hold? Or does cannibalization increase with penetration? And then what are you doing operationally to try to preserve the incrementality?

Jacob, I would hypothesize that as delivery grows, the incrementality will stay where it is or get better, because it's these folks that are ordering delivery, are higher frequency, and lower -- a little bit younger and more affluent. So as it grows, if it continues to grow, we would expect a little bit more incrementality, until it [ wraps ] on itself, and then it's a little less there.

And then just more broadly, you've talked about guests moving between channels depending on value or occasion. Have you seen any meaningful shift and where full-service or casual dining fits into the broader food spend mix?

Yes. As you see our sales performance in the casual dining industry itself, I think the industry has been growing faster than other segments, and we've been growing faster than the industry. So I would say that we're continuing to share from casual, and we're taking share from a little bit on the limited service.

Next question today is coming from Jake Bartlett from Truist Securities.

My first was about marketing. And marketing as a percentage of sales was down a little bit in the second quarter, I think roughly flat in the first. What are your expectations for the year? Is it still the 10 to 20 basis points? And I guess that would imply an acceleration. Maybe if you can confirm that, and then I have a follow-up.

Jake, so recall, we said in the last quarter, I think we talked about -- we got about, call it, roughly $20 million of savings in marketing with some of the work -- great work our teams did to go back and take a look at how we spend the dollars. So anyway, when we take that into consideration, that helped increase marketing activity even though the dollars were basically flat to last year. Now as we look at the full year, we're probably closer to somewhere around 10 basis points increase year-over-year. But if something changes, we'll update you next quarter.

Okay. And my follow-up was just on the macro environment. I'm not sure if I heard you kind of talk about what you're seeing from a consumer perspective, lower income, whether some of the weakness is bleeding up into the middle income. What is the baseline macro environment that you're basing the back half sales guidance on?

Yes. I would say that we see the same reports you see, we've said that before. But the consumer is still resilient. They're being cautious. As we've said a few times, the weaker consumer sentiment doesn't necessarily translate into reduced spending. During the quarter -- so this is what's happening in our brands. During the quarter, our casual brands saw an increase of visits year-over-year from guests within middle to higher income groups. So it hasn't kind of moved up for us to the middle income groups with the largest growth coming from our higher income households.

We did see strong traffic growth from guests 55 and over as well, so on the demographic side, but there was a little pullback in those earning less than $50,000 in the casual brands. But we'll -- I'll end it with the way we always talk about it. We know Casual Dining is the #1 category where consumers intend to treat themselves and indulge. And when they're kind of thinking about where they spend their hard earned money, they want to go to a place that they get a great value and a good experience for a great price. So we'll continue to focus on delivering an excellent experience and deliver value for every guest that chooses to dine with us.

Next question today is coming from Andrew Charles from TD Cowen.

Raj, just curious, with the updated same-store sales guidance, does that embed any incremental pricing? You talked about the higher inflation forecast and how you're not going to fully price to offset inflation. Just curious if there's an increased pricing factor contemplated with the updated guidance.

Yes, Andrew, there is a little bit of increase in price. As I said, we actually expect our pricing to be closer to mid-3s in the back half, for the full year to be close to 3%. So if you think about where we started the year, I think we were 2.2% in the first quarter, 2.6% in the second quarter. So there's a little bit of an increase there that we incorporated into our guidance.

Very good. And Rick, in the past, you've laid out your hesitations around listing Olive Garden on third-party delivery. I'm curious if any of those pieces around things you've laid in the past, like data sharing, tip sharing, the ability to throttle it on and off, you believe are better addressable is ultimately contemplating the decision to add Olive Garden to third-party delivery?

Yes, Andrew, I would say the 2 big third-party delivery providers know what our concerns are on third party. And as long as we get a solution for those concerns, then we would look at it. It wouldn't make sense for us not to look at it, but we really do have some concerns and they know what they are.

Next question is coming from Jeffrey Bernstein from Barclays.

My first question is just on the comp commentary. Just I think, Raj, you mentioned that the favorable gap to the industry improved through fiscal 2Q. I was wondering whether you would assume or you are assuming that that continues. Maybe you have some quarter-to-date third quarter numbers. But your assumption for the back half of the year in terms of maybe a further widening of that gap? And then I had a follow-up.

Jeff, look, we did see an increase in our performance and we've said historically, when industry slows down a little bit, we have widened the gap. But as we look at the back half, we don't really start with what the industry numbers are. We actually look at a lot of what's macro and then all the things I mentioned about the brand initiatives because industry is a representation of some of it, but not all of it. And so we just -- we do it differently. And so I don't want to comment on what we expect the gap to be going forward.

Understood. And then the follow-up is just on the Uber addition. It sounds like Yard House is next up, third in line, therefore, behind Olive Garden and Cheddar's. I think you mentioned it's not likely to be as meaningful of a contributor as it is more of a bar type concept. But just wondering where LongHorn sits or where -- I know you don't dictate it, so where perhaps management of LongHorn specifically think about it. It would seem like that's the next big brand that could have more of a meaningful contribution, but offsetting that, I know often discuss that maybe their food doesn't travel as well. So just wondering your updated thoughts in terms of whether LongHorn could add 1P delivery.

Jeff, I'll start with the Yard House part. We don't anticipate it to be as big an impact because Yard House is a smaller brand, not just because they're a bar, but they also do a little bit lower to-go business. So if you think about when we implemented it at Olive Garden and then at Cheddar's, the percent delivery lined up pretty well with the percent to-go. So Cheddar's right now, I think, is doing about 15% off-premise. LongHorn does about 15% off-premise. So it's not a small off-premise business.

And we do know that when guests order at LongHorn off-premise, the mix is different. So they order more chicken and seafood and a little less steak than they do in the dining room. So it's something that LongHorn is learning from the other brands to see if it makes sense for us to go on to Uber Direct. And if it does, then we'll start testing it. But we don't have anything to say about that right now.

Your next question today is coming from Sara Senatore from Bank of America.

I was interested just on the topic of value. It sounds like that's resonating even actually in Fine Dining. You talked about these sort of combos and these -- and the $55 at Ruth's. I guess, are you bringing in different customers to the -- across the brands? I mean I know you mentioned maybe some softness in below $50.

But if I just think about -- while the pricing may be up low single digits, there's presumably some negative mix and the sort of entry-level price points are lower across -- it sounds like across maybe all your brands. So are you seeing different customers come in for that? Or is it just more increasing frequency among the customers you do have as you offer these kinds of very accessible price points?

Yes, Sara, most of our promotions really help our core customers. We are seeing a little bit of an increase in new customers or customers who haven't seen in a while when we do these. But we actually see an increase in our core, too. So it's not targeted to get new -- for new people, it's targeted for anybody. And we do see a little bit of a mix at Ruth's Chris when we do the $55 prefixed menu. But that's because guests are looking for certainty and price certainty. And so that's what we're giving them. And it drives quite a bit of volume at Ruth's Chris, and it's a good thing for us. It's not -- it's a profitable deal for us.

Great. Understood. And then just on a follow-up, Raj, you mentioned, I think, the demand has declined about 14% in November for beef. I guess, do you -- are there certain kind of rules of thumb about what that would mean for beef prices? Just as I think about it, it seems like this is the first time we've really seen like retail demand pull back. So just trying to understand how that translates into kind of the market prices for beef.

Sara, I would say, the last few months have been different from what we would have seen historically. Historically, there was retail demand destruction. You saw the prices come down sooner. I don't want to get into a lot of the dynamics, but there is something with how the -- between the packers and how things are working. It seems like there is some constraining of supply. But it's hard for us to really know what's happening. Maybe they have other challenges.

But -- so it's really going to be a function of how much production is out there, right? And so, yes, I don't think we have a good crystal ball on that. But I did share, we are seeing some green shoots, and that's -- that are actually starting to see the coverage that come more in line with our expectations.

Our next question is coming from Jim Salera from Stephens.

Raj, I wanted to start and maybe ask if you could us the comp components for Olive Garden breaking out particularly mix and traffic? And then as an add-on to that, are you able to give us any details around the type of consumer that you're seeing in the near term with Olive Garden given that it's a well-established brand, but they have a lot more avenues that consumers can access the brand? Now I wonder if that has any noticeable changes in the type of guests, whether it's income level, age, group sizes. Anything like that you could provide would be great.

Yes. So from an Olive Garden breakdown, the comp -- the same-restaurant sales were 4.7%. The traffic, as we measured, was 1.7%, but when you add the catering of 1.1%, that's basically a traffic growth of 2.8%. And the pricing was 2.6%, so there was some negative mix, but also there was some help from Uber Direct fees, but that's the mix of the traffic and the sales.

From a guest perspective, I think Rick already addressed it in the script or in his prepared remarks about we're seeing more increased growth across all income levels above $50,000. And we're seeing a little bit more growth from the -- as we move up the age spectrum, there's a little bit of a pullback, the below $50,000 and lower -- our younger folks, but that's really it.

Okay. And then if I could shift gears a little on LongHorn, continued outperformance there, I think, value steak in general. Is there any way for us to maybe match that up with the outperformance in Fine Dining as well? Because I think a lot of people expected the value to continue to do well, but were surprised by the outperformance in Fine Dining. I don't know if there's a read to make there, if there's some maybe aspirational guests that are accessing Fine Dining, or if we just reached a point where we've lapped enough and the sales base is lower than we can get back to positive on Fine Dining?

Yes, Jim, I'll start talk with LongHorn. I think LongHorn, their outperformance is driven by years of what they've done focusing on their strategy: continue to price a little below inflation, invest in their food and cook their stakes better. And that's been very helpful for them.

