Item 1A. RISK FACTORS
Various risks and uncertainties could affect our business. Any of the risks described below or elsewhere in this report or our other filings with the Securities and Exchange Commission could have a material impact on our business, financial condition or results of operations. It is not possible to predict or identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
Risks Relating to Inflation and Macroeconomic Disruption
A failure to address cost pressures, including rising costs for commodities, labor, health care, and utilities used by our restaurants, and a failure to effectively deliver cost management activities and achieve economies of scale in purchasing could compress our margins and adversely affect our sales and results of operations.
Our results of operations depend, in part, on our ability to anticipate and react to changes in the price and availability of food, ingredients, labor, health care, utilities, fuel, and other related costs over which we may have little control. We have experienced and may continue to experience higher than normal inflationary conditions with respect to most or all of these costs during fiscal 2026. Operating margins for our restaurants are subject to changes in the price and availability of food commodities, including beef, pork, chicken, seafood, cheese, butter, and produce. The introduction of, or changes to, tariffs or adverse impacts resulting from restrictive trade policies or trade disputes on imported food products, such as produce and seafood, could increase our costs and possibly impact the supply of those products. We cannot predict whether we will continue to be able to anticipate and react to changing food costs by adjusting our purchasing practices, menu offerings, and menu prices, and a failure to do so could adversely affect our operating results. We seek to leverage our size to achieve economies of scale in purchasing, but there can be no assurances that we can always do so effectively. We are also subject to the general risks of inflation and its impact on the macroeconomic environment.
Increases in minimum wage, health care, and other benefit costs may have a material adverse effect on our labor costs. We operate in many states and localities where the minimum wage is significantly higher than the federal minimum wage. The market for labor in the United States is competitive and has resulted in pressure on wages and may continue to do so in the future. Increases in minimum wage and market pressure may also result in increases in the wage rates paid for non-minimum wage positions. Many states and localities are also passing laws regulating employment practices and working conditions, which could have a material adverse effect on our labor costs in those areas.
In addition, our ability to offset the effects of inflation through pricing actions may be constrained by competitive dynamics and consumer demand sensitivity, and if menu pricing does not sufficiently offset rising costs or adversely affects guest traffic, our operating margins and results of operation could be adversely affected.
Our restaurants’ operating margins are also affected by fluctuations in the price of utilities such as electricity and natural gas, whether as a result of inflation or otherwise, on which the restaurants depend for their energy supply. In addition, interruptions to the availability of gas, electric, water, or other utilities, whether due to aging infrastructure, weather conditions, fire, animal damage, trees, digging accidents, geopolitical impacts, or other reasons largely out of our control, may adversely affect our operations. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our sales and results of operations.
Certain economic and business factors, and their impacts on the restaurant industry, and other general macroeconomic factors, including unemployment, energy prices, and interest rates that are largely beyond our control may adversely affect consumer behavior and our sales and results of operations.
Our business results depend, in part, on a number of industry-specific and general economic factors, many of which are beyond our control, and may adversely affect consumer behavior, our sales, and our results of operations. The full-service dining sector of the restaurant industry is affected by changes in international, national, regional, and local economic conditions, seasonal fluctuation of sales volumes, consumer spending patterns, and consumer preferences, including changes in consumer tastes and dietary habits, and the level of consumer acceptance of our restaurant brands. The performance of individual restaurants may also be adversely affected by factors such as demographic trends, severe weather including hurricanes, traffic patterns, and the type, number, and location of competing restaurants.
General economic conditions, including slow global recovery from economic downturns, geopolitical conditions, and uncertainty about the strength or pace of economic recovery, have also adversely affected our results of operations and may continue to do so. Economic recession, a protracted economic slowdown, a worsening economy, political instability, increased unemployment, increased inflation, increased energy prices, rising interest rates, a downgrade of the U.S. government’s long-term credit rating, imposition of retaliatory tariffs on important U.S. imports and exports or other industry-wide cost pressures have
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affected and can continue to affect consumer behavior and spending for restaurant dining occasions and may lead to a decline in sales and earnings. Economic uncertainty has caused and may continue to cause guests to make fewer discretionary purchases, and any significant decrease in our guest traffic or average profit per transaction will negatively impact our financial performance. In addition, if gasoline, natural gas, electricity, and other energy costs remain at the current elevated levels or increase further, and credit card, home mortgage, and other borrowing costs increase with rising interest rates, our guests may have lower disposable income and reduce the frequency of their dining occasions, may spend less on each dining occasion or may choose more inexpensive food options.
Furthermore, we cannot predict the effects that actual or threatened armed conflicts, including the ongoing armed conflicts in the Ukraine and the Middle East, terrorist attacks, efforts to combat terrorism, heightened security requirements, or a failure to protect information systems for critical infrastructure, such as the electrical grid and telecommunications systems, could have on our operations, the economy or consumer confidence generally. Any of these events could affect consumer spending patterns or result in increased costs for us due to security measures.
Unfavorable changes in the above factors or in other business and economic conditions affecting our guests could increase our costs, reduce traffic in some or all of our restaurants or impose practical limits on pricing, any of which could lower our profit margins and have a material adverse effect on our sales, financial condition, and results of operations.
Risks Related to Human Capital
The inability to hire, train, reward, and retain restaurant team members and determine and maintain adequate staffing may impact our ability to achieve our operating, growth, and financial objectives.
Our long-term growth depends on our ability to recruit and retain high-quality team members to work in and manage our restaurants. Adequate staffing and retention of qualified restaurant team members is a critical factor impacting our guests’ experience in our restaurants. Maintaining adequate staffing in our existing restaurants and hiring and training staff for our new restaurants require precise workforce planning which has been complicated by the competitive labor market in the United States. The market for the most qualified talent continues to be competitive, and we must provide competitive wages, benefits, and workplace conditions to maintain our most qualified team members. A shortage of qualified candidates who meet all legal citizenship or work authorization requirements, failure to recruit and retain new team members in a timely manner, or higher than expected turnover levels all could affect our ability to open new restaurants, grow sales at existing restaurants, or meet our labor cost objectives. Changes and further anticipated changes in immigration laws, regulations, and enforcement could decrease the pool of candidates with legal work authorizations, cause disruption in the workforce for all companies that rely on hourly workers, and increase the costs, time, and requirements to hire new employees. An inability to adequately monitor and proactively respond to team member dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation, and unionization, which could jeopardize our ability to meet our growth targets or impact our results of operations.
A failure to recruit, develop, and retain effective leaders or the loss or shortage of personnel with key capacities and skills could impact our strategic direction and jeopardize our ability to meet our business performance expectations and growth targets.
Our future growth depends substantially on the contributions and abilities of key executives and other leadership team members. We must continue to recruit, retain, and motivate management team members in order to achieve our current business objectives and support our projected growth. Unplanned changes in senior management could expose us to significant changes in strategic direction and initiatives. A failure to maintain the organizational capacity necessary to support leadership excellence and develop adequate bench strength with the key skill sets required for growth or a loss of key skill sets could jeopardize our ability to meet our business performance expectations and growth targets.
We may be subject to increased labor and insurance costs.
Our restaurant operations are subject to United States federal, state, and local laws governing such matters as minimum wages, working conditions, overtime, and tip credits. Labor inflation, including increases in federal, state, and local minimum wage rates, may require us to increase not only the wages of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages, increased employee turnover, and health care and other benefit or working condition regulations also have increased and may continue to increase our labor costs. These increased costs could, in turn, lead us to increase our menu prices, which could negatively impact our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in menu prices, our profitability may decline. In addition, the current premiums that we pay for our insurance, including workers’ compensation, general liability, property, health, and directors’ and officers’ liability, may increase at any time, thereby further increasing our costs. The dollar amount of claims that we experience under our workers’ compensation and general liability insurance, for which we carry high per-claim deductibles,
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may also increase at any time, thereby further increasing our costs. In addition, if property and liability insurance becomes less available or more difficult to obtain, we may incur higher premium costs and face increased exposure to uninsured losses.
Risks Relating to Health and Safety
Health concerns arising from food-related pandemics, outbreaks of flu, viruses, or other diseases may have an adverse effect on our business.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as the novel coronavirus that caused COVID-19, norovirus, avian flu, “SARS,” “MERS,” H1N1, “swine flu,” or other diseases. To the extent that a virus or disease is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our guests to eat less of a product, or could reduce public confidence in food handling and/or public assembly. If we change a restaurant menu in response to such concerns, we may lose guests who do not prefer the new menu, and we may not be able to attract a sufficient new guest base to produce the sales needed to make the restaurant profitable. We also may have different or additional competitors for our intended guests as a result of such a change and may not be able to successfully compete against such competitors. If a virus or other disease is transmitted by human contact or respiratory transmission, our employees or guests could become infected, or could choose or be advised, to avoid gathering in public places, any of which could adversely affect our restaurant guest traffic and our ability to adequately staff our restaurants, receive deliveries on a timely basis, or perform functions at the corporate level. We also could be adversely affected if the World Health Organization and/or The United States Centers for Disease Control were to restrict travel to affected geographic areas where we source our products, thus possibly impacting the continuity of supply. Additionally, jurisdictions in which we have restaurants may impose mandatory closures, seek voluntary closures, or impose restrictions on operations. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may cause guests to choose other alternatives to dining out in our restaurants which may adversely affect our business.
A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.
Food safety is a top priority for us, and we dedicate substantial resources to ensuring that our guests enjoy safe, quality food products. Even with strong preventative interventions and controls, food safety issues could be caused at the source or by food suppliers or distributors and, as a result, may be out of our control and require prompt action to mitigate impact. In addition, regardless of the source or cause, any report of food-borne illnesses caused by pathogens such as E. coli, hepatitis A, norovirus, listeria, salmonella, or other food safety issues including food tampering or contamination at one of our restaurants, whether true or not, could adversely affect the reputation of our brands and have a negative impact on our sales. Even instances of food-borne illness, food tampering, or food contamination occurring solely at our competitors’ restaurants, suppliers, or distributors, even if we do not work with them, could result in negative publicity about the food service industry generally and adversely impact our sales. Social media has dramatically increased the speed with which negative publicity, including actual or perceived food safety incidents, is disseminated before there is any meaningful opportunity to investigate, validate, respond to, and mitigate an issue. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
Risks Relating to Information Technology, Cybersecurity and Privacy
We rely heavily on information technology in our operations, and insufficient guest or employee facing technology or a failure to maintain a continuous and secure cyber network, free from material failure, interruption, or security breach, could harm our ability to effectively operate our business and/or result in the loss of respected relationships with our guests or employees.
