Restaurant company Darden (NYSE: DRI) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 6.2% year on year to $3.16 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $12.1 billion at the midpoint. Its non-GAAP profit of $2.80 per share was in line with analysts’ consensus estimates.
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Darden (DRI) Q1 CY2025 Highlights:
- Revenue: $3.16 billion vs analyst estimates of $3.21 billion (6.2% year-on-year growth, 1.7% miss)
- Adjusted EPS: $2.80 vs analyst expectations of $2.79 (in line)
- Adjusted EBITDA: $565.7 million vs analyst estimates of $558.2 million (17.9% margin, 1.3% beat)
- The company reconfirmed its revenue guidance for the full year of $12.1 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $9.49 at the midpoint
- Operating Margin: 13.2%, in line with the same quarter last year
- Free Cash Flow Margin: 13.5%, down from 14.7% in the same quarter last year
- Locations: 2,165 at quarter end, up from 2,022 in the same quarter last year
- Same-Store Sales were flat year on year (-1% in the same quarter last year)
- Market Capitalization: $22.04 billion
"We had a solid quarter, and I am proud of how our teams managed their business and controlled what they could control," said Darden President & CEO Rick Cardenas.
Company Overview
Founded in 1968 as Red Lobster, Darden (NYSE: DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Sit-Down Dining
Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $11.76 billion in revenue over the past 12 months, Darden is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost. However, its scale is a double-edged sword because there is only so much real estate to build restaurants, placing a ceiling on its growth. To accelerate system-wide sales, Darden likely needs to optimize its pricing or lean into new chains and international expansion.
As you can see below, Darden’s sales grew at a tepid 5.7% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it barely increased sales at existing, established dining locations.
This quarter, Darden’s revenue grew by 6.2% year on year to $3.16 billion, missing Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 8.2% over the next 12 months, an acceleration versus the last six years. This projection is above the sector average and implies its newer menu offerings will catalyze better top-line performance.
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Restaurant Performance
Number of Restaurants
A restaurant chain’s total number of dining locations often determines how much revenue it can generate.
Darden operated 2,165 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 5.6% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Same-Store Sales
A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.
Darden’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.6% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its restaurant base.
In the latest quarter, Darden’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Darden can reaccelerate growth.
Key Takeaways from Darden’s Q1 Results
It was good to see Darden narrowly top analysts’ EBITDA expectations this quarter. On the other hand, its revenue missed and its same-store sales fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.7% to $185 immediately following the results.
Darden’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