Now I think they may be benefiting right now with such a high price of beef that consumers are actually going to LongHorn instead of eating at home. And when we talk about the $50,000 consumer, under $50,000, I think LongHorn grew under $50,000. So it's interesting, they have a higher check than Olive Garden, but they grew their guest count at an under $50,000 range. That could be because such a disparity between how much you have to pay in the grocery store versus what you pay in the restaurant, which could be driving some of the traffic growth. But it has impacted their margins.

So on the Fine Dining side -- I'll finish with one other thing at LongHorn. I still think they might be taking a little bit of share from Fine Dining. That said, Fine Dining had a good quarter this quarter. Its trends are improving. And it may be that we're getting closer to kind of clearing everything out that happened during COVID. We're seeing some good value, some good performance at Ruth's Chris. Capital Grille had a good quarter.

But we don't -- it's not over yet. We've got to see that continue for a while to feel really great about it. We feel good about it. We want to feel great about it. So as we think about what's happening in the industry, we continue to say that as long as we do the things that we're supposed to do, provide a great value, cook the food properly, give a great experience to our guests, they're going to be coming back.

Next question is coming from Lauren Silberman from Deutsche Bank.

Great. Can you just help unpack what you saw in terms of cadence of actual comp as you move through the quarter? I know there's a lot of volatility and noise in the industry. And then anything that you can provide on what you're seeing quarter-to-date as well as differences that you may be seeing across regions?

Lauren, I don't want to get into the quarterly cadence of comps, but I'll just say from an earnings perspective, I think we kind of provided the high level how we're thinking about it. And it's really more driven by pricing. As I said, pricing gap to inflation is expected to cut in half as we get into third quarter as we take a little bit more price and inflation actually is probably closer to the Q2 level.

But then as we get to the fourth quarter, we expect pricing to go up a little bit more and inflation to come down a little bit more. And so that's kind of why in -- we talked about what we expect earnings growth to be more in the third quarter to be in the mid-single digits. But I don't want to get too much into the quarterly sales comp.

Okay. And then just on stimulus, there's some excitement about stimulus into '26. If you go back to prior fiscal stimulus, which brands tend to benefit the most in your portfolio? And do you see it through traffic or average check?

Yes, Lauren, I would say all of our brands benefit from stimulus, depending on how it comes in. But I will say that if you think about the folks that benefit from no tax on tips and no tax on overtime, they may be a median income and lower. So that could help our brands like Olive Garden or Cheddar's or Chuy's that have a little bit higher mix there. But all of our brands benefit when there's stimulus that gives more money to consumers.

Next question is coming from Peter Saleh from BTIG.

I just wanted to follow up on the conversation around the marketing efforts around Uber Direct. I think you guys mentioned you didn't do any marketing this quarter. Can you just talk about that decision? And what's the game plan in the back half of the year? Are you planning on increasing marketing around that effort? Any thoughts on that would be helpful.

Peter, the reason we didn't do any marketing on Uber Direct in the second quarter was we had just kind of done some in Q1, and we had other things that we wanted to spend our marketing dollars on, particularly Never Ending Pasta Bowl. Never Ending Pasta Bowl is our best promotion at Olive Garden. And I think others had some concern that we were wrapping on Never Ending Pasta Bowl on how that would go. And as Raj mentioned, our gap to the industry grew every month in the quarter, even though Never Ending Pasta Bowl was kind of coming towards the end of the promotion period.

So we think that we would -- we're better off spending marketing dollars on Never Ending Pasta Bowl than we are on delivery at that time. I can't comment on if we're going to do it in the third or fourth quarter, but it's something that people will see pretty quickly if we do.

Great. And then just following up, my last question, on tariffs. Is there any sort of update on the impact there, tariffs, on either commodities or on development costs? I think in the past, you had mentioned there was maybe a slight impact on development cost from tariffs. Just any update on that front would be helpful too.

Yes, Peter, not a lot. I mean at this point, part of our commodity inflation includes all of the tariff impact. It's in the tens of basis points as a percent of sales, which is in line with what we had indicated earlier. From a construction cost, I'd say we're still -- from the data we're seeing, it's in that mid-single-digit impact. No change there.

Next question is coming from Jon Tower from Citi.

Maybe going back to the small plates that you're rolling out now and getting it done by January. I'm just curious, have you tested any media behind it? What's your intention behind doing that? Obviously, you're seeing a bit of negative mix now that you've rolled it out to some of the stores. So how are you thinking about communicating it to guests? And obviously, there could be some pressure on the business if you were to market it to them. So how are you thinking about the trade-off there?

Yes, Jon, currently, we're not expecting or we're not thinking about marketing it to our guests because it's doing pretty well on the menu the way it is, and it's driving a little bit more frequency and the guests should order it. And maybe the word of mouth from other guests will do that. But our plans right now don't include marketing it, but those could change.

Okay. And is this something that will be available to delivery, so 1P, guests as well?

Yes. The way we think about 1P is if it's on our menu, it's probably available for delivery.

Okay. Cool. And then just on the unit growth update, it's nice to see you guys taking up the numbers by another 5 potentially for the year. Can you just give us some color on where you're seeing those numbers or what brands it's coming from? And then is this just a pull forward from what you were thinking for fiscal '27?

Yes, Jon, we're talking about 5 restaurants, it's a couple of brands that are driving that. So without telling you exactly which one, because that can change throughout the year where we end up at the fiscal year, so we'd say 65 to 70. It isn't necessarily a pull forward from next year that doesn't get backfilled by other brands. So we don't anticipate that this year's growth a little bit ahead of plan will damper next year's, because our teams are out there working hard, going and finding sites and getting deals done faster than they had before.

And as you recall, in the June call, I said that we are farther along in development than any point in any June we've had in years. So we feel really good about it. And that team is still doing great work to get us more sites.

Next question is come from Jeff Farmer from Gordon Haskett.

With all the pushes and pulls, how are you guys thinking about the fiscal '26 restaurant level margin versus fiscal '25?

Jeff, I would just refer you back to the long-term framework, and we've talked about that we've put out at the beginning of the year, and we said we're focused on earnings after-tax margin of flat to positive 20 basis points. And I think our guidance still implies we're going to be in that range, give or take 10 basis points, but that's kind of how we look at it.

We don't want to get too bogged down on any one level of -- one line item. We manage the business holistically to get a good return to the investors. And I would encourage you all to look at it through that lens.

Okay. And then with your top line exceeding expectations for the second consecutive quarter, I appreciate that there's some incremental costs or greater than expected costs that you guys are incurring. But are there areas where you're increasing reinvestment relative to prior expectation with that better top line performance?

Yes, Jeff, we are making investments with these incremental sales and, primarily, it's in the lighter portion section on the Olive Garden menu, we are rolling out faster than we anticipated. We had originally expected to roll it out over the fiscal year and maybe even into next fiscal year, but it's doing so well. And the -- and delivery is doing so well, we just decided to keep going. And then we're also making big investments and still pricing below inflation.

Next question is coming from Dennis Geiger from UBS.

I just wanted to ask the latest on the operational efforts or the speed of service efforts. I know it's a longer-term initiative that you've touched on previously. But just any updates on the implementation of that or how you're thinking about the plan?

Yes, Dennis, every brand is implementing it a little differently depending on what they need to do. I would say that some brands are getting their speed up faster than other brands. But all brands are making some improvement. And again, this is going to take a lot of effort and a lot of time to convince a group of folks that they have to do something a little differently than they thought, and to help the teams understand that the guests want things faster.

And we don't really get a whole lot of complaints about being too fast, we get about being too slow. So those are the things that we have to keep doing. This is changing people's habits, and that takes a while, but we're seeing some improvement.

Great. Just to follow up on that. I know the genesis of the plan is to improve the customer experience, et cetera, more so than table turns, I believe. But an obvious benefit over time if this goes well, presumably, is your table turns move notably and maybe there's a traffic benefit that you see from this. Is that fair?

Absolutely. I think especially during peak times, if we can get speed better, then table turn should speed up and it would increase traffic during those times. But I think it will increase traffic long term anyway because people are getting the experience they want at the pace they want, and they'll come back more often.

Next question is coming from Andy Barish from Jefferies.

Could you give us just kind of a Cheddar's brand update? And not a lot of call out there, I imagine there's some pressure just given the success of some big bar and grill concepts right now. But just kind of where that stands and what you might look at as a key for more unit growth there.

Yes, Andy. Cheddar's is part of the Other segment. The Other segment also grew same-restaurant sales. And Cheddar's didn't disappoint, so they grew their same-restaurant sales as well. Even if other bar and grills are kind of out there talking a little bit more -- a lot more about value, Cheddar's is still doing what they do: providing great everyday experience with wow pricing.

The other thing that we've been able to do over the years is to significantly improve their operational turnover. So if you think about turnover when we bought Cheddar's, it was well, well above the industry average. And now it's below industry average. It's much closer to Darden averages for turnover. And that means a better experience.

And so we do believe that Cheddar's is one of those brands that I mentioned earlier that have high potential for growth. And what I would say is I want to remind everybody that we think that growing way too fast is an issue in the industry. So our growth rates for any of our brands won't exceed 10%. But for Cheddar's, this year is the year that they're kind of finalizing and building their pipeline, and so it might take a year or so before you start seeing a little bit more growth at Cheddar's.

Appreciate it. And then Raj, can you just go through -- I missed some of the Olive Garden, the components of same-store sales?