We rely heavily on information systems across our operations, including for e-commerce, marketing programs, employee engagement, management of our supply chain, the point-of-sale processing system in our restaurants, and various other processes and transactions. Our ability to effectively manage our business and coordinate the production, distribution, and sale of our products depends significantly on the reliability, security, and capacity of these systems. In addition, we must effectively respond to changing guest expectations and new technological developments, and if we fail to implement emerging technologies as quickly and efficiently as our competitors, we may lose guests or employees. As technology continues to play an increasing role in our guests’ experiences, disruptions, failures, or other performance issues with guest-facing technology systems could impair the benefits that technology provides to our business and negatively affect our relationship with our guests. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or any other failure to maintain a continuous and secure cyber network could result in substantial harm or inconvenience to the Company, our team members, or guests. This could include the theft of our intellectual property, trade secrets, or sensitive, personal, or financial information. Some of these essential business processes that are dependent on technology are outsourced to third parties. While we make
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efforts to ensure that our providers are observing proper standards and controls, we cannot guarantee that breaches or failures caused by these outsourced providers will not occur.
From time to time, we and our third party service providers and suppliers experience unauthorized attempts to infiltrate and interrupt information systems. To date, interruptions of these information systems, as a result of unauthorized infiltration attempts, have not had a material impact on our operations. However, because technology is increasingly complex and cyber-attacks are increasingly sophisticated and more frequent, there can be no assurance that such incidents will not have a material adverse effect on us in the future. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may increase our, our service providers’, and key suppliers’ cybersecurity risks.
Unauthorized access, theft, use, destruction, or other compromises are becoming increasingly sophisticated, more difficult to detect, contain, and mitigate, and may occur through a variety of methods, including attacks using malicious code, vulnerabilities in software, hardware, or other infrastructure (including systems used by our supply chain), system misconfigurations, phishing, or social engineering. Failure of our or our service providers’ information systems to function as intended, or cyber-attacks or security breaches, could result in loss of revenue, assets, personal data, intellectual property, trade secrets, or other sensitive and confidential data, violation of applicable privacy and data security laws, reputational harm to the companies and their brands, operational disruptions, legal challenges, and significant remediation and other costs, all of which could have a material adverse effect on our business.
Any such failures or disruptions, whether caused by system failures or threat actors attempting to infiltrate our systems, may cause delays in guest service, reduce efficiency in our operations, require significant capital investments to remediate the problem, result in customer, employee, or advertiser dissatisfaction or otherwise result in negative publicity that could harm our reputation.We could also be subjected to litigation, regulatory investigations, or the imposition of penalties.Such security breaches also could result in a violation of applicable U.S. and international privacy, cyber, and other laws or trigger data breach notification laws, including new disclosure rules promulgated by the SEC, and subject us to private third party or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. As information security laws and regulations change and cyber risks evolve, we may be required to make significant capital investments and other expenditures to comply with new legal requirements, investigate security incidents, remedy cybersecurity issues, recuperate lost data, prevent future compromises, and adapt systems and practices to react to the changing threat environment.
We may incur increased costs to comply with privacy and data protection laws, and, if we fail to comply or our systems are compromised, we could be subject to government enforcement actions, private litigation, and adverse publicity.
We receive and maintain certain personal, financial, and other information about our customers, employees, vendors, and suppliers. In addition, certain of our vendors receive and maintain certain personal, financial, and other information about our employees and customers. The use and handling, including security, of this information is regulated by evolving and increasingly demanding data privacy laws and regulations in various jurisdictions, as well as by certain third-party contracts and industry standards. Complying with existing and newly developed laws and regulations, which are subject to change and uncertain interpretations and may be inconsistent from jurisdiction to jurisdiction, may lead to a decline in guest engagement or cause us to incur substantial costs or modifications to our operations or business practices to comply. The increasingly complex and evolving regulatory environment related to data privacy and data protection laws may result in significant costs arising from compliance and from any non-compliance, whether or not due to our negligence, and could affect our brand reputation and our results of operations. We have and expect to continue to have significant expenses arising from compliance with these regulatory regimes due to changes in the techniques and sophistication used to conduct cyber-attacks and breaches. In addition, if our security and information systems are compromised as a result of data corruption or loss, cyber-attack, or a network security incident, or if our employees or vendors fail to comply with these laws and regulations, or fail to meet industry standards and this information is obtained by unauthorized persons or used inappropriately, it could result in liabilities and penalties and could damage our reputation, cause interruption of normal business performance, cause us to incur substantial costs and result in a loss of customer confidence, which could adversely affect our results of operations and financial condition. Additionally, we could be subject to litigation and government enforcement actions as a result of any such failure.
Risks Related to the Restaurant Industry
We are subject to a number of risks relating to public policy changes and federal, state, and local regulation of our business, including in the areas of environmental matters, minimum wage, employee benefit regulations, unionization, menu labeling, immigration requirements, and taxes, and an insufficient or ineffective response to legislation or government regulation may adversely impact our cost structure, operational efficiencies, and talent availability.
The restaurant industry is subject to extensive federal, state, local, and international laws and regulations. The development and operation of restaurants depends on the selection and acquisition of suitable sites to a significant extent, which are subject to
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building, zoning, land use, environmental, traffic, and other regulations and requirements. We are subject to licensing and regulation by state and local authorities relating to health, sanitation, environmental impact, safety and fire standards, and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content, and menu labeling. We are also subject to federal, state, and local laws governing employment practices and working conditions. These laws cover minimum wage rates, wage and hour practices, labor relations, paid and family leave, workplace safety, and immigration, among others. The myriad of laws and regulations being passed at the state and local level creates unique challenges for a multi-state employer as different standards apply to different locations, sometimes with conflicting requirements. We must continue to monitor and adapt our employment practices to comply with these various laws and regulations.
We also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the ADA. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings, and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs.
We are subject to a variety of federal, state, and local laws and regulations relating to the use, storage, discharge, emission, and disposal of hazardous materials. There also has been increasing focus by governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gas emissions, and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters. Legislative, regulatory, or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, compliance, risk management, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.
We are subject to laws relating to information security, cashless payments and consumer credit, protection, and fraud. Compliance with these laws and regulations can be costly and time consuming, and any failure or perceived failure to comply with these laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition or results of operations.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements, the consequences of litigation relating to current or future laws and regulations, or an insufficient or ineffective response to significant regulatory or public policy issues could negatively impact our cost structure, operational efficiencies, and talent availability, and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state, and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines, and civil and criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
We face intense competition, and if we have an insufficient strategy or focus on competition and the consumer landscape, our business, financial condition, and results of operations could be adversely affected.
The full-service dining sector of the restaurant industry is intensely competitive with respect to pricing, service, location, personnel, take-out and delivery options, and type and quality of food, and there are many well-established competitors. We compete within each market with national and regional restaurant chains and locally-owned restaurants. We also face growing competition as a result of the trend toward convergence in grocery, deli, and restaurant services, particularly in the supermarket industry which offers “convenient meals” in the form of improved entrées, side dishes, or meal preparation kits from the deli or prepared foods sections. Furthermore, delivery aggregators and food delivery services provide consumers with convenient access to a broad range of competing restaurant chains and food retailers, particularly in urbanized areas, and may form a closer relationship with our customers and increase costs to us. We compete primarily on the quality, variety, and value perception of menu items. The number and location of restaurants, type of brand, quality and efficiency of service, attractiveness of facilities, and effectiveness of advertising and marketing programs are also important factors. We anticipate that intense competition will continue with respect to all of these factors. We may be unable to successfully respond to changing consumer preferences, including with respect to new technologies and alternative methods of engaging with our brands, like delivery. In addition, online platforms and aggregators may direct potential customers to other options based on paid placements, online reviews, or other factors. If we are unable to continue to compete effectively, our business, financial condition, and results of operations could be adversely affected.
We are subject to changes in consumer preferences that may adversely affect demand for food at our restaurants.
Consumers are continually changing health and dietary preferences. As a result, our diverse portfolio of restaurant brands is continually challenged to evolve our menu offerings to appeal to these changing customer preferences, while maintaining our
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brand character and retaining popular menu items. New information or changes in dietary, nutritional, allergen, or health guidelines or environmental or sustainability concerns, whether issued by government agencies, academic studies, advocacy organizations, or similar groups, may cause some groups of consumers to select foods other than those that are offered by our restaurants. If we fail to anticipate changing trends or other consumer preferences, our business, financial condition, and results of operations could be adversely affected.
Our inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could have a material adverse impact on our business.
The proliferation and utilization of existing and innovative social media platforms allows individuals and businesses access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or business. The harm may be immediate without affording us an opportunity for effective redress or correction. The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy.
Our competitors are constantly expanding their use of social media and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete. As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance. As part of our marketing efforts, we rely on social media platforms and search engine marketing to attract and retain guests. We also continue to invest in other digital marketing initiatives that allow us to reach our guests across multiple digital channels and build their awareness of, engagement with, and loyalty to our brands. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues, increased employee engagement, or brand recognition. In addition, the use of social media for business purposes presents various risks, including the improper disclosure of proprietary information, exposure of personally identifiable information, fraud, and the dissemination of inaccurate information. Negative comments about our Company and/or our brands, as well as the inappropriate use of social media vehicles by our guests or employees, could increase our costs, lead to litigation, or result in negative publicity that could damage our reputation.
