Darden Stock Drops on Earnings Miss. Blame Beef and Shrimp Tariffs.

Olive Garden is one of the flagship chains owned by Darden Restaurants. (David Paul Morris/BloombergBloomberg)

Key Points

About This Summary

• Darden Restaurants’ shares fell after narrowly missing fiscal first quarter earnings expectations, despite sales increasing 10% year-over-year.
• Rising beef and shrimp costs are concerning investors, while Darden raised its fiscal 2026 sales growth outlook and same-restaurant sales.
• Olive Garden’s partnership with Uber Direct and an advertising campaign drove delivery growth, attracting younger, affluent customers.

Shares of Darden Restaurants, the operator of Olive Garden and LongHorn Steakhouse, were falling Thursday after the company narrowly missed earnings expectations for its fiscal first quarter.

Investors were concerned about rising cost pressures as key ingredients such as beef and shrimp become more expensive.

The company posted adjusted earnings of $1.97 a share for the quarter, up from $1.75 a year ago but a tick below the $2 analysts anticipated, per FactSet.

Sales totaled $3.04 billion, up 10% from a year prior and driven by a 4.7% growth in same-restaurant sales, the acquisition of 103 Chuy’s Tex Mex restaurants, and other new restaurant openings. The quarterly sales came in line with Wall Street’s forecast.

Olive Garden and LongHorn Steakhouse, Darden’s flagship chains, both saw same-store sales increase 5.9% and 5.5%, respectively, in the August quarter.

“The strength of our results is a testament to the power of our strategy.” said CEO Rick Cardenas.

Darden also raised its outlook for fiscal 2026. Management now expects sales to grow 7.5% to 8.5%, up from the prior forecast of a 7% to 8% growth.

The floor of expected same-restaurant sales growth was lifted from 2% to 2.5%, while the ceiling was kept at 3.5%. Guidance for full-year diluted net earnings was maintained at $10.50 to $10.70 per share, compared with $8.88 in fiscal 2025.

Still, there were signs for concern. Expected inflation for fiscal 2026 was raised 0.5 percentage point to a range of 3% to 3.5%.

Beef costs have spiked as dry weather and high input costs led to a historically small cattle herd in the U.S. Tariffs on Brazil are also causing a significant reduction in beef imports, further shrinking the supply.

Darden management said the current price level isn’t sustainable since retail demand could drop as beef becomes unaffordable. Shrimp is also getting more expensive thanks to tariffs on imported seafood.

Darden stock plunged nearly 10% on Thursday.

Darden Restaurants has been a winner in the sector. Prior to Thursday’s report, shares had gained 31% over the past 12 months, beating most restaurant peers and outperforming the S&P 500. Its restaurant chains have defied consumer weakness to post continuous growth in recent quarters.

As inflation squeezes consumer wallets, many people are dining out less, especially at fast-food chains with aggressive price hikes. Instead, diners are frequenting places that offer great value for what they pay. A group of casual dining chains—from Chili’s to Texas Roadhouse to Olive Garden—have been doing well.

The strong casual dining segment is driven by less pricing than other parts of the restaurant industry, Cardenas said on the earnings call.

“The guests are starting to see the value that casual dining brings,” he said, “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.”

Olive Garden also partnered up with Uber Direct in May, which allows customers to order on its website and have Uber fulfill the delivery nationwide.

The partnership has helped the chain “capture younger, more affluent guests who value convenience and crave Olive Garden,” Cardenas said on the earnings call.

Cardenas noted “a significant incremental opportunity for the brand” since these guests have a higher check average and typically don’t visit Olive Garden for in-restaurant dining.

Olive Garden launched an advertising campaign featuring one million free deliveries, which doubled average weekly deliveries during the campaign, he said. Even after the campaign is concluded, delivery order volume has remained approximately 40% above the pre-campaign average.

Write to Evie Liu at evie.liu@barrons.com