Sure, Andy. So the traffic was -- as we measure, was up 1.7%. Catering was another 1.1%, so I'd say really the traffic growth was 2.8%. And then the check was 2.6%. Yes. And then -- not check, sorry, pricing. Pricing was 2.6%. So if you look at it through that lens of 2.8%, then the implied check would be 1.9%.

Next question today is coming from Chris O'Cull from Stifel.

Rick, is there a plan to take the smaller portion approach with any of the other brands?

We do have another brand testing smaller portions of current menu items, but they're doing it in a different way and not as many items. So there are some brands that lead to being able to do different kind of portions based on the protein, and so other brands already have it. So you think about LongHorn has different sizes for some steaks, they're testing a little bit more, they have different sizes for their chicken tenders, so does Cheddar's, I believe. So we do have other brands doing it, but not at the same way. We don't have a separate section on the menu for it.

Okay. And then just based on the company's research on GLP-1 usage, do you see a need to make any additional changes beyond the smaller portions to kind of accommodate these consumers?

We're continuing to monitor the usage and the impact on eating and drinking. It's impacting drinking more than it's impacting eating, especially in our kind of brands. The data that we see is they're basically pulling back on some restaurant visits, but more so limited service.

That said, the lighter portion section is helpful for that. But we aren't doing the lighter portion just for GLP-1. We're doing it to give all of our guests more options. It just so happens to benefit the consumers that might want smaller portions that are on GLP-1 medications. And we have a lot of options like that in all of our menus.

Next question is coming from Andrew Strelzik from BMO Capital Markets.

I wanted to ask about your comments that the Olive Garden delivery was tracking with the broader off-premise business. Does that surprise you at all? I mean it's supposed to be a different guest that's as incremental as it is earlier in the life cycle. Just kind of curious for your perspective on that.

No, Andrew, it doesn't surprise us. They're more similar to off-premise guests than on-premise guests. So if you think about Olive Garden and the percent of sales they do with to-go, and you look at the ratio of what they do off-premise versus delivery, then I would expect that same ratio to happen with other brands, because they are more similar. Our off-premise guests that are not delivery are also a little bit higher frequency than on-premise guests. These are just the delivery guests are even higher frequency. So it wasn't surprising that the same kind of mix happened at other brands.

Okay. All right. And then just curious on the change in CapEx guide. Is that all the new units? And with the updated new unit guide, you're close to the low end of your updated range? What's the realistic time line to start pushing kind of higher -- towards the higher end of that range?

Well, so let's start with the CapEx part of it. So CapEx is really a function of some of the openings happening sooner than we planned at the beginning of the year. And again, kudos to the team for doing a great job on that. But it's also a function of what we're -- as we fill up the pipeline for next year, because the spending this year happens for some of the restaurants opening, especially in the front half of next year. So we feel good about the pipeline.

We just updated our framework to reflect 3% to 4% unit growth contribution from new units. And we think we're going to be in that range based on what we provided here.

Next question is coming from Danilo Gargiulo from Bernstein.

Stepping back and looking at the long term, you have been outperforming the industry for quite some time. And I was wondering if you were to decompose this outperformance versus the industry, which consumer cohorts are you winning the most? And I don't mean just by income level, but also maybe occasions, age. And as you're maturing your brands, how do you see this outperformance to continue?

Yes, Danilo, I would say that granularity of data on where we're outperforming more is a little bit harder to get because we don't know where other parts of the industry are getting their guests. We do know that we've had, over the last couple of years, a little bit better performance in our higher-income consumer than not. But I would say during COVID, we had a great performance in our lower-income consumer.

So it's really hard to say where we're getting the outperformance versus the industry. I can just tell you we've got a great portfolio of brands that meet all the different consumer needs. And so if a higher-income consumer is feeling great, we've got great brands for them. If lower-income consumer is feeling great, we've got great brands for them. So that's the beauty of our portfolio and that's what makes us pretty different than most.

And then I want to follow up on your comment on GLP-1. Specifically, I think your brands have enough flexibility within your menu to offer different options for consumers and solve different needs. I was wondering if you can comment also on how the spending behavior is changing, not just on the alcohol mix, but also on the eating behavior, whether you see like a greater mix of protein, fewer desserts and sides. And what's your best estimate on how this is going to be evolving over time? And how it will be impacting the overall spending behavior in the industry?

I would say the only real big change in mix that we're seeing is in alcohol sales, and we've been seeing that for a little while. And you can see that more in the Fine Dining brands and the Other brands. We're not seeing a dramatic -- we are seeing a little bit of mix in appetizers and desserts, probably from some folks that are on GLP-1 drugs. Because I think when people get on GLP-1s, they also want to try to change their lifestyle and they want to eat a little less fried food. And if you think about most restaurants, appetizers are fried. So that could be part of it.

But we've got a broad menu, and we are going to continue to monitor what's going on with folks on GLP-1 drugs. We believe we have great brands that have a lot of protein, which is something that GLP-1 users want. And I would say we've got a great brand that was designed 20 years ago that is in the sweet spot of GLP-1s, that's Seasons 52. So we've got a lot of things that we can offer folks on those medications and anybody else. So I don't want to focus just on GLP-1 users. We've got a broad portfolio that can serve any guest needs.

Next question is coming from Gregory Francfort from Guggenheim.

Raj, can you just maybe give us an update on where turnover sits either for Olive Garden or your total system for labor? And do you think we're in a different environment now than we were over the last few years? And what that might look like going forward?

Greg, I would just say the turnover is actually pretty low. We continue to be better year-over-year. I think we're still trending probably double-digit increase versus prior year from a turnover -- essentially lower turnover. And so I think for most of our brands, we're probably -- this is like a record low, yes. And so from that perspective, we feel really good about that environment.

And I think the other factor I'll mention is our hourly wage rate -- inflation on the hourly wage was about 3%. This is kind of lower than what we saw even before COVID. We used to be in the mid-3s. So to be around 3% tells you that the labor environment is actually pretty solid for us.

Our next question is coming from Brian Vaccaro from Raymond James.

I just had a question on Olive Garden. And Rick, you spoke to the strength of Never Ending Pasta. I was just curious, was the sales mix up on NEP year-on-year? And are you seeing any changes in the mix, kind of the entry-level price point versus the higher tiers? And could you comment also just on the lighter portions? I think the sales mix was running mid-single digits last time we heard. Have you seen that increase the longer it's been in the market?

Yes, Brian, I would start with the Never Ending Pasta Bowl. We did see a little bit more mix to Never Ending Pasta Bowl, so a little bit more preference in it. We did see a much stronger refill rate. I think we had a record refill rate potentially. And we did see a little bit fewer buy-ups to the higher protein -- the more protein. But it could be because we've got more guests coming in and because the refills were so high, they were getting great value.

In regards to the lighter portion menu, still about -- still somewhere 1.5%, but we're around. So it could be up 10 basis points, down 10 basis points here or there. As we talk about frequency growing, it's going to take a while for that frequency to really make a meaningful impact in that mix. And we feel good about that mix.

All right. That's helpful. And then Raj, just a quick one on G&A, if I could. It came in lower than we were expecting here in the current quarter. I know there's quarter-to-quarter volatility. But could you just give a quick update on what -- where you see G&A shaking out within your fiscal '26 guidance?

Yes, Brian, I'd say we're still probably around -- when we look at the full year, probably going to be still close to $500 million. Q4 is probably $15 million to $20 million higher than Q3. Part of it is because of the 53rd week and some seasonal stuff. But really no change to the total guidance for G&A.

Next question is coming from Jim Sanderson from Northcoast Research.

Just wanted to follow up on the lighter portions at Olive Garden. Anything to call out that's notable about the demographics of the consumer that is purchasing this light portion, whether by gender, household income, daypart, anything like that?

Jim, we're still doing some more work on that. You think about -- we haven't had it in all the restaurants, and we're talking about 1.5% of sales. So if you think about the number of tokens we have for that, it's going to take us a little bit of time to get that work.

All right. And just another quick follow-up. Anything to comment on with respect to holiday bookings? Are they exceeding your expectations for the current time frame, maybe in line? Just anything you would provide as a test on how the consumer is behaving.

Yes, Jim, two things. One, in regards to Thanksgiving, which was already happened, we had record Thanksgivings in our Fine Dining brands, our reservation brand, and our holiday bookings are strong.

Next question today is coming from John Ivankoe from JPMorgan.

So the question is on immigration broadly, and I was hoping we could touch on a couple of maybe related topics to that. Firstly, I heard the comments, obviously, that labor inflation is now running lower than even it was pre-COVID. So that must mean that your supply of labor overall is very good. But I wonder if there's anything happening kind of below the surface that maybe in certain restaurants, certain pockets that labor markets have kind of turned over, but you've just been able to replace the people that perhaps would have left or maybe gotten competed away? So that's kind of the first question.

And then secondly, make a comment, if you can, in terms of pockets of demand. I think I remember you're using the word that there may have been some ripples of kind of demand being affected in various markets. So I wanted to see if there was a change there.

And then the third point, there's a comment made on beef packers that maybe were constraining some supply. I wonder -- and this just actually came into mind when you said that, if there may be kind of an immigrant worker situation on the packer side, if that could potentially be a leading indicator for other types of industry. So just overall your view on those broadly important topics.

Jim, thanks. I'll try to get those answers and maybe Raj can jump in too. On the immigration front, on our team members, we really haven't seen anything material on any restaurants turning all of their team members for those reasons. As we mentioned, we've got record retention. So there might be a restaurant or two that had a few folks, but it's not something that we're too worried about.