A failure to identify and execute innovative marketing and guest relationship tactics, ineffective or improper use of other marketing initiatives, and increased advertising and marketing costs could adversely affect our sales and results of operations.
If our competitors increase their spending on advertising and promotions, if our advertising, media, or marketing expenses increase, if our advertising and promotions become less effective than those of our competitors, or if we do not adequately leverage technology and data analytic capabilities needed to generate concise competitive insight, we could experience a material adverse effect on our sales and our results of operations. A failure to sufficiently innovate, develop guest relationship initiatives, cultivate and sustain brand loyalty, or maintain adequate and effective advertising could inhibit our ability to maintain brand relevance and drive increased sales.
As part of our marketing efforts, we rely on social media platforms and search engine marketing to attract and retain guests. These initiatives may not be successful, and pose a variety of other risks, as discussed above under the heading: “Our inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could have a material adverse impact on our business.”
Climate change, adverse weather conditions, and natural disasters could adversely affect our sales or results of operations.
The long-term effects of climate change and global warming may result in more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations. Adverse weather conditions have in the past and may continue to impact guest traffic at our restaurants, cause the temporary underutilization of outdoor patio seating and, in more severe cases such as hurricanes, tornadoes, wildfires, or other natural disasters, cause property damage and temporary closures, sometimes for prolonged periods, which could negatively impact our sales or costs. Climate change and government regulation relating to climate change, including regulation of greenhouse gas emissions, could result in construction delays and increased costs, interruptions to the availability or increases in the cost of utilities, and shortages or interruptions in the supply or increases to the costs of food items and other supplies.
Risks Relating to Our Business Model and Strategy
A majority of our restaurants are operated in leased properties and as a result, we are committed to long-term lease obligations that we may not be able to cancel if we want to close a restaurant location and we may be unable to renew the leases that we may want to extend at the end of their terms.
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As of May 31, 2026, 2,104 of our 2,202 restaurants operating in the United States operate in leased locations, and the leases are generally non-cancellable for some period of time. If we close a restaurant in a leased location, we may remain committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. Additionally, the potential losses associated with our inability to cancel leases may result in our keeping open restaurant locations that are performing significantly below targeted levels. As a result, ongoing lease obligations at closed or underperforming restaurant locations could impair our results of operations. In addition, at the end of a lease term and expiration of all renewal periods, we may be unable to renew a lease without substantial additional cost, if at all. As a result, we may be required to close or relocate a restaurant, which could subject us to construction and other costs and risks that may have an adverse effect on our operating performance.
Our inability or failure to execute on a comprehensive business continuity plan following a major natural disaster, such as a hurricane or manmade disaster, at our corporate facility could have a materially adverse impact on our business.
Many of our corporate systems and processes and corporate support for our restaurant operations are centralized at one Florida location.We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including hurricanes and other natural or manmade disasters, and back up and off-site locations for recovery of electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations, and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operations, and exposure to administrative and other legal claims.
We may lose sales or incur increased costs if our restaurants experience shortages, delays, or interruptions in the delivery of food and other products from our third party vendors and suppliers.
We have a limited number of suppliers and distributors for certain of our products and services. Shortages, delays, or interruptions in the supply of food items and other supplies to our restaurants may be caused by animal disease outbreaks affecting livestock and/or poultry; severe weather; natural disasters such as hurricanes, tornadoes, floods, droughts, wildfires, and earthquakes; macroeconomic conditions, such as tariffs and trade disputes, resulting in disruptions to the shipping and transportation industries; labor issues, such as increased costs or worker shortages or other operational disruptions at our suppliers, vendors, or other service providers; the inability of our vendors or service providers to manage adverse business conditions, obtain credit, or remain solvent; or other conditions beyond our control. Such shortages, delays, or interruptions could adversely affect the availability, quality, and cost of the items we buy and the operations of our restaurants. Supply chain disruptions have increased some of our costs and limited the availability of certain products for our restaurants in the past and may continue to do so. Consumers at our restaurants may be sensitive to price increases, and if we increase menu prices as a result of increased food costs or remove menu items due to shortages, such responses may negatively impact our sales. If we temporarily close a restaurant or remove popular items from a restaurant’s menu, that restaurant may experience a significant reduction in sales during the time affected by the shortage or thereafter as a result of our guests changing their dining habits.
Our failure to drive both short-term and long-term profitable sales growth through brand relevance, operating excellence, opening new restaurants of existing brands, and acquiring new restaurant brands could result in poor financial performance.
As part of our business strategy, we intend to drive profitable sales growth by increasing same-restaurant sales at existing restaurants, continuing to expand our current portfolio of restaurant brands, and acquiring additional brands that can be expanded profitably. This strategy involves numerous risks, and we may not be able to achieve our growth objectives.
At our existing brands, we may not be able to maintain brand relevance and restaurant operating excellence to achieve sustainable same-restaurant sales growth and warrant new unit growth. Failure to maintain such brand and operating excellence may also result in restaurant closures. Existing brand short-term sales growth could be impacted if we are unable to drive near-term guest count and sales growth, and long-term sales growth could be impacted if we fail to extend our existing brands in ways that are relevant to our guests. A failure to innovate and extend our existing brands in ways that are relevant to guests and occasions in order to generate sustainable same-restaurant traffic growth and produce non-traditional sales and earnings growth opportunities, insufficient focus on our competition, or failure to adequately address declines in the casual dining industry, could have an adverse effect on our results of operations. In addition, we may not be able to support sustained new unit growth or open all of our planned new restaurants, and the new restaurants that we open may not be profitable or as profitable as our existing restaurants. New restaurants typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly opened restaurants generally do not make a significant contribution to profitability in their initial months of operation. The opening of new restaurants can also have an adverse effect on guest counts and sales levels at existing restaurants.
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The ability to open and profitably operate restaurants is subject to various risks, such as the identification and availability of suitable and economically viable locations; the negotiation of acceptable lease or purchase terms for new locations; the need to obtain all required governmental permits, including zoning approvals and liquor licenses, on a timely basis; the need to comply with other regulatory requirements; the availability of necessary contractors and subcontractors; the ability to meet construction schedules and budgets; the ability to manage union activities, such as picketing or hand billing which could delay construction; increases in labor and building material costs; supply chain disruptions; the availability of financing at acceptable rates and terms; changes in patterns or severity of weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time; and our ability to hire and train qualified management personnel and general economic and business conditions. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees, and other resources. If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated sales and earnings in future periods.
We also may not be able to identify and successfully acquire and integrate additional brands that are as profitable as our existing restaurants or that provide potential for further growth.
A lack of availability of suitable locations for new restaurants or a decline in the quality of the locations of our current restaurants may adversely affect our sales and results of operations.
The success of our restaurants depends in large part on their locations. As demographic and economic patterns change, current locations may not continue to be attractive or profitable. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those locations. In addition, desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation. The occurrence of one or more of these events could have a significant adverse effect on our sales and results of operations.
We may experience higher-than-anticipated costs or delays associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.
Our sales and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant and other expenses when we close, relocate, or remodel existing restaurants and we have experienced higher than usual costs and expenses in recent years. The expenses of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated. Increases in the time to procure or shortages of construction labor and materials and capital equipment, or permitting delays, may impact the time it takes to open new restaurants. An increase in such expenses or delays in the timeline to complete construction could have an adverse effect on our results of operations.
We face a variety of risks associated with doing business with franchisees and licensees.
Certain of our domestic and all of our international locations are operated by franchisees or licensees. We believe that we have selected high-caliber operating partners and franchisees with significant experience in restaurant operations, and we provide our operating partners with training and support. However, the probability of opening, ultimate success, and quality of any franchise or licensed restaurant rests principally with the franchisee or licensee. If the franchisee or licensee does not successfully open and operate its restaurants in a manner consistent with our standards, or guests have negative experiences due to issues with food quality or operational execution, our brand values and reputations could suffer, which could have an adverse effect on our business.
We face a variety of risks associated with doing business with business partners and vendors in foreign markets.
We are making efforts to expand our brands overseas through licensing and franchising relationships. There is no assurance that international operations will be profitable or that international growth will continue. Our international operations are subject to all of the same risks associated with our domestic operations, as well as a number of additional risks. These include, among other things, international economic and political conditions, foreign currency fluctuations, trade disputes, potential increases in tariffs, differing cultures, and consumer preferences. In addition, expansion into international markets could create risks to our brands and reputation.
We also are subject to governmental regulations throughout the world that impact the way we do business with our international franchisees and vendors. These include antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act, the Foreign Corrupt Practices Act, and applicable local law. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.
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Volatility in the market value of derivatives we may use to hedge exposures to fluctuations in commodity and broader market prices may cause volatility in our gross margins and net earnings.
We use or may use derivatives to hedge price risk for some of our principal ingredient, labor, and energy costs, including, but not limited to coffee, butter, wheat, soybean oil, pork, beef, diesel fuel, gasoline, and natural gas. Changes in the values of these derivatives may be recorded in earnings currently, resulting in volatility in both gross margin and net earnings. These gains and losses are reported as a component of cost of sales in our Consolidated Statements of Earnings included in our consolidated financial statements.
Volatility in the United States equity markets affects our ability to efficiently hedge exposures to our market risk related to equity-based compensation awards.
The equity markets in the United States have experienced recent periods of volatility due to the impacts of macroeconomic conditions, geopolitical concerns, and the unpredictability of the impact on the United States economy as a result of these factors. Market volatility has contributed to and may continue to contribute to fluctuations in the Company’s stock price. We have equity hedges in place to protect the Company from exposure to market risk related to future payout of equity-based compensation awards. However, because these hedges also net settle on a cash basis quarterly, we have been and may in the future be required to make cash payments at those quarterly settlement dates and the amounts of those payments are difficult to predict during periods of extreme volatility in the equity markets. These cash payments may ultimately be offset by payments to us from the hedge counterparties or reductions in expected payouts to employees when those equity hedges finally fully settle and the related equity awards pay out.
Failure to protect our service marks or other intellectual property could harm our business.
We regard our Olive Garden®, LongHorn Steakhouse®, Yard House®, Ruth’s Chris Steak House®, Cheddar’s Scratch Kitchen®, The Capital Grille®, Chuy’s®, Seasons 52®, Eddie V’s Prime Seafood®, Bahama Breeze®, The Capital Burger®, Darden®,and Darden Restaurants® service marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, service marks, and other common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from infringement. We have registered certain trademarks and service marks in the United States and foreign jurisdictions. However, we are aware of names and marks identical or similar to our service marks being used from time to time by other persons. Although our policy is to oppose any such infringement, further or unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and adversely affect our business. In addition, effective intellectual property protection may not be available in every country in which we have or intend to open or franchise a restaurant. Although we believe we have taken appropriate measures to protect our intellectual property, there can be no assurance that these protections will be adequate, and defending or enforcing our service marks and other intellectual property could result in the expenditure of significant resources.
Environmental, Social, and Governance (“ESG”) matters, our reporting of such matters, or sustainability ratings could negatively impact our business, results of operations and financial condition.
ESG-related matters have received increased focus recently from investors, employees, ratings agencies, governmental agencies, and other stakeholders, often with differing and competing expectations and standards. From time to time, we may publish statements relating to our commitment to responsible business, including commitments relating to greenhouse gas emissions. Such statements reflect the Company’s current plans and aspirations at the time they are made, and should not be construed as guarantees or that we will be able to achieve them. Our failure to adequately update, accomplish, or accurately track and report on these commitments on a timely basis, or at all, could adversely affect our reputation, financial performance, and growth, and expose us to increased scrutiny from the investment community, special interest groups, and enforcement authorities. In addition, as an “anti-ESG” sentiment exists among some individuals and government institutions, we may also face scrutiny, reputational risk, lawsuits or market access restrictions from these parties regarding our ESG initiatives. Additionally, we may face increased scrutiny related to any third party sustainability ratings we receive, which could adversely affect our reputation, business, and results of operations.
General Risks
Litigation, including allegations of illegal, unfair, or inconsistent employment practices, may adversely affect our business, financial condition, and results of operations.
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Our business is subject to the risk of litigation by employees, guests, suppliers, business partners, shareholders, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actions, or other litigation. These actions and proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination; guest discrimination; food safety issues including poor food quality, food-borne illness, food tampering, food contamination, and adverse health effects from consumption of various food products or high-calorie foods; other personal injury; violation of “dram shop” laws (providing an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated party who then causes injury to himself or a third party); trademark infringement; violation of federal securities laws; or other concerns. We may also be subject to claims arising from the actions or omissions of third-party service providers, contractors, or others, including in connection with our operations or marketing activities, even when such conduct is outside of our control. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend litigation may be significant. There may also be adverse publicity associated with litigation that could decrease guest acceptance of our brands, regardless of whether the allegations are valid or we ultimately are found liable. Litigation could impact our operations in other ways as well. Allegations of illegal, unfair, or inconsistent employment practices, for example, could adversely affect employee acquisition and retention. As a result, litigation may adversely affect our business, financial condition, and results of operations.
Unfavorable publicity, or a failure to respond effectively to adverse publicity, could harm our reputation and adversely impact our guest counts and sales.
The good reputation of our restaurant brands is a key factor in the success of our business. Actual or alleged incidents at any of our restaurants could result in negative publicity that could harm our brands. Even incidents occurring at restaurants operated by our competitors or in the supply chain generally could result in negative publicity that could harm the restaurant industry overall and, indirectly, our own brands. Negative publicity may result from allegations of illegal, unfair, or inconsistent employment practices, employee dissatisfaction, guest discrimination, illness, injury, or any of the other matters discussed above that could give rise to litigation. Reputational value is also based on perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of us, our brands, and our properties, and it may be difficult to control or effectively manage negative publicity, regardless of whether it is accurate. While reputations may take decades to build, negative incidents can quickly erode trust and confidence, particularly if any such negative incidents result in adverse mainstream and social media publicity, governmental investigations, proceedings, penalties, or litigation. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants, including franchised restaurants, or to only a single restaurant, could adversely affect public perception of the entire brand. Negative publicity, including through social media, also may result from health concerns including food safety and flu or virus outbreaks, publication of government or industry findings concerning food products, environmental disasters, crime incidents, data security breaches, scandals involving our employees, or operational problems at our restaurants, all of which could make our brands and menu offerings less appealing to our guests and negatively impact our guest counts and sales. Adverse publicity and its effect on overall consumer perceptions of our brands, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.
Disruptions in the financial and credit markets may adversely impact consumer spending patterns and affect the availability and cost of credit.
Our ability to make scheduled payments or to refinance our debt and to obtain financing for acquisitions or other general corporate and commercial purposes will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business, and other factors beyond our control. Turmoil in global credit markets could adversely impact the availability of credit already arranged and the availability and cost of credit in the future. There can be no assurances that we will be able to arrange credit on terms we believe are acceptable or that permit us to finance our business with historical margins. A lack of credit could have an adverse impact on certain of our suppliers, landlords, and other tenants in retail centers in which we are located. The occurrence of any of these types of issues could negatively affect our financial results. Any new disruptions in the financial markets may also adversely affect the U.S. and world economy, which could negatively impact consumer spending patterns.
Impairment of the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and results of operations.
Goodwill represents the difference between the purchase price of acquired companies and the related fair values of net assets acquired. A significant amount of judgment is involved in determining if an indication of impairment of goodwill exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and negatively affect our financial condition and
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results of operations. We compute the amount of impairment by comparing the fair value of the reporting unit with the carrying amount of that reporting unit. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.
We evaluate the useful lives of our other intangible assets, primarily the LongHorn Steakhouse®, Yard House®, Ruth’s Chris Steak House®, Cheddar’s Scratch Kitchen®, The Capital Grille®, Chuy’s® and Eddie V’s Prime Seafood® trademarks, to determine if our intangible assets are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.
As with goodwill, we test our indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We cannot accurately predict the amount and timing of any impairments of these or other assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and results of operations.
Changes in tax laws and unanticipated tax liabilities could adversely affect our financial results.
We are primarily subject to income and other taxes in the United States. Our effective income tax rate and other taxes in the future could be adversely affected by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws or other legislative changes, and the outcome of income tax or other tax audits. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical tax accruals and income tax provisions. The results of a tax audit could have a material effect on our results of operations or cash flows in the period or periods for which that determination is made. In addition, our effective income tax rate and our results may be impacted by our ability to realize deferred tax benefits and by any increases or decreases of our valuation allowances applied to our existing deferred tax assets.
Failure of our internal controls over financial reporting and future changes in accounting standards may cause adverse unexpected operating results, affect our reported results of operations, or otherwise harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Our growth and acquisition of other restaurant companies with procedures not identical to our own could place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock, increase our costs, lead to litigation, or result in negative publicity that could damage our reputation.
A change in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions before the change is effective. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing accounting rules or the application of current accounting practices may adversely affect our reported financial results. Additionally, our assumptions, estimates, and judgments related to complex accounting matters could significantly affect our financial results. Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to, revenue recognition, fair value of investments, impairment of long-lived assets, leases and related economic transactions, derivatives, pension and post-retirement benefits, intangibles, self-insurance, income taxes, property and equipment, unclaimed property laws and litigation, and stock-based compensation, are highly complex and involve many subjective assumptions, estimates, and judgments by us. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments by us could significantly change our reported or expected financial performance.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
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Item 1C. Cybersecurity
Risk Management and Strategy
We have implemented policies and procedures intended to manage and reduce cybersecurity risk that are integrated with the Enterprise Risk Management (“ERM”) framework utilized by management and the Audit Committee to oversee our various top enterprise risks. We maintain a cybersecurity incident response plan that is designed to protect against, identify, evaluate, respond to, and mitigate a cybersecurity incident. The plan provides for the mobilization of an incident response team in the event of a cybersecurity incident and is designed to be flexible enough to accommodate a broad array of potential scenarios. The incident response team is a cross-functional group that may be composed of both Company personnel and external service providers and is tailored to a particular incident so that individuals with appropriate experience and expertise are available. We conduct regular exercises to help ensure the plan’s effectiveness and our overall response preparedness.
We have also invested in various tools to protect our data and information technology. We maintain a robust system of data protection and cybersecurity resources, technology, and processes, and we regularly evaluate new and emerging risks and ever-changing legal and compliance requirements. We make ongoing strategic investments to address these risks, including maintaining insurance coverage to mitigate the potential financial consequences of cybersecurity incidents, and compliance requirements to help keep our Company, guest, and team member data secure. We monitor risks of sensitive information compromise at our business partners, where relevant, and reevaluate these risks on a periodic basis. In addition, we have a cybersecurity training program designed to educate and train employees how to identify and report cybersecurity threats. Training programs are conducted on a periodicbasis and are focused on giving employees the awareness and tools to manage our most relevant and prevalent cybersecurity risks. We also provide specialized training for employees in more sensitive roles.For example, we perform annual and ongoing cybersecurity awareness training for our restaurant management and RSC team members. In addition, we provide annual credit card handling training following PCI guidelines to all team members that handle guest credit cards. We conduct regular drills, such as tabletop exercises led by third party consultants, to support our overall preparedness for a variety of scenarios.
We take measures to regularly update and improve our cybersecurity program, including conducting independent program assessments, penetration testing, and scanning of our systems for vulnerabilities. We periodically engage third parties to perform cybersecurity audits to measure the maturity of our cybersecurity program against the NIST Framework. We also engage third parties to conduct security reviews of our network, processes, and systems on a regular basis to identify opportunities and enhancements to strengthen our policies and practices.