In regards to the packer situation, we can't comment on what's going on and why there might be some supply constraints. I don't think it's necessarily driven by labor, although one supplier did close one of their plants. I don't know if that was a labor issue or not. They didn't comment on why.

And then Raj can talk about the sales impact for us.

Yes. From a regional difference, John, I'd say for the quarter, when we look at second quarter, Midwest was our strongest growth. And then I think we had -- we saw actually softness in sales in New England area, and then Pacific Northwest. Other than that, most others were pretty close to the median. Even Florida and Texas, which were lagging, were actually -- were still below the company average, but they were a little bit closer to the company average than they were a quarter ago.

Next question is coming from Christine Cho from Goldman Sachs.

Follow-up to the earlier question, the Casual Dining outperformance. With many other segments kind of playing catch-up on value, could you kind of talk about your plans to better communicate value to consumers? Any new or expanded marketing approaches you are planning for the back half? And additionally, I think, Rick, you mentioned that you have no imminent plans to market the lower portion size menus. But what will make you change your mind?

Yes, Christine, competitively, I don't want to get into too much detail about our plans, especially for each brand. We're disciplined and we remain committed to our marketing filters. And as you all remember, the marketing filters, does the message build brand equity? Is it simple to execute and not at a deep discount?

And so we're going to continue to pull the right levers like we did with Never Ending Pasta Bowl, Oktoberfest at Yard House, the 3-course menu at Ruth's Chris, Wagyu & Wine at Capital Grille. Those are all things that elevate everything we talk about without a deep discount. When you look at our promotional calendar last year for the back half, I wouldn't anticipate it's going to be significantly different than that.

Now on the lighter portion menu and marketing, yes, right now, we have no plans to do it. If that changes, we'll have to find the right way to communicate it. But it will have to be something that we feel like we've got a great way to communicate it to explain what it is for consumers that don't really know that section of the menu. But I think that there's a better way to do that, which is just let the consumer tell their friends. And so right now, we don't have plans to do it. But if that changes, it's because Olive Garden came up with a great way to talk about it.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

That concludes our call. I want to remind you that we plan to release third quarter results on Thursday, March 19, before the market opens with a conference call to follow. Thank you for participating on today's call, and happy holidays, everyone.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Darden Fiscal Year 2026 First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions]

I'll now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin.

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO.

As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com.

Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation.

Looking ahead, we plan to release fiscal 2026 second quarter earnings on Thursday, December 18, before the market opens, followed by a conference call.

During today's call, I'll reference to the industry [ Chuy's ] results refer to Black Box Intelligence Casual Dining Benchmark excluding Darden. During our fiscal first quarter, average same-restaurant sales for the industry grew 5% and average same-restaurant guest count grew 2.6%. Additionally, due to the continued divergence between average and median results, we are sharing that median same-restaurant sales for the industry grew 3.3% and median same-restaurant guest counts grew 1.3%.

This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our first quarter and share our updated fiscal 2026 financial outlook. Now I will turn the call over to Rick.

Thank you, Courtney, and good morning, everyone. We had a great quarter with same-restaurant sales and earnings growth that exceeded our expectations. For the first quarter, 3 of our 4 segments generated positive same-restaurant sales and traffic growth. The strength of our results is a testament to the power of our strategy.

Across our portfolio, our restaurant teams remain focused on being brilliant with the basics through culinary innovation and execution, attentive service and an engaging atmosphere, all enabled by our people. And at the Darden level, we continue to strengthen and leverage our 4 competitive advantages of significant scale, extensive data and insights, rigorous strategic planning and the quality of our employees to further position our brands for long-term success.

Olive Garden same-restaurant sales grew 5.9%, driven by compelling food news and the continued growth of first-party delivery. Early in the quarter, Olive Garden's marketing highlighted their Create Your Own Pasta platform from the core menu. Their television creative featured a new spicy 3-meat sauce and Bucatini pasta starting at $12.99. This new sauce taps into guest evolving tastes for bolder, more flavorful offerings. It was well received and helped drive a significant increase in preference for the Create Your Own Pasta platform.

Olive Garden built on the momentum of bold and spicy flavors by debuting Calabrian Steak & Shrimp Bucatini for a limited time during the quarter. The dish exceeded expectations and quickly became a new guest favorite, ranking among the top 10 entrees for preference.

First-party delivery through our partnership with Uber Direct is helping capture younger, more affluent guests who value convenience and crave Olive Garden. This represents a significant incremental opportunity for the brand as these guests have a higher check average and typically do not use Olive Garden for an in-restaurant dining occasion.

Olive Garden's advertising featuring 1 million free deliveries concluded in the first quarter with all the free deliveries being redeemed. Average weekly deliveries doubled throughout the campaign. Following the campaign, delivery order volume has remained approximately 40% above the pre-campaign average. The team will continue to promote delivery across a number of channels.

On our last call, we talked about putting a greater emphasis on sales growth and reinvesting to drive long-term growth. One of the ways we're doing this at Olive Garden is by strengthening affordability on the menu to give guests more variety at approachable price points.

During the quarter, Olive Garden began testing a lighter portion section of the menu, featuring 7 of their existing entrees with reduced portions and a reduced price. These items available at dinner and all day during the weekend still offer abundant portions and come with Olive Garden's Never Ending first course of unlimited breadsticks and unlimited soup or salad.

40% of Olive Garden restaurants currently offer this menu and the initial response from guests has been encouraging, with affordability scores increasing 15 percentage points and high satisfaction with portion size.

I have confidence in Olive Garden's initiatives for the year as well as their 5-year road map to sustain long-term growth and success.

LongHorn Steakhouse grew same-restaurant sales by 5.5%, driven by continued adherence to their strategy rooted in quality, simplicity and culture. The team continues to raise the bar in food quality by consistently executing every dish on their menu to their high standards. This is reflected by LongHorn's #1 ranking among casual dining brands -- major casual dining brands within Technomic's industry tracking tool for food quality, service, atmosphere and value. I'm really proud of the operational consistency at LongHorn and the work the team is doing to maintain their momentum.

Same-restaurant sales for our Other Business segment grew 3.3% during the quarter, driven by strong performance at Yard House, Cheddar Scratch Kitchen and Seasons 52. During the quarter, Yard House strengthened their competitive advantage of distinctive culinary offerings with broad appeal by enhancing their taco platform with higher-quality ingredients and more options for guests. As they have seen with similar investments in their burger and pizza platforms, this resulted in higher preference and guest satisfaction.

To help strengthen their competitive advantage of a socially energized bar, Yard House held its third annual Best On Tap Competition during the quarter. What began as a test of knowledge and hospitality skills has grown into a cornerstone of the Yard House culture where every bar tender competes. Congratulations to this year's winner, Michelle Yanez from the Yard House at City Center in Houston, Texas.

The Cheddar's team leverages efficiency and Darden's purchasing power to provide great food served at a wow price. During the quarter, they introduced a Hawaiian sirloin, a center cut top sirloin finished with pineapple and a sweet Hawaiian glaze, starting at $16.49. This limited time offer also included a honey butter croissant and 2 sides for that price.

In Technomic's most recent survey, Cheddar's ranked first among casual dining brands for both price and affordability.

During the quarter, Cheddar's also saw strong off-premise sales growth driven by first-party delivery. Off-premise sales grew 15% during the quarter, and the Cheddar's team will continue to promote delivery through owned and digital channels as well as in restaurants.

Same-restaurant sales for the Fine Dining segment was slightly negative for the quarter, but I'm encouraged by the actions each of our Fine Dining brands are taking to address the softness. For example, in the current environment, more guests are seeking price certainty, and Ruth's Chris Steakhouse introduced a 5-week limited time offer featuring a 3-course menu that drove positive comps for the quarter. For $55, guests could select 1 of 3 entrees as well as a super salad, an individual side and dessert. The offer was well received with strong guest preference and sales lift.

Now I want to share a quick update on the sale of 8 Olive Garden locations in Canada that I referenced during our last call. On July 14, we closed on the sale of those locations to Recipe Unlimited, the largest full-service operator in Canada. At closing, we also entered into an area development agreement with Recipe Unlimited to open 30 more Olive Gardens over the next 10 years, 5 of which have already been approved.

Our franchising team is focused on growing our global presence. Today we have 163 franchise locations, which includes 63 in the Continental United States and 100 outside the Continental U.S.

Last month, we held our annual leadership conference, which provides a powerful way for us to engage with every general manager and managing partner across our brands, celebrate past performance and align on key operational priorities. This was also an opportunity for these restaurant leaders to learn about their brand's 5-year business plan and understand what they need to do to win today and into 2030.

The opportunity to interact with this talented group of operators is one of the highlights of the year. I came away energized by the level of engagement and passion on display, which further reinforced the results of our most recent engagement survey, a new all-time high for Darden.

Overall, I am pleased with the strong start to our new fiscal year. Our strategy is working, enabling us to grow sales and take market share while meaningful -- making meaningful investments in our business and returning capital to our shareholders.

Beyond that, we have a larger purpose at Darden: to nourish and delight everyone we serve. One of the ways we do this is by fighting hunger. Once again this year, Darden is helping Feeding America add refrigerated trucks for 9 member food banks. With the addition of these new trucks, the Darden Foundation, with support from our partner, Penske Truck Leasing, has funded more than 50 vehicles to meet the increasing demand for food assistance in communities where we operate. Our philanthropic giving would not be possible without the efforts of our 200,000 team members and their passion to nourish and delight our guests and communities. Thank you for all you do.

Now I'll turn it over to Raj.