With respect to third-party service providers, our cybersecurity program includes conducting due diligence on relevant service providers’ information security programs prior to onboarding and periodically reassessing those programs using a risk-based approach. We also contractually require third-party service providers with access to our information technology systems, sensitive business data, or personal information to implement and maintain appropriate security controls and contractually restrict their ability to use our data, including personal information, for purposes other than to provide services to us, except as required by law. To oversee the risks associated with these service providers, we work with them to help ensure that their cybersecurity protocols are appropriate to the risk presented by their access to or use of our systems and/or data, including notification and coordination concerning incidents occurring on third-party systems that may affect us. Our service providers are contractually required to notify us promptly of information security incidents occurring on their systems that may affect our systems or data, including personal information.
Although we have invested in the protection of our data and information technology and monitor our systems on an ongoing basis, there can be no assurance that such efforts will prevent material compromises to our information technology systems in the future that could have a material adverse effect on our business. As of the date of this filing, we are not aware of any current cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect our business, results of operations, or financial condition. For further discussion of the risks related to cybersecurity, see the risk factors discussed under “Risks Relating to Information Technology, Cybersecurity, and Privacy” in our Risk Factors in Item 1A of this Form 10-K.
Governance
Our Board of Directors has ultimate risk oversight responsibility for the Company and fulfills this responsibility both directly and with assistance from its committees.Each of the committees periodically reports to the Board of Directors on its specific risk oversight activities.The Audit Committee, comprised solely of independent directors, oversees our overall ERM program and assists the Board of Directors in fulfilling its oversight responsibility with respect to information technology,
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cybersecurity, data, artificial intelligence, and other technology-related risks, all of which are fully integrated into our larger ERM program.The Audit Committee actively reviews and discusses our information security and technology risk management programs and regularly reports out to the full Board of Directors on our relevant strengths and opportunities.
Our cybersecurity program is led by our Chief Information Officer (“CIO”), who is responsible for identifying, assessing, and managing our collective information security and technology risks.Our current CIO has served in that role since 2016 and has more than 20 years of experience in the information security and technology fields. Our CIO holds both bachelor’s and master’s degrees in Electrical Engineering from the Massachusetts Institute of Technology.
Our CIO meets regularly with leaders of our various information technology management teams to review and discuss our cybersecurity and other information technology risks and opportunities. Our global incident response plan sets forth a detailed security incident management and reporting protocol, with escalation timelines and responsibilities.
The Audit Committee receives quarterly updates from the CIO, the director of our cybersecurity team, and a senior attorney, the three most senior leaders with responsibility for oversight of our key cybersecurity program components.These updates include matters such as ongoing changes in our external and internal cybersecurity threat landscape, new technology trends and regulatory developments, evolving internal policies and practices used to manage and mitigate cybersecurity and technology-related risks, and trends in various metrics that are used to help assess our overall cybersecurity program effectiveness.The Audit Committee regularly reports to the full Board of Directors on the cybersecurity-related updates that the Audit Committee receives from the Company’s CIO and cybersecurity team. Our CIO also provides updates to the full Board of Directors on such topics at least annually.
Item 2.PROPERTIES
Restaurant Properties – Continuing Operations
As of May 31, 2026, we owned and operated 2,202 restaurants. Our company-owned restaurants are located in all 50 of the United States and Washington D.C. Of the company-owned restaurants, 98 were located on owned sites and 2,104 were located on leased sites. The leases are classified as follows:
Land-Only Leases (we own buildings and equipment) 1,150
Ground and Building Leases 655
Space/In-Line/Other Leases 299
We also lease our RSC, which is located in Orlando, Florida.
Item 3.LEGAL PROCEEDINGS
See the discussion of legal proceedings contained in the third paragraph of Note 16 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market and Dividend Information
The principal United States market on which our common shares are traded is the New York Stock Exchange, where our shares are traded under the symbol DRI. As of June 30, 2026, there were approximately 7,001 holders of record of our common shares. The number of registered holders does not include holders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
We have not sold any equity securities during the last fiscal year that were not registered under the Securities Act of 1933, as amended.
We have a history of paying cash dividends. Any future dividend payments remain subject to the discretion of our Board of Directors.
Share Repurchases
Since commencing our common share repurchase program in December 1995, we have repurchased a total of 216.7 million shares through May 31, 2026 under authorizations from our Board of Directors. The table below provides information concerning our repurchase of shares of our common stock during the quarter ended May 31, 2026:
(1)All of the shares purchased during the quarter ended May 31, 2026 were purchased as part of our share repurchase program. On June 24, 2026, Darden’s Board of Directors authorized a new share repurchase program, under which the Company may repurchase up to $1.5 billion of its outstanding common stock. This repurchase program, which was announced publicly in a press release issued on June 25, 2026, does not have an expiration and replaces the previously existing share repurchase authorization.
(2)The number of shares purchased includes shares withheld for taxes on vesting of restricted stock, shares delivered or deemed to be delivered to us on tender of stock in payment for the exercise price of options, and shares reacquired pursuant to tax withholding on option exercises. These shares are included as part of our share repurchase program and deplete the repurchase authority granted by our Board. The number of shares repurchased excludes shares we reacquired pursuant to forfeiture of restricted stock.
(3)Repurchases are subject to prevailing market prices, may be made in open market or private transactions, and may occur or be discontinued at any time. There can be no assurance that we will repurchase any additional shares.
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Comparison of Five-Year Total Return
Indexed Returns
The annual changes for the five-year period shown in the graph on this page are based on the assumption that $100 had been invested in Darden Restaurants, Inc. common stock, the S&P 500 Stock Index, and the S&P Composite 1500 Restaurant Sub-Index on May 30, 2021, and that all dividends were reinvested. The cumulative dollar returns shown on the graph represent the value that such investments would have had for each period indicated.
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Item 6.RESERVED
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis should be read in conjunction with our consolidated financial statements and related financial statement notes included in Part II of this report under the caption “Item 8 - Financial Statements and Supplementary Data.” We operate on a 52/53-week fiscal year, which ends on the last Sunday in May. Fiscal 2026, which ended May 31, 2026, consisted of 53 weeks; fiscal 2025, which ended May 25, 2025, consisted of 52 weeks; and fiscal 2027, which ends on May 30, 2027, will consist of 52 weeks.
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant industry. At May 31, 2026, we owned and operated 2,202 restaurants through subsidiaries in the United States under the Olive Garden®, LongHorn Steakhouse®, Yard House®, Ruth’s Chris Steak House®, Cheddar’s Scratch Kitchen®, The Capital Grille®, Chuy’s®, Seasons 52®, Eddie V’s Prime Seafood®, Bahama Breeze®, and The Capital Burger® trademarks. We own and operate all of our restaurants in the United States, except for four restaurants operating under contractual agreements, one restaurant that we jointly own with a third party and operate independently, and 87 franchised restaurants. We also have 80 franchised restaurants in operation located in Canada, Latin America, the Caribbean, Asia, the Middle East, and Europe. All intercompany balances and transactions have been eliminated in consolidation.
On July 14, 2025, we closed on the sale of the Olive Garden Canada Restaurants to Recipe. All gains and losses on disposition have been aggregated in impairments and disposal of assets, net on our consolidated statement of earnings. See Note 4 for additional information. At the closing, Darden and Recipe entered into an area development agreement and franchise agreements, pursuant to which Recipe will operate current and any new restaurants contemplated thereunder under the Olive Garden trade name and will pay royalties for use of the trade name.
On our June 2025 earnings call, we announced the decision to explore strategic alternatives for the Bahama Breeze brand, which, at that time, included 28 company-owned restaurants and one franchised restaurant. As part of this review, we evaluated a potential sale of the brand as well as the conversion of certain restaurants to other Darden brands. On February 3, 2026, we announced the completion of this process and our decision to permanently close approximately half of the remaining Bahama Breeze restaurants, which we completed on or about April 5, 2026, and our expectation to convert the remaining restaurants to other Darden brands over the next 12–18 months. As of the end of fiscal 2026, we have completed one conversion. See Note 4 for additional information.
On October 11, 2024, we acquired 100 percent of the equity interest of Chuy’s Holdings Inc. (“Chuy’s”) in an all-cash transaction of $649.1 million in total consideration, $613.7 million in net cash consideration, inclusive of $35.4 million of cash on Chuy’s balance sheet at closing. As a result of the acquisition and related integration efforts, we incurred expenses of $9.5 million ($7.1 million, net of tax) during fiscal 2026 and $44.6 million ($36.7 million, net of tax) during fiscal 2025, which are primarily included in general and administrative expenses in our consolidated statements of earnings. We finalized the purchase price allocation related to the Chuy’s acquisition in the first quarter of fiscal 2026, which resulted in $267.2 million of goodwill, representing sales and unit growth opportunities, in addition to supply chain and support cost synergies. As of May 31, 2026, all Chuy’s operations have been fully integrated into Darden’s operations.
Fiscal 2026 Financial Highlights
•Total sales increased 9.4 percent to $13.21 billion in fiscal 2026 from $12.08 billion in fiscal 2025, driven by a 2.1 percent increase in sales from an extra week of operations in fiscal 2026, a blended same-restaurant sales increase of 4.5 percent, and sales from the addition of 43 net new restaurants.
•Diluted net earnings per share from continuing operations increased to $10.44 in fiscal 2026 from $8.88 in fiscal 2025, a 17.6 percent increase. The extra week of operations in fiscal 2026 contributed $0.25 to diluted net earnings per share from continuing operations.
•Net earnings from continuing operations increased to $1.21 billion in fiscal 2026 from $1.05 billion in fiscal 2025, a 15.5 percent increase.
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•Net loss from discontinued operations increased to $7.0 million ($0.06 per diluted share) in fiscal 2026, from $1.4 million ($0.02 per diluted share) in fiscal 2025. When combined with results from continuing operations, our diluted net earnings per share was $10.38 for fiscal 2026 and $8.86 for fiscal 2025.
Outlook
We expect fiscal 2027 sales from continuing operations to be $13.60 billion to $13.75 billion, driven by same-restaurant sales growth (1) of 2.5 percent to 3.5 percent and sales from 75 to 80 new restaurant openings. In fiscal 2027, we expect our annual effective tax rate to be approximately 13.5 percent, and we expect capital expenditures incurred to build new restaurants, remodel, and maintain existing restaurants and technology initiatives to be approximately $875 million.