Thank you, Rick, and good morning, everyone. The first quarter was another strong quarter for Darden. Sales and earnings growth exceeded our expectations as our sales momentum from the fourth quarter continued into the first quarter. This strong top line sales growth and our significant scale provide us with the opportunity to keep a long-term perspective and continue investing in our business.

In addition to the menu investments Rick mentioned, the largest investment we made over the past several years is pricing below total inflation. During the first quarter, our pricing was 30 basis points below inflation.

We generated $3 billion of total sales, 10% higher than last year, driven by same-restaurant sales growth of 4.7%, the acquisition of 103 Chuy's restaurants and the addition of 22 net new restaurants. Both our same-restaurant sales and same-restaurant guest counts for the quarter were in the top quartile of the industry.

Adjusted diluted net earnings per share from continuing operations of $1.97 were 12.6% higher than last year. We generated $439 million of adjusted EBITDA and returned $358 million to our shareholders this quarter by paying $175 million in dividends and repurchasing $183 million in shares.

Now looking at our adjusted margin analysis compared to last year. Food and beverage expenses were 20 basis points lower, driven by pricing leverage as commodities inflation was approximately 1.5% for the quarter. Industrial labor was 20 basis points unfavorable as a result of high performance-based compensation expense, including a higher 401(k) match for our restaurant teams. Total labor inflation of 3.1% was fully offset by pricing of 2.2% and productivity improvements.

Restaurant expenses were 10 basis points higher as sales leverage was more than offset by Uber Direct fees and the brand mix with the addition of Chuy's.

Marketing expenses were flat as cost savings in marketing helped fund additional marketing activity in the quarter. This resulted in restaurant-level EBITDA of 18.9%, 10 basis points lower than last year.

Adjusted G&A expenses were 30 basis points favorable. Synergies from the acquisition and leverage from sales growth were partially offset by unfavorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is fully offset in the tax line. Interest expense increased 10 basis points due to the financing expenses related to the Chuy's acquisition.

Our adjusted effective tax rate for the quarter was 10.5%, helped by the mark-to-market hedge I mentioned earlier. Our effective tax rate would have been approximately 12.5% without this impact.

In total, we generated $231 million in adjusted earnings from continuing operations, which was 7.6% of sales.

Looking at our segments for the quarter. Total sales for Olive Garden increased by 7.6%, driven by strong same-restaurant sales and traffic growth. The sales from the addition of 18 new restaurants more than offset the sales loss from the refranchising of 8 Canadian restaurants. Their sales momentum continued from the prior quarter with same-restaurant sales in the top decile of the industry and outperforming the industry benchmark by 90 basis points. Olive Garden delivered a strong segment profit margin of 20.6% for the quarter, which was only 10 basis points below last year, even with the investments in affordability and the impact of delivery fees.

At LongHorn, total sales increased 8.8%, driven by same-restaurant sales growth of 5.5% and the addition of 18 new restaurants. The sustained sales and traffic outperformance resulted in same-restaurant sales in the top quartile of the industry for the 13th consecutive quarter, with this quarter ranking in the top decile. The LongHorn team is doing a great job of staying focused on their strategy and maintaining momentum within the business despite continued cost pressures. Higher-than-expected beef cost towards the end of the quarter and pricing below total inflation of approximately 100 basis points resulted in segment profit margin of 17.4%, 60 basis points below last year.

Total sales at the Fine Dining segment increased 2.7%, driven by the addition of 5 net new restaurants. While same-restaurant sales for the segment were slightly negative, the strong performance of the limited time offer at Ruth's Chris helped to offset the continued challenges within the Fine Dining category. Overall, segment profit margin was lower than last year.

The Other Business segment sales increased 22.5% with the acquisition of Chuy's and positive same-restaurant sales of 3.3%. The positive sales momentum and continued productivity improvements in multiple brands within the segment resulted in segment profit margin of 16.1%, 90 basis points higher than last year.

Now turning to our financial outlook for fiscal 2026. This morning, we updated a few items in our guidance, taking into consideration actual performance year-to-date and the evolving commodities outlook for the remainder of the fiscal year.

We are raising our expected total sales growth and tightening the range of same-restaurant sales to reflect the outperformance in the first quarter, acceleration in our new unit pipeline and any incremental pricing we may take to partially offset the additional commodities costs. We now expect total sales growth of -- for the year of 7.5% to 8.5%, same-restaurant sales growth of 2.5% to 3.5%, approximately 65 new restaurant openings and total inflation of 3% to 3.5% with commodities inflation of 3% to 4%.

All other aspects of our guidance remain unchanged, including adjusted diluted net earnings per share between $10.50 and $10.70. While we are reiterating our full year earnings per share guidance, we expect the lowest year-over-year EPS growth to be in the second quarter, driven by the significant step-up in beef costs and our measured approach to pricing for these costs. We expect our pricing for the second quarter to be approximately 100 basis points below total inflation.

We have a proven track record of successfully navigating through higher costs, and we'll continue to take a disciplined approach to ensure the long-term health of our business. We believe our strategy remains the right one for our company.

Now we'll take your questions.

[Operator Instructions] Our first question today is coming from Brian Harbour from Morgan Stanley.

Maybe just on that last point first, Raj, could you talk about sort of contracting through the balance of the year and sort of what gives you visibility that you've kind of encompassed the range of food cost outcomes?

Yes, Brian, I think if you look at what we published this morning, we -- our coverage is less than typical, especially in beef. Right now, we only have about 25% coverage in beef for the next 6 months. And that's one of the biggest opportunities in terms of where we're seeing the biggest headwinds. And I think as you all know, there's been a significant spike in beef costs recently, especially tenders and [ rebuys ], so -- and we don't believe these price levels are sustainable, and that's why we don't have as much coverage, and that's part of the reason. And given the significant price increase, there are -- we are starting to see some demand disruption in retail.

So I guess, really the big picture, beef is the biggest variable here. And then the other component here where you're seeing a higher inflation is on seafood, primarily due to the tariffs on shrimp. And our team is working through to figure out how to mitigate some of that. And that's really the reason why we're taking the inflation up from 2.5% at the beginning of the year to now 3% to 4%. But this situation is still very fluid here.

Okay. Understood. Rick, maybe just on the comments about sort of the new portion sizes at Olive Garden. What -- are you seeing sort of a different guest that is asking for that? Do you think this is actually sort of a traffic driver for Olive Garden? Or I guess, on the other hand, do you think this is check-dilutive in some sense? Like how are people actually sort of approaching that? What are you seeing from those items?

Yes, Brian, it's still pretty early. We do believe in the long run, this is a traffic driver. It will dilute our check a little bit if people trade from a higher portion size item to a lower portion size item. But we believe that's the portion that those guests want. And it's very early indications are that we're seeing a little bit more frequency. But it's not necessarily new guests because we haven't marketed it, and we put it in restaurant without even any fanfare and it's just people are gravitating towards that. It's not significant preference gravitating towards it, but there is some preference moving there. .

Our next question is coming from Jon Tower from Citi.

Great. Maybe kind of in the same vein, that -- the affordability pivot and -- this quarter as well as the Uber Eats amplification or build in the quarter. Can you maybe speak to how that hit on the cost line during the period? And I noticed that, obviously, the restaurant margin, you didn't lever that as much on a pretty solid comp in the period. So maybe, Raj, if you could speak to those costs during the period and what you're expecting going forward as well.

Yes, Jon, let me first start by saying these are things we planned on and we had in our plan. And I think we said -- that's why we said we're actually exceeding our plan. And it's actually -- the fact that the segment profit margin is only down 10%, they're still north of 20%, is a testament to the strength of the business model at Olive Garden. Now with that said, let me explain a little bit more detail.

First of all, we still priced below total inflation. Olive Garden's pricing was only 1.9%. So that's a pretty low price in this environment given that, again, the total inflation. Second, specific to those 2 items, they were roughly on the margin, if you just purely look at the margin percentage impact, they are probably about 20 basis points each. So if you put that back, I mean, we would have been positive 30, right? But that's, again, even with pricing below inflation. So I think that's sort of a key metric that we need to take into consideration because we believe, long term, these are the right decisions we're making. And I think any business would envy a 20-plus segment profit margin.

Got it. I appreciate that. And then maybe just drilling a little bit more into the delivery business at Olive Garden. Can you talk about -- Rick, you had mentioned that you're pleased with how, obviously, you're seeing younger guests make their way in, more affluent. Can you give us any more information on the frequency of those guests? Are they coming more so than what you're seeing within the store in terms of frequency and how they're using it even, obviously, it hasn't been a year yet, but seasonally, how they're maybe using that channel relative to in-store?

Yes, Jon. We've said -- as we said in the past, we are getting higher frequency for delivery guests than we are in dining guests. It's still early. We haven't had the delivery for a year yet, as you mentioned.

As to seasonality, the one thing that Uber told us is normally, over the summer, delivery orders start to kind of fall off. And we really hadn't seen that. So we'll know a little bit more about the seasonality of delivery after we've passed a year or maybe even 2 years, because it continues to grow for us. That said, we're very excited about how delivery is going. And as Raj mentioned earlier, we are using some of that extra guest count and extra margin to invest for all guests, and we feel really good about that for the long term.

Next question is coming from David Palmer from Evercore ISI.

Aside from the beef cost question, I think there's probably 2 areas that are major areas of curiosity, and I certainly share them. And one is the strong performance of the casual dining segment, which is becoming increasingly unusual after fast casual has slowed through the year, through the middle of this year. And another, I think, is Olive Garden against more difficult comparisons later in your fiscal year. How will it do and what are you lining up against that?