(1) Annual same-restaurant sales is a 52-week metric and excludes the impact of Bahama Breeze as all locations are expected to be closed or converted to other Darden brands (between Q3 fiscal 2026 and Q4 fiscal 2027).
RESULTS OF OPERATIONS FOR FISCAL 2026 AND 2025
To facilitate review of our results of operations, the following table sets forth our financial results for the periods indicated. All information is derived from the consolidated statements of earnings for the fiscal years ended May 31, 2026 and May 25, 2025:
Fiscal Year Ended Percent Change
Costs and expenses:
General and administrative expenses 514.4 520.3 (1.1)%
Impairments and disposal of assets, net (10.7) 49.2 NM
Losses from discontinued operations, net of tax (7.0) (1.4) NM
(1) Effective tax rate 12.6 % 11.5 %
NM- Percentage change not considered meaningful.
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The following table details the number of company-owned restaurants reported in continuing operations at the end of fiscal 2026, compared to the number open at the end of fiscal 2025:
Cheddar’s Scratch Kitchen 184 181
The Capital Grille 74 71
The Capital Burger 3 3
SALES
The following table presents our company-owned restaurant sales, U.S. same-restaurant sales (“SRS”), and average annual sales per restaurant by segment for the periods indicated:
Sales Average Annual Sales per Restaurant (2)
Fiscal Year Ended Percent Change Fiscal Year Ended
(1)Same-restaurant sales is a year-over-year comparison of each period’s sales volumes for a 52-week year, and is limited to restaurants that have been open and operated by Darden for at least 16 months, and excludes the impact of Chuy’s, as they were not owned and operated by Darden for a 16-month period prior to the beginning of fiscal 2026, as well as Bahama Breeze as all locations are expected to be closed or converted to other brands (between Q3 fiscal 2026 and Q4 fiscal 2027).
(2)Average annual sales are calculated as sales divided by total restaurant operating weeks multiplied by 52 weeks; excludes franchise locations.
Olive Garden’s sales increase for fiscal 2026 was primarily driven by additional sales from an extra week of operations, a U.S. same-restaurant sales increase, and revenue from new restaurants. The increase in U.S. same-restaurant sales in fiscal 2026 resulted from a 2.9 percent increase in average check, which included a 0.9 percent increase in off-premise catering sales, and a 1.0 percent increase in same-restaurant guest counts.
LongHorn Steakhouse’s sales increase for fiscal 2026 was primarily driven by additional sales from an extra week of operations, a same-restaurant sales increase, and revenue from new restaurants. The increase in same-restaurant sales in fiscal 2026 resulted from a 3.4 percent increase in average check and a 3.7 percent increase in same-restaurant guest counts.
Fine Dining’s sales increase for fiscal 2026 was driven by additional sales from an extra week of operations, revenue from new restaurants, and same-restaurant sales increases. The increase in same-restaurant sales in fiscal 2026 resulted from a 1.4 percent increase in average check, offset by a 0.2 percent decrease in same-restaurant guest counts.
Other Business’s sales increase for fiscal 2026 was driven by additional sales from an extra week of operations, a U.S. same-restaurant sales increase, and revenue from new restaurants, in addition to a full year of sales from Chuy’s. The increase in
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same-restaurant sales in fiscal 2026 resulted from a 3.3 percent increase in average check combined with a 0.6 percent increase in same-restaurant guest counts.
COSTS AND EXPENSES
The following table sets forth selected operating data as a percent of sales from continuing operations for the periods indicated. This information is derived from the consolidated statements of earnings for the fiscal years ended May 31, 2026 and May 25, 2025.
Fiscal Year Ended
Costs and expenses:
Marketing expenses 1.4 1.4
Pre-opening costs 0.3 0.2
General and administrative expenses 3.9 4.3
Depreciation and amortization 4.2 4.3
Impairments and disposal of assets, net (0.1) 0.4
Total operating costs and expenses 88.0 % 88.7 %
Interest, net 1.5 1.4
Earnings before income taxes 10.5 % 9.8 %
Income tax expense 1.3 1.1
Earnings from continuing operations 9.2 % 8.7 %
Total operating costs and expenses from continuing operations were $11.63 billion in fiscal 2026 and $10.71 billion in fiscal 2025.
Costs and Expenses in Fiscal 2026 Compared to Fiscal 2025:
•Food and beverage costs increased as a percentage of sales, primarily due to a 1.2 percent impact from inflation, partially offset by a 0.9 percent impact from pricing leverage.
•Restaurant labor costs remained flat as a percentage of sales, primarily due to a 1.0 percent impact from sales leverage and a 0.1 percent impact from productivity improvement, offset by a 1.0 percent impact from inflation and a 0.1 percent impact from higher performance-based compensation expense.
•Restaurant expenses remained flat as a percentage of sales, primarily due to a 0.5 percent impact from inflation and a 0.2 percent impact from Uber Direct fees, partially offset by a 0.6 percent impact from sales leverage and a 0.1 percent impact from other expenses.
•Marketing expenses remained flat as a percent of sales.
•Pre-opening costs increased as a percentage of sales, primarily driven by an increase in new restaurants as compared with fiscal 2025.
•General and administrative expenses decreased as a percentage of sales, primarily due to a 0.4 percent impact from sales leverage and a 0.4 percent impact from fiscal 2025 Chuy’s acquisition and integration costs, partially offset by a 0.1 percent impact from inflation, a 0.1 percent impact from higher performance-based compensation, and a 0.2 percent impact related to the closure of Bahama Breeze locations and Chuy’s integration costs.
•Depreciation and amortization expenses decreased as a percentage of sales, primarily due to sales leverage.
•Impairments and disposal of assets, net decreased as a percentage of sales, primarily due to the gain on sale of the Olive Garden Canada Restaurants in fiscal 2026. This decrease was partially offset by costs associated with additional Bahama Breeze closures in fiscal 2026, as compared with fiscal 2025, when we closed a total of 22 underperforming restaurant locations, including 15 Bahama Breeze restaurants, during the fourth quarter.
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INCOME TAXES
The effective income tax rates for fiscal 2026 and 2025 for continuing operations were 12.6 percent and 11.5 percent, respectively. During fiscal 2026, we had income tax expense of $174.9 million on earnings before income tax of $1.39 billion compared to income tax expense of $136.2 million on earnings before income taxes of $1.19 billion in fiscal 2025. This change was primarily driven by increased earnings before taxes.
H.R. 1., also known as the One, Big, Beautiful Bill Act (“OBBBA”), was enacted on July 4, 2025. The legislation includes several provisions that impact the timing and magnitude of certain tax deductions, including restoring 100% bonus depreciation for qualifying property and the immediate expensing of domestic research and development costs. The Company has evaluated the impacts of the OBBBA, and the effects of these provisions have been incorporated into the accompanying financial statements.
NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net earnings from continuing operations for fiscal 2026 were $1.21 billion ($10.44 per diluted share) compared with net earnings from continuing operations for fiscal 2025 of $1.05 billion ($8.88 per diluted share).
Net earnings from continuing operations for fiscal 2026 increased 15.5 percent and diluted net earnings per share from continuing operations increased 17.6 percent compared to fiscal 2025.
LOSS FROM DISCONTINUED OPERATIONS
On an after-tax basis, results from discontinued operations for fiscal 2026 were a net loss of $7.0 million ($0.06 per diluted share) compared to a net loss for fiscal 2025 of $1.4 million ($0.02 per diluted share).
SEGMENT RESULTS
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Yard House, Ruth’s Chris, Cheddar’s Scratch Kitchen, The Capital Grille, Chuy’s, Seasons 52, Eddie V’s, Bahama Breeze, and The Capital Burger, in the U.S. as operating segments. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics, and sub-segment of full-service dining within which each brand operates. Our four reportable segments are: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining, and (4) Other Business. See Note 6 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for further details.
Our management uses segment profit as the measure for assessing performance of our segments. The following table presents segment profit margin for the periods indicated:
Fiscal Year Ended Change
LongHorn Steakhouse 18.6% 19.3% (70) basis points
Fine Dining 17.7% 18.6% (90) basis points
Other Business 15.9% 15.7% 20 basis points
The increase in the Olive Garden segment profit margin for fiscal 2026 was driven primarily by lower food and beverage, restaurant labor and marketing costs, partially offset by higher restaurant expenses. The decrease in the LongHorn Steakhouse segment profit margin for fiscal 2026 was driven primarily by higher food and beverage costs and marketing costs, partially offset by lower restaurant expenses and restaurant labor costs. The decrease in the Fine Dining segment profit margin for fiscal 2026 was driven primarily by higher restaurant labor and food and beverage costs. The increase in the Other Business segment profit margin for fiscal 2026 was driven primarily by lower food and beverage costs, partially offset by increased restaurant labor costs.
RESULTS OF OPERATIONS FOR FISCAL 2025 COMPARED TO FISCAL 2024
For a comparison of our results of operations for the fiscal years ended May 25, 2025 and May 26, 2024, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended May 25, 2025, filed with the SEC on July 18, 2025.
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SEASONALITY
Our sales volumes have historically fluctuated seasonally. Our average sales per restaurant were highest in the spring and winter, followed by the summer and fall. Holidays, changes in the economy, severe weather, and similar conditions may impact sales volumes seasonally in some operating regions. Due to the historical seasonality of our business and these other factors, results for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
IMPACT OF INFLATION
We attempt to minimize the annual effects of inflation through appropriate planning, operating practices, and menu price increases. In recent years, we have experienced higher than usual inflation, led by food and beverage cost and labor inflation. Food and beverage inflation is principally due to increased costs incurred by our vendors related to higher labor, transportation, tariffs, packaging, and raw materials costs. Some of the impacts of inflation have been offset by menu price increases and other adjustments made during the year. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
Our significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report). Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following estimates to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
Valuation of Long-Lived Assets
Land, buildings and equipment, operating lease right-of-use assets, and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; changes in expected useful life; unanticipated competition; slower growth rates; ongoing maintenance and improvements of assets; or changes in the usage or operating performance. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. Based on a review of operating results for each of our restaurants, given the current operating environment, the amount of net book value associated with lower performing restaurants that would be deemed at risk for impairment is not material to our consolidated financial statements.