So those are really my 2 questions. What are your thoughts about why casual dining is doing as well? And do you think that will continue? And then separately, Olive Garden, you're rolling out a pretty large test on small portions, but what are your thoughts? And what are you kind of lining up to keep the momentum going as you get into lapping some of the good stuff you've been doing in the last 3 or 4 months?

Yes, David. I believe the strong casual dining segment is driven by, generally, less pricing than other segments of dining, for the segment itself, for casual dining itself. And for the larger players in casual dining, even lower pricing than casual dining total. So there's -- the guests are starting to see the value that casual dining brings.

Now we've been seeing that for a few years now, as you know, it's just others are kind of following in line with that, and we're seeing that the guests see the value. Also, when they're trying to figure out where they spend their money, they're going to places where they can connect and engage with their friends and family. There may be less snacking going on and less kind of munching, but when people are going out to eat, they're going out to where they can feel they can get a great meal at a great value and have time with their friends.

In regards to Olive Garden for the back half of the year, we have plans to continue the momentum. We do know that the comparisons get a little bit more challenging. But the Olive Garden team is working on things that we could do in the back half of the year. We've got a great plan. We do believe that, over time, the affordability items on the menu, the lighter portion -- I don't want to call them affordability. They're the right portion size for the right price for a group of consumers, that will eventually drive more traffic. It might not drive it in the back half of the year because we're not talking about it yet. That said, we may start talking about it in the back half of the year.

So there's a lot of things that we're going to do. We've got a great team. And we'll react to whatever the sales trends look like at Olive Garden, and we'll go from there.

Your next question is coming from Jim Salera from Stephens.

I was hoping you could give us a breakdown on LongHorn, just the comp split between traffic and ticket. And then as a follow-up on that, have you seen any increase in engagement with consumer -- you mentioned, obviously, pricing 100 basis points below inflation. Should we kind of expect that similar gap to progress through the year? Or any thoughts around how we should expect pricing to trend?

Yes. So let's start with the LongHorn traffic versus -- LongHorn traffic was up about 3.2% for the quarter. The same-restaurant sales were 5.5%. So the check was 2.3%. Their pricing was 2.5%. They had a little bit of a negative mix, primarily [indiscernible], of 20 basis points.

In terms of pricing versus inflation, at LongHorn, as we said, we -- there was a bigger spike in beef prices. That was a little bit of a surprise at the end of the quarter. But we also had planned on having some gap to pricing. So it further widened, I guess, by the time we ended the quarter, a little bit.

As we look through the year, we expect second quarter, at the Darden level, without getting specific segment level here. at the Darden level, we expect pricing to be about 100 basis points below inflation, and we expect that gap to narrow as we go through the year. And so you would expect the pressures on the margin to be -- kind of follow that, right? So we probably have the biggest gap in Q2, maybe cut that in half by the time you get to Q3 and then try to narrow that further as we get to Q4.

But consistent with our philosophy, our pricing for the full year will probably be -- we'll end up being below inflation. Is it going to be 30% or 50%? I don't know. We're working through that. I think our -- we've been always very thoughtful about what cost do we actually price for. And we don't want to price for temporary costs. We want to price for, over time, find other ways to solve for these incremental costs. And that's what our team is focused on.

Great. And then you guys mentioned the value-focused menu expansion at Olive Garden. Is that something that we could see maybe in a more limited fashion at LongHorn as well, maybe focus on like appetizers or smaller plate items? Or is that something that right now it's just Olive Garden focused?

Yes. We're doing this at Olive Garden to see how that works out. And if other brands think that it makes sense for them and they get the learnings from Olive Garden, maybe they will implement. But right now, the focus is the Olive Garden and it's the Olive Garden team that's driving it. And as I said, we'll see how that goes. Now there might be some things that LongHorn does in the future or other brands do in the future, but they'll make those decisions as those times come.

Your next question is coming from Eric Gonzalez from KeyBanc Capital Markets.

Just a few quarters ago, you talked about some strength among the lower income consumers. Obviously, most of your peers, particularly on the fast food side, are talking about weakness among that cohort of income. So if you maybe you could talk about what you're seeing from an income perspective, and are you gaining share among lower-income consumers? Do you think that part of the equation is actually holding yourselves up relative to your peers? And are you seeing some maybe trade into the category from some of the higher-income folks, particularly on the casual dining side?

Yes, Eric, specific to casual dining, all our casual dining brands saw an increase in visits year-over-year from guests across all income groups, but specifically those in higher income groups. So you would expect that that would have been -- that could have been some trade down, but it could be trade up from a lower income group to a great value in casual dining.

We are seeing a few shifts in behavior and that guests are going towards price certainty, so they know what they're going to pay before they come in, or greater perceived value even if the item is a high price. So if you think about the Calabrian steak and shrimp that we had at Olive Garden, great preference, great perceived value. It was the highest priced menu item on the menu. But we are seeing, as I said, for casual dining brands, growth among all income groups.

Great. And then on the -- just to close the loop on the commodity discussion. Based on where the commodities are now and what you've locked in, I know you're a little bit lighter on the beef side, what do you think that implies for store-level margins? And what's embedded in the guidance? In the past, you talked about modest margin expansion you still think you can get there based on what you did in the first quarter and where you are locked in.

Eric, I would refer you back to our long-term framework, which basically talks about our earnings after tax from 0 to 20 basis points growth. So if you look at our guidance, even at the low end, we're basically either flat or growing margin at the Eats level. We don't want to focus too much on any one line item, and for us, ultimately, if we're able to achieve our long-term framework and get the targets we want to get to by investing more in the guest, we want to do that. If that means that the segment profit margins are down year-over-year, that's not something we're concerned about. I think our focus ultimately is on -- at the Eats level, at the earnings after tax level, are we staying flat or growing margins? And that's -- we feel like we're still on a path to get there.

Your next question today is coming from David Tarantino from Baird.

Rick, I had a question about your views on the overall health of the consumer spending environment. Certainly, you had a great quarter. But I guess over the last few months, we've seen a lot of crosscurrents related to the job updates and whatnot. So I'm just maybe wanting to get your thoughts on where we are from the state of consumer spending and whether you think anything's changed recently relative to maybe where you thought it was at the start of the year.

Yes, David, I can't say that anything has changed dramatically from where we saw it at the start of the year. We are ahead of where we thought we'd be right now. There's a lot of talk about the job revisions, but those jobs didn't exist. So that's what people were working. And so we're dealing with what was actually happening, not what was thought to be happening. And so I believe that the August retail sales were up pretty significantly, and we had a pretty darn good August too. So I don't see any dramatic change to what we thought the consumer was.

Great. That's helpful. And Raj, one quick clarification. You mentioned the inflation versus pricing gap is expected to narrow as you get into maybe the second half of the year. Is that because of the price components going higher or the inflation components coming down? I guess, could you explain kind of how that might work?

Yes. Sure, David. It's primarily the -- we are taking a little bit more price as we go through the year. We mentioned that at the beginning of the year, right? We started pretty low in the first quarter. We expect to get for the full year to be in the mid to high 2s. And we started with 2.2, as you can see, as the year progresses, that moves up a little bit. And then there's also some near-term pressures that we expect, because like I said in the commentary around beef, we don't think all these high prices are sustainable. I mean these are pretty punitive to the consumer, and we're trying to protect them by not pricing for it.

Our next question is coming from Sara Senatore from Bank of America.

I wanted to ask about the idea of sort of investing and growing top line, more of a top line-driven growth algorithm. You mentioned pricing below inflation and, obviously, affordability is something that your brands are known for in terms of value for the money. But I guess I could also characterize marketing as a way to do that or even perhaps subsidizing delivery fees.

So I was just curious, as you think about the kind of different investments, is marketing something -- I know you said you got some leverage, so marketing dollars were higher though, perhaps a little bit light of what we might have expected. And you talked about delivery fees as perhaps margin pressure. So I wasn't sure if that's because you're not fully covering them with what you charge your customers. But perhaps you could -- and I know it's free delivery this quarter, so perhaps an exception. But maybe you could talk a little bit about as you think about investing behind top line, these other possible ways to do that. And then I do have another quick follow-up.

Yes, Sara, we do believe that marketing can help drive traffic. And while our marketing as a percent of sales didn't seem to grow, I think Raj mentioned in the prepared remarks, we had some cost saves in marketing that offset our actual marketing growth. So we actually had more TRPs out there, our other brands that are not on linear TV or testing connected television and other digital aspects, cheddar's has their first ever 30-second commercial on a connected television. So we are increasing our marketing activity because we believe that that will drive some traffic. But we're not doing it at deep discounting in the ways that we had done it in the past.

And you did -- I think you answered your question on the delivery fees. There are other ways that we can do things to drive delivery. But this quarter, the 1 million free deliveries did impact a little bit of the margin.

Great. And then just the follow-up was, I think, Rick, you alluded to less snacking or munching. I was curious, is that like a GLP-1 reference in terms of like how people are changing their eating patterns? Or was it more people are prepared to give up some of these sort of convenience or impulse occasions and spend behind really good experiences like they get at Olive Garden or LongHorn or your other brands?

Yes, I think it's a little bit of both. There are some people on GLP-1s that when you do the research on them, they eat smaller portions or they eat out a little less, but when they eat out, they actually eat out more in casual dining. And so there is a little bit of that.

But I think it's maybe even a consumer that says, "I'm just trying to be healthier or eat a little less." And so maybe there is a little less snacking.

And at the lower end consumer, they probably don't have as much resource to go out as much as they did, and it's probably impacting another category more than it is impacting us.

Next question today is coming from Jeffrey Bernstein from Barclays.

Great. Rick, for fiscal '26, you raised your comp guide modestly. But clearly, that's in spite of maybe what many people expected, a slightly tougher macro and concerns on consumer slowdown and we know about the tougher compares. I think you mentioned the first quarter was modestly above your plan. But any color you could share on your confidence in raising that guide?

And as we think about the current fiscal 2Q, the compares are definitely much tougher. In the last quarter, you were willing to frame kind of what you expected for the current quarter versus your full year guide. Wondering whether you think the fiscal second quarter will come in above or below kind of that new range. And then I had one follow-up.

Yes, Jeff, I'll start by saying we wouldn't have increased our guidance if we didn't feel confident about it. So as we look at our same-restaurant sales and our total sales -- part of the reason we raised our total sales is we're really confident in our unit count in development. We increased the number of -- well, we got rid of the low end of our range for development and we say now we're approximately 65, partly because we are -- most of the restaurants are either built or being built or open already, and some of them are coming in earlier than we thought. So we feel really good about our development pipeline.

And I'll let Raj talk about the cadence of our comp, but -- for the second quarter and beyond.

Yes, Jeff, I'd say, look, we expected as we went into the year for the back half to be not as strong in comps as the first half. But I think as the year is progressing, we're learning more and we feel really good about how even the second quarter started off, and that's all taken into consideration as we provided this guidance. But I think ultimately, the cadence will still be the fact that we still expect the back half to be lower than the first half.

Understood. And then just a follow-up on your Uber partnership. I know it's still early, but it seems like you're having success with Olive Garden and Cheddar's with the 1P. I'm just wondering, first, whether you'd consider a next brand to embrace that 1P Uber delivery and whether there's any updated thoughts on potential for using Uber for the order aggregation part of things, not just delivery.

Yes, Jeff. We are pleased with our first-party delivery, both at Olive Garden and at Cheddar's. It continues to grow for us. We do have another brand that's wanting to embrace it, and we would expect that brand to be on the platform sometime in Q3. I won't tell you what brand that is, but they're very excited to jump into the first-party delivery.

In regards to marketplace or third party, whether it's Uber or anyone else, we still have some challenges with the model. We're focused on first party right now. And we've talked about the things that we don't like about third party. If a provider can come with every solution that we have for third party or the reasons that we don't like it, then we would definitely consider it. But right now, we're very comfortable and very pleased at how first-party delivery is going.

Our next question is coming from Jacob Aiken-Phillips from Melius Research.

Yes, I first wanted to double back on unit growth acceleration over like the medium to long term. I know you took away the lower end. Just how should we think about that ramping up, especially with -- I know there's some new prototypes, there's some acceleration in Canada and a couple of moving parts?

Yes. The development is our owned restaurants, so 65 of our restaurants. Canada is all franchised, so that doesn't count in our unit growth. We get a lot of good royalties from that, but that doesn't -- isn't a unit for us.

In regards to how we're going to ramp up our 5-year plan, has us solidly in our long-term framework of 3% to 4% of our sales growth coming from new units. And so you would expect our unit growth percentage to ramp up a little bit year-over-year.

Great. And then just on -- I know that there was like some prototypes like smaller, but then also some of the competitors are saying they're seeing some higher construction costs from like imported stuff. Any comments there?

Yes. We've got a couple of brands -- actually, all of our brands, especially Olive Garden and LongHorn, over years, worked on the right prototype size. Yard House and Cheddar's have just come out with new prototypes that are smaller, much more efficient and the costs are lower than it would be for building our existing prototype-size restaurants. And we've opened a few of them and they're doing really well and they're able to generate the sales that our existing prototypes are generating in general.

In regards to costs, our costs are much closer and actually sometimes under our budgeted amounts, which is very different than it was before. Tariff impacts, we don't believe, are too dramatic to construction costs. And so we feel really confident about our pipeline and being able to build them at a very good return for us.

Your next question is coming from Jake Bartlett from Truist Securities.

My first one is on delivery. I'm hoping you can frame the mix that delivery was in the first quarter, but also what the exit rate was after the promotion. Also, whether you expect to promote similar promotions in the -- as we go forward in '26. And then I have a follow-up.

Yes, Jake, I'll speak specifically to Olive Garden. I think that's what you're asking for. So for Olive Garden delivery in the first quarter was about 5%. We exited at about 4%. As we mentioned, when we stopped 1 million free deliveries, we exited a little bit lower, but still 40% above where we were before the promotion. I think that was...

That was the question. And whether you expect to do a similar promotion to the 1 million...

Sorry. I don't know if we may do another 1 million free deliveries. I don't know, but we do have marketing funds that Uber gives us based on our volume. And so we're going to utilize those somehow. Whether it's 1 million free deliveries or doing something different, we will utilize those funds.

Got it. In terms of the Never Ending Pasta Bowl promotion, I think time is similar to last year. I'm wondering, you made a comment about consumers really grabbing -- taking towards price certainty, some momentum in August. I'm wondering whether you can comment on how you expect Never Ending Pasta Bowl to perform this year versus last and maybe how it is performing, whether it's particularly resonating with consumers right now.

Yes. I will say that Never Ending Pasta Bowl is off to a good start for us. It's really at the center of Olive Garden's core equity of Never Ending Craveable abundant time food. And preference is up versus last year, and the team is doing an amazing job ensuring that guests get refilled. So the refill rate is way up.

So I think guests are understanding that promotion more and more as we brought it back and they really understand the value that it brings. And I will say that the performance to date is in our guidance.

Next question is coming from Peter Saleh from BTIG.

Great. Maybe just one question, on the beef situation. Can you elaborate a little bit more on maybe what's driving it higher in the near term or more recently? And why do you think this is not sustainable? And then just more specifically, if these prices are sustained or maybe even go higher, would you take a little bit more price at LongHorn in the back end of the year? Just trying to understand the strategy there if beef prices actually go a little higher from here.

Yes, Peter, let's just start with the dynamics, right? Right now, supply is constrained from a few things. One, there have been some pack or cutbacks and also Mexican cattle imports have been halted because of the screwworm outbreak. So those are kind of the drivers of the supply constraint.

In addition to that, tariffs on Brazil are causing a significant reduction in beef imports into the U.S. So that's also creating a constraint. So those are on the supply side.

Part of the reason we don't believe that kind of a price increase, especially double-digit price increase you saw, we're seeing are not sustainable, is because the consumer can't afford these. And over time, there will be some -- there should be some demand destruction. And also, the amount of cattle on feed has actually been fairly consistent month to month. And at some point, this cattle has to be -- has to go put to work, I guess.

So those are the reasons how we think about where the prices might go. Who knows exactly? We don't know. We're just -- but we're a lot more open for those reasons.

Now as we think about what would we do, yes, if these -- if prices stay very high, that means that the demand is also very high, which means we should be able to take some price. We're not -- that's not our preferred path, but if the dynamics lead to a place where we feel good about demand, then yes, we'll take some price.

Your next question is coming from John Ivankoe from JPMorgan.

I want to go a couple of different directions. First, Raj, in your prepared remarks, you did talk about seeing some demand destruction at retail. I wondered if you're actually seeing that, if it's recent. Some of the data that I've seen, I thought it was recent, was actually showing quite high demand at the retail level. So I just hopefully got your facts being better than mine, just to kind of correct me what we're seeing in retail and if we are seeing any material signs and a slowdown in retail because that could certainly help us on the restaurant side from a supply perspective.

Yes, John. So you're right in the fact that if you go back a few months, it's been pretty robust. But if you look at the last month of data, you're starting to see that decline. Actually, the data we have shows that the volume actually declined in the low single digits year-over-year at retail. That wasn't the case for prior, call it, 4, 5 months or so. So there was -- yes, there was some resiliency in that, but it's starting to -- at least we saw 1 month of data where it slipped into low single-digit decline year-over-year.

Okay. And that's maybe just classic growing season being over and people are just shifting to other things. That's helpful. So...

No. It's year-over-year. Sorry, I just want to clarify, we look at year-over-year. So seasonality is captured in the year-over-year.

Yes. But it's -- we're speaking the same language, I just said that awkwardly. So it was interesting, hearing things like reduced portion prices of some -- reduced prices in some portions of some core menu items, things like Hawaiian steak. I'm not going to name the brand that it reminds me of 20 years ago, but -- and as well as in the Darden concept, but I've seen this done actually quite unsuccessfully over time. In other words, when consumers kind of expect to see a certain amount of food on the plate, especially at dinner, it's not something that you're necessarily happy with even if they are paying lower prices.

So Rick, I'm sure you know exactly what I'm talking about. But was there anything to learn about previous history lessons in casual dining specifically? I think this is probably tried around 2007, 2008 where smaller portions at smaller prices were tried, but weren't successful. And things like Hawaiian steak way back when, which you tried that, a few people like, but really a lot of people different. Where are we on that stage gate process today in 2025 maybe versus some of the lack of success the overall industry had 20 years ago?

John, I'll start with the Hawaiian steak. It's not a smaller portion size. It's a Cheddar's. It's a great portion for Hawaiian steak. And by the way, LongHorn ran Hawaiian steak and did really well with it a few years back. So maybe there's different tastes now than they were back then.