Valuation and Recoverability of Goodwill and Trademarks
We have 11 reporting units, eight of which have goodwill and nine of which have trademarks. Goodwill and trademarks are not subject to amortization and have been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. We review our goodwill and trademarks for impairment annually, as of the first day of our fourth fiscal quarter, or more frequently if indicators of impairment exist. In fiscal 2026, we performed a quantitative assessment as a part of our annual impairment review.
We estimate the fair value of each reporting unit using the best information available, including market information, also referred to as the market approach, and discounted cash flow projections, also referred to as the income approach. A market approach estimates fair value by applying sales or cash flow multiples to the reporting unit’s operating performance. The multiples are derived from observable market data of comparable publicly traded companies with similar operating and investment characteristics of the reporting units. The income approach uses a reporting unit’s projection of estimated operating cash flows which are based on a combination of historical and current trends, organic growth expectations, and residual growth rate assumptions. These cash flows are discounted using a weighted-average cost of capital (“WACC”) that reflects current
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market conditions. We recognize a goodwill impairment loss when the fair value of the reporting unit is less than its carrying value.
We estimate the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from the reporting unit’s projection of estimated operating cash flows; assumed royalty rates that could be payable if we did not own the trademarks; and a discount rate based on the WACC for each reporting unit. We recognize an impairment loss when the estimated fair value of the trademark is less than its carrying value.
We performed our annual impairment test of our goodwill and trademarks as of February 23, 2026, which was the first day of our fiscal 2026 fourth quarter. As of February 23, 2026, no impairment of goodwill or trademarks was indicated based on our testing.
We evaluate the useful lives of our other intangible assets to determine if they are definite or indefinite-lived. A determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.
Unearned Revenues
Unearned revenues primarily represent our liability for gift cards that have been sold but not yet redeemed. The estimated value of gift cards expected to remain unused is recognized over the expected period of redemption as the remaining gift card values are redeemed, generally over a period of 12 years. Utilizing this method, we estimate both the amount of breakage and the time period of redemption. If actual redemption patterns vary from our estimates, actual gift card breakage income may differ from the amounts recorded. We update our estimates of our redemption period and our breakage rate periodically and apply that rate to gift card redemptions on a prospective basis. Changing our breakage-rate estimates by 50 basis points would have resulted in an adjustment in our breakage income of approximately $3.6 million for fiscal 2026.
Income Taxes
We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes, and the tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.
LIQUIDITY AND CAPITAL RESOURCES
Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures, including opening new restaurants, remodeling and maintaining existing restaurants, paying dividends to our shareholders, and repurchasing shares of our common stock. Since substantially all of our sales are for cash and cash equivalents, and accounts payable are generally paid in 5 to 90 days, we are typically able to carry current liabilities in excess of current assets.
We currently manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable costs. Our publicly issued long-term debt currently carries the following ratings:
•Moody’s Investors Service “Baa2”;
•Standard & Poor’s “BBB”; and
•Fitch “BBB”.
Our commercial paper has ratings of:
•Moody’s Investors Service “P-2”;
•Standard & Poor’s “A-2”; and
•Fitch “F-2”.
These ratings are as of the date of the filing of this report and have been obtained with the understanding that Moody’s Investors Service, Standard & Poor’s, and Fitch will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell, or hold our securities, may be changed, superseded, or withdrawn at any time and should be evaluated independently of any other rating.
On October 23, 2023, we entered into a $1.25 billion Revolving Credit Agreement (the “Revolving Credit Agreement”) with Bank of America, N.A. (“BOA”), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and
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affirmative and negative covenants (including limitations on liens and subsidiary debt and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. As of May 31, 2026, we had no outstanding balances and were in compliance with all covenants under the Revolving Credit Agreement. As of May 31, 2026, $194.0 million of commercial paper was outstanding, which was supported by the Revolving Credit Agreement. After giving effect to the outstanding commercial paper, as of May 31, 2026, we had $1.06 billion of available borrowing capacity under the Revolving Credit Agreement.
Loans under the Revolving Credit Agreement bear interest at a rate of (a) Term SOFR (which is defined, for the applicable interest period, as the Term SOFR Screen Rate two U.S. Government Securities Business Days prior to the commencement of such interest period with a term equivalent to such interest period) plus a Term SOFR adjustment of 0.10 percent plus the relevant margin determined by reference to a ratings-based pricing grid (the “Applicable Margin”), or (b) the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Term SOFR plus 1.00 percent) plus the relevant Applicable Margin. Assuming a “BBB” equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement is 1.000 percent for Term SOFR loans and 0.000 percent for base rate loans.
On September 16, 2024, we entered into Amendment No. 1 (the “Amendment”) to the Revolving Credit Agreement, which replaced a prior financial covenant (which provided for a maximum consolidated total debt to total capitalization ratio) with a new financial covenant requiring us to maintain, measured as of the end of each fiscal quarter, a maximum consolidated leverage ratio of 3.50 to 1.00 (which may be temporarily increased to 4.00 to 1.00 upon the election as a result of a covered acquisition, subject to customary limitations set forth in the Revolving Credit Agreement). All other material terms and conditions of the Revolving Credit Agreement were unchanged.
The Revolving Credit Agreement matures on October 23, 2028, and the proceeds may be used for working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions, and general corporate purposes.
As of May 31, 2026, our outstanding long-term debt, including amounts classified as current, consisted principally of:
•$500.0 million of unsecured 3.850 percent senior notes due in May 2027;
•$400.0 million of unsecured 4.350 percent senior notes due in October 2027;
•$350.0 million of unsecured 4.550 percent senior notes due in October 2029;
•$500.0 million of unsecured 6.300 percent senior notes due October 2033;
•$96.3 million of unsecured 6.000 percent senior notes due in August 2035;
•$42.8 million of unsecured 6.800 percent senior notes due in October 2037; and
•$300.0 million of unsecured 4.550 percent senior notes due in February 2048.
The interest rate on our $42.8 million 6.800 percent senior notes due October 2037 is subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate, and the interest rate cannot be reduced below the initial interest rate. As of May 31, 2026, no such adjustments have been made to this rate.
The $500.0 million of unsecured 3.850 percent senior notes due in May 2027 are classified as current on the fiscal 2026 balance sheet. We expect to satisfy this maturity through available liquidity, which may include cash on hand, operating cash flows, borrowings under our existing credit facility, commercial paper issuances, or refinancing transactions, depending on market conditions and other factors.
Through our shelf registration statement on file with the SEC, depending on conditions prevailing in the public capital markets, we may from time to time issue equity securities or unsecured debt securities in one or more series, which may consist of notes, debentures, or other evidences of indebtedness in one or more offerings.
From time to time, we or our affiliates, may repurchase our outstanding debt in privately negotiated transactions, open-market transactions, or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.
From time to time, we enter into interest rate derivative instruments to manage interest rate risk inherent in our operations. See Note 8 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).
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A summary of our contractual obligations and commercial commitments at May 31, 2026, is as follows:
(in millions) Payments Due by Period
Unrecognized income tax benefits (5) 22.8 1.7 6.0 15.1 —
(in millions) Amount of Commitment Expiration per Period
Standby letters of credit (6) $ 88.6 $ 88.6 $ — $ — $ —
(1)Includes interest payments associated with existing long-term debt. Excludes discount and issuance costs of $15.4 million.
(2)Includes non-cancelable future operating lease and finance lease commitments.
(3)Includes commitments for food and beverage items and supplies, capital projects, information technology, and other miscellaneous items.
(4)Primarily represents our non-qualified deferred compensation plan through fiscal 2036.
(5)Includes interest on unrecognized income tax benefits of $2.8 million, $0.4 million of which relates to contingencies expected to be resolved within one year.
(6)Includes letters of credit for $71.9 million of workers’ compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $16.7 million of surety bonds related to other payments.
(7)Consists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster in fiscal 2015.
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Per the Amendment, our adjusted debt to adjusted EBITDAR ratio must be 3.50 to 1.00 or lower to comply with our financial covenants. As of May 31, 2026, our adjusted debt to adjusted EBITDAR ratio was 2.0. For fiscal 2026 and 2025, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $530.8 million and $498.1 million, respectively. The calculation of adjusted debt to adjusted EBITDAR ratio is shown in the following table:
Short-term debt, excluding unamortized discount and issuance costs $ 694.0 $ —
Calculation of Adjusted EBITDAR
Earnings from continuing operations $ 1,213.7 $ 1,051.0
Depreciation and amortization 561.1 516.1
Impairments and disposal of assets, net (10.7) 49.2
Transaction and integration costs 25.4 51.1
Non-cash stock-based compensation 79.1 79.1
Adjusted Debt/Adjusted EBITDAR Ratio 2.0 2.1
We include the lease-debt equivalent and contractual lease guarantees in our ratios reported to shareholders, as we believe its inclusion better represents the optimal capital structure that we target from period to period and because it is consistent with the calculation of the covenant under the Revolving Credit Agreement.
Net cash flows provided by operating activities from continuing operations were $1.85 billion and $1.71 billion in fiscal 2026 and 2025, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $1.21 billion in fiscal 2026 and $1.05 billion in fiscal 2025. Net cash flows provided by operating activities from continuing operations increased in fiscal 2026, primarily due to higher net earnings from continuing operations.
Net cash flows used in investing activities from continuing operations were $711.4 million and $1.3 billion in fiscal 2026 and 2025, respectively. Capital expenditures incurred principally for building new restaurants, remodeling existing restaurants, replacing equipment, and technology initiatives were $734.0 million in fiscal 2026, compared to $644.6 million in fiscal 2025. Net cash used in the acquisition of Chuy’s was $613.7 million during fiscal 2025.