And in regards to portion size, I think if you go back 20, 30 years ago, overall portions were maybe a little bit smaller in the dinner menu already. And so if somebody brought even smaller portion, it went a little bit too far. And then -- but the way we're thinking about it is there is a consumer group out there that believes in abundance, but abundance is different for everybody. And by bringing some smaller portion sizes to the dinner menu at Olive Garden, there's still abundant portion sizes, but it also adds price breadth to the menu. So consumers can choose. We're not changing our entire menu to make it a smaller portion. We are putting items on there that are smaller with a compelling price point. And at Olive Garden, you still get the unlimited soup or salad and you get all the breadsticks you want. So it's still a great -- it's still abundant.

And maybe our consumers finally evolved that you don't need to have uneaten food on the plate to feel that you've gotten good value. You can just see just the right amount of portion and be happy with it. So that would certainly be a change versus the old America, but that'd obviously be a good direction to go. Okay.

Next question is coming from Lauren Silberman from Deutsche Bank.

I just want to go to top line. A lot of questions, obviously, what's going on in the restaurant industry broadly. You talked about strong August. Can you just help unpack sort of what you saw in terms of cadence of comps during the quarter? Any more color on September from that? And then any differences in performance that you're seeing across the regions?

Yes, Lauren, I think from a cadence of comps, actually, the gap to the industry was the biggest for us in August. In fact, when we look at our own internal comps, we were actually -- July was our weakest. And so for us, June was pretty strong. July was still strong, all positive, but just if you look at the weak month to month, July was weaker than June and August. And actually, like I said, August had the biggest gap to the industry.

As far as regionality, there isn't a huge amount of regionality. It's actually what we're seeing is fairly similar to what you kind of see in Black Box with certain markets still not performing as well, such as Texas, and Florida is starting to pick back up so it feels like Florida is getting better. And then depending on the brand, California had some decent strength. So that's all I can share regionally. There's not a lot of other stuff to get into there.

Okay. And then just a follow-up on the commodity side. What are you expecting in terms of cadence to get to the 3% to 4% for the year? I understand like there's a commodity price dynamic, but do you expect like 2Q to peak in terms of actual commodity inflation?

At this point, yes, we think Q2 will -- probably the peak. But Q3, Q4, probably not that much lower. I mean by the time we get to Q4, we expect it to be a little bit better than where would be. But Q1 would be the lowest that we just had, right? It was 1.5%. I think pretty much every quarter going forward is we're expecting to be north of 3%, and that's how you get to the 3% to 4% guide. But Q2 is probably the peak.

Next question is coming from Danilo Gargiulo from Bernstein.

Maybe a year ago or so, you started talking about the relevance and importance of improving the speed of service. And maybe, arguably, with the increased focus on affordability or right portion for the right price, there could be even more of an overlap between consumers who might be choosing casual dining over fast food. And so I'm wondering if you have any early signs or any KPIs that are showing some momentum that you're picking up in the improvement in speed of service so far.

Yes, Danilo, across our brands, we're seeing some brands with some improvement and other brands that haven't really made a whole lot. And so we had a refocus on that this year at our general manager conference, and we would expect to see greater improvement in speed of service in the upcoming years.

Recall, when I mentioned that, I said this is going to take a while. And it is taking a while. But the managers are really getting on board with it over the last year, and the reinforcement of our conference gives me great confidence that we're going to get better.

In regards to, do we have any data to say that we're taking share from other categories, the only thing I can say is all of our consumer groups and all of our income groups were positive year-over-year in casual dining, which is probably the best chance to take share from other categories. And those other categories have had a little bit more traffic decline. So maybe we're taking share or maybe they're just losing some share.

And then it sounds from Raj's response that there's not a lot of regional differences, maybe with the exception of Texas and maybe pockets in California. So if you're stepping back and analyzing the delta between the top-performing stores within the same brand and the bottom-performing stores within the same brand, what is the one characteristic that is driving the increased performance? And how can you make that more standardized across the rest of the group?

I will say this is a tried and true thing in restaurants, the thing that drives the most performance within a brand is the quality and consistency of the managers in that restaurant, and the team. And so as turnover gets better, if you've got a great general manager and a great team of managers that are running things to our standards, you have better performance. And so that's going to be restaurants for the rest of our lives. You can have restaurants that are in a market that's doing great, but the restaurant is not doing great. It all comes down to leadership.

Our next question today is coming from Dennis Geiger from UBS.

Just wanted to ask if anything to note -- else to note on sort of behaviors that Olive Garden, LongHorn or broadly across the portfolio as it relates to performance across daypart or even kind of within the menu side, desserts, alcohol, anything to call out there?

Yes. Look, I think we are seeing -- I mentioned a little bit about alcohol. There is less -- we're seeing some lower preference on alcohol across most of our brands. There is -- some brands at LongHorn, for example, has grown lunch more than their dinner, but all dayparts are growing there.

And then in Fine Dining, I think we're seeing a little bit more drop-off in the business travel that's leading to some weekday weakness. But those are some of the dynamics from a consumer perspective that I can share.

Your next question is coming from Chris O'Cull from Stifel.

Rick, the conversation around eliminating the tip wage seems to be ramping up. Do you believe there's a risk that it could be eliminated? And how are you thinking about any potential impact it could have on the business?

I would start by saying this industry has really diverse business models. And we believe that the policy environment should reflect the level of diversity in the model. As a full-service operator, our business model continues to be the best choice for our guests and our team members. And I will tell you that whatever happens, we're going to be okay with it, okay in the way we react. So I don't foresee a big change in that. But if it does, we will work through those things and come out okay.

Your next question is coming from Brian Vaccaro from Raymond James.

Just 2 quick ones, if I could. First on the housekeeping side. Raj, could you break out the Olive Garden comps between traffic and check? And as we think about check at Olive Garden, I think it's been exceeding pricing for the last several quarters. Is it still reasonable to expect check to exceed price as you think about the next few quarters?

Yes, Brian. Let me start with the breakdown. Olive Garden same-restaurant sales was 5.9%. Their traffic, as we measure was 2.8%, but then they also had catering of 80 basis points. So I would categorize that as 3.6% traffic growth. And then when you think about the check, pricing was one line, and Uber fees, basically the delivery service fee net of the discount, was about 40 basis points.

So yes, as we go into the future, do we expect check to be a little bit higher than pricing? Yes. But it will be because of the delivery fee and service fee, is really the driver yes.

Okay. And then just as a follow-up, obviously, talking about investing in the guest experience, as you've been doing for a while, but thinking about fiscal '26 specifically as well. When you look at labor in the first quarter, it looks like labor per operating week as we look at it was up 4.5%, maybe closer to 5%. You talked about the higher incentive comp, and obviously you have higher traffic, which takes more labor to service. But I'm curious to what degree that also reflects some reinvestments that you're making in the guest experience. And maybe you could provide a few examples of the specifics on those reinvestments.

So Brian, let me just start by saying, from a labor perspective, our total inflation was 3.1%, right? So if you look at -- you mentioned 4.5% increase on dollars, but if you take the 3.1%, that is part of it. Then it was up about 1 point or so, but our traffic was up closer to 3% once you take into consideration the catering at the Darden level. So that means we're actually getting some leverage on that traffic.

And so that's really what's happening. And that's why I mentioned in the script that we were -- we had productivity improved actually year-over-year.

We continue to look at ways to invest in labor. I don't think we need to get into specifics, but some of the things that Rick mentioned about speed, those are places where we're looking at. How do we help ensure that? But that doesn't translate necessarily into a labor deleverage because you actually get more throughput when we make those investments.

Next question today is coming from Andrew Charles from TD Cowen.

Our next question is coming from Jim Sanderson from Northcoast Research.

I just had a few follow-up questions. Going back to the delivery segment, have you discussed what percentage of sales mix was incremental? I think that's been a little bit of a moving target, especially given the promotions. Maybe you could update us on what you expect incrementally out of delivery for both Olive Garden and Cheddar's.

Yes, Jim, I'll speak specifically outside of the promotion. It's about 50% incremental. During the promotion, when you get free delivery, some of the people that would have gotten normal to go probably shifted into delivery. But outside of that, it's about 50%, both the Cheddar's and Olive Garden.

Okay. So relatively stable with what it has been, let's say?

Yes.

And then just a follow-up question on Olive Garden, when we were talking about the breakdown same-store sales, I didn't really detect any negative mix. And I was wondering, does that mean that the smaller portions and the promotions aren't having any meaningful impact on check? Is that the right way to look at that?

Well, they have -- that specifically has a negative impact, but it was offset by other mix. So we are seeing -- we had -- I think we mentioned on the call, we had the Calabrian steak and shrimp that had a higher price, but we actually had -- saw a pretty strong preference there, that helped. So it was mostly entree mix itself tended towards higher value, sometimes maybe higher price items. .

Your next question is coming from Andrew Charles from TD Cowen.

Yes. This is Zach Ogden on for Andrew. Could you just elaborate on where the strength is coming from for Other Businesses? Are there certain brands that are outperforming others and what would be leading to that?

Do you mean in the Other Business or other business? I just want to make sure I understand the question.

Yes. So the Other Businesses segment, so the 3.3% in 1Q. What was the strength coming from there?

Well, we mentioned that 3 of those brands were all positive, some more positive than others. I think Cheddar's was the most positive and then Yard House after that and potentially Seasons are right around there. But I think Cheddar's had the highest comp in that segment.

Okay. Got it. And then could you just comment on what you're seeing from the younger cohort more broadly maybe just beyond delivery? Are you seeing certain or, I guess, relative strength or weakness among Gen Z?

They're fairly similar to the rest of our consumer group.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

This concludes our call. I want to remind you that we plan to release second quarter results on Thursday, December 18, before the market opens, with a conference call to follow. Thank you for participating.

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