Net cash flows used in financing activities from continuing operations were $1.16 billion and $385.8 million in fiscal 2026 and 2025, respectively. Net cash flows used in financing activities in fiscal 2026 included dividend payments of $693.0 million and share repurchases of $671.7 million, partially offset by proceeds from commercial paper of $194.0 million and proceeds from the exercise of employee stock options. Net cash flows used in financing activities in fiscal 2025 included dividend payments of $658.5 million, share repurchases of $418.2 million, and repayment of commercial paper of $86.8 million, partially offset by net proceeds from the issuance of long-term debt of $750.0 million and proceeds from the exercise of employee stock options. Dividends declared by our Board of Directors totaled $6.00 and $5.60 per share for fiscal 2026 and 2025, respectively.
We are not aware of any trends or events that would materially affect our capital requirements or liquidity. We believe that our internal cash-generating capabilities, the potential issuance of equity or unsecured debt securities under our shelf registration statement, and short-term commercial paper or drawings under the Revolving Credit Agreement should be sufficient to finance our capital expenditures, debt maturities, and other operating activities through fiscal 2027.
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OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures, or capital resources.
FINANCIAL CONDITION
Our total current assets were $942.9 million at May 31, 2026, compared with $937.7 million at May 25, 2025. The increase was primarily due to an increase in receivables, net.
Our total current liabilities were $3.01 billion at May 31, 2026 and $2.25 billion at May 25, 2025. The increase was primarily due to an increase in commercial paper and the movement of our 3.850% Senior Notes due May 2027 to short-term debt.
APPLICATION OF NEW ACCOUNTING STANDARDS
See Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for a discussion of recently issued accounting standards.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks, including fluctuations in interest rates, foreign currency exchange rates, compensation, and commodity prices. To manage this exposure, we periodically enter into interest rate, foreign currency exchange instruments, equity forward, and commodity derivative instruments for other than trading purposes. See Notes 1 and 8 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).
We use the variance/covariance method to measure value at risk, over time horizons ranging from one week to one year, at the 99 percent confidence level. At May 31, 2026, our potential losses in future net earnings resulting from changes in equity forwards, commodity instruments, currencies and floating rate, and fixed rate debt interest rate exposures were approximately $68.5 million over a period of one year. The value at risk from an increase in the fair value of all of our long-term fixed-rate debt, over a period of one year, was approximately $93.6 million. The fair value of our long-term fixed-rate debt outstanding as of May 31, 2026, averaged $2.18 billion, with a high of $2.20 billion and a low of $2.14 billion during fiscal 2026. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed-rate debt.
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Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Management Responsibilities 42
Management’s Report on Internal Control over Financial Reporting 42
Notes to Consolidated Financial Statements 52
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REPORT OF MANAGEMENT’S RESPONSIBILITIES
The management of Darden Restaurants, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, using management’s best estimates and judgments where appropriate. The financial information throughout this report is consistent with our consolidated financial statements.
Management has established a system of internal controls over financial reporting that provides reasonable assurance that assets are adequately safeguarded and transactions are recorded accurately, in all material respects, in accordance with management’s authorization. Our internal controls provide for appropriate segregation of duties and responsibilities and there are documented policies regarding utilization of our assets and proper financial reporting. These formally stated and regularly communicated policies set high standards of ethical conduct for all employees. We also maintain a strong audit program that independently evaluates the adequacy of the design and operating effectiveness of these internal controls.
The Audit Committee of the Board of Directors meets at least quarterly to determine that management, internal auditors and the independent registered public accounting firm are properly discharging their duties regarding internal control and financial reporting. Management, internal auditors and the independent registered public accounting firm have full and free access to the Audit Committee at any time.
KPMG LLP, an independent registered public accounting firm, is retained to audit our consolidated financial statements and the effectiveness of our internal control over financial reporting. Their reports follow.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2026. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Management has concluded that, as of May 31, 2026, the Company’s internal control over financial reporting was effective based on these criteria.
The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which follows.
/s/ Ricardo Cardenas
Ricardo Cardenas
President and Chief Executive Officer
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Darden Restaurants, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Darden Restaurants, Inc. and subsidiaries' (the Company) internal control over financial reporting as of May 31, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2026 and May 25, 2025, the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2026, and the related notes (collectively, the consolidated financial statements), and our report dated July 24, 2026 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Orlando, Florida
July 24, 2026
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Darden Restaurants, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries (the Company) as of May 31, 2026 and May 25, 2025, the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2026, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2026 and May 25, 2025, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2026, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 24, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of Long-Lived Assets for Impairment
As discussed in Notes 1, 5, and 11 to the consolidated financial statements, land, buildings and equipment, net and operating lease right-of-use assets were $8.5 billion as of May 31, 2026. The Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Such indicators may include, among others: a significant decline in expected future cash flows and changes in the expected useful life which relates to the Company’s intent and ability to hold its asset groups for a period that recovers their carrying value.
We identified the evaluation of indicators of potential long-lived assets impairment as a critical audit matter. Subjective auditor judgment was required to evaluate certain assumptions in the Company’s analysis, including expected future cash flows and the expected useful life. Adverse changes in these assumptions could have a significant impact on whether an indicator has been identified and could have a material impact on the Company’s consolidated financial statements.
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The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s long-lived asset impairment process, including controls over the identification of indicators of impairment and the assumptions listed above. For certain asset groups, we compared the expected future cash flows used by the Company in its evaluation of indicators of potential long-lived asset impairment to historical results. We evaluated the expected useful life for certain asset groups by inspecting underlying documents, such as real estate meeting minutes and other documents to assess the Company’s plans to dispose or close asset groups. We corroborated the Company’s plans with others in the organization who are responsible for, and have authority over, disposition and closure activities.
/s/ KPMG LLP
We have served as the Company’s auditor since 1996.
Orlando, Florida
July 24, 2026
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DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
Fiscal Year Ended
Costs and expenses:
Impairments and disposal of assets, net (10.7) 49.2 12.4
Basic net earnings per share:
Earnings from continuing operations $ 10.51 $ 8.94 $ 8.59
Losses from discontinued operations (0.06) (0.01) (0.02)
Diluted net earnings per share:
Earnings from continuing operations $ 10.44 $ 8.88 $ 8.53
Losses from discontinued operations (0.06) (0.02) (0.02)
Average number of common shares outstanding:
See accompanying notes to consolidated financial statements.
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DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Fiscal Year Ended
Foreign currency adjustment (4.5) — 0.1
Other comprehensive (loss) income $ (12.2) $ 6.2 $ 22.4
See accompanying notes to consolidated financial statements.
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DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 219.5 $ 240.0
Prepaid expenses and other current assets 127.4 156.7
Operating lease right-of-use assets 3,433.1 3,555.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt 693.6 —
Operating lease liabilities - non-current 3,722.3 3,816.9
Stockholders’ equity:
Retained earnings (deficit) (108.4) (16.1)
Accumulated other comprehensive income 19.6 31.8
Total liabilities and stockholders’ equity $ 12,862.4 $ 12,587.0
See accompanying notes to consolidated financial statements.
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DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except per share data)
Common Stock And Surplus
Other comprehensive income — — — 22.4 22.4
Dividends declared ($5.24 per share) — — (631.9) — (631.9)
Stock-based compensation — 36.6 — — 36.6
Other comprehensive income — — — 6.2 6.2
Dividends declared ($5.60 per share) — — (663.1) — (663.1)
Stock-based compensation — 41.8 — — 41.8
Other — — (0.3) — (0.3)
Other comprehensive loss — — — (12.2) (12.2)
Dividends declared ($6.00 per share) — — (697.7) — (697.7)
Stock-based compensation — 48.9 — — 48.9
See accompanying notes to consolidated financial statements.
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DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Fiscal Year Ended
Cash flows - operating activities
Losses from discontinued operations, net of tax 7.0 1.4 2.9
Adjustments to reconcile net earnings from continuing operations to cash flows:
Impairments and (gain) loss on disposal of assets, net (10.7) 49.2 12.4
Stock-based compensation expense 79.1 79.1 68.5
Change in current assets and liabilities (24.8) 11.5 95.4
Deferred income taxes 71.3 5.0 (3.2)
Change in other assets and liabilities (0.4) — (23.4)
(Increase) Decrease in trust-owned life insurance value (42.6) (9.2) (24.8)
Cash flows - investing activities
Purchases of land, buildings and equipment (734.0) (644.6) (601.2)
Proceeds from disposal of land, buildings and equipment 45.5 2.5 3.3
Cash used in business acquisitions, net of cash acquired — (613.7) (701.1)
Purchases of capitalized software and other assets (26.4) (27.3) (27.1)
Cash flows - financing activities
Net proceeds from issuance of common stock 25.0 55.6 43.6
Proceeds from (repayment of) commercial paper, net 194.0 (86.8) 86.8
Proceeds from the issuance of long-term debt — 750.0 1,100.0
Repayments of long-term debt — — (600.0)
Principal payments on finance leases, net (18.1) (21.0) (19.9)
Payment of debt issuance costs — (6.9) (11.6)
Cash flows - discontinued operations
Net cash used in discontinued operations $ (4.8) $ (8.5) $ (9.8)
Cash, cash equivalents and restricted cash - end of year $ 227.6 $ 254.5 $ 220.1
Restricted cash included in prepaid and other current assets 8.1 14.5 25.3
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DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
Fiscal Year Ended
Cash flows from changes in current assets and liabilities
Prepaid expenses and other current assets (2.6) (6.7) (1.4)
Prepaid/accrued income taxes (6.7) (15.2) 5.1
Other accrued taxes 2.8 8.0 4.6
Change in current assets and liabilities $ (24.8) $ 11.5 $ 95.4
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries. We own and operate the Olive Garden®, LongHorn Steakhouse®, Yard House®, Ruth’s Chris Steak House®, Cheddar’s Scratch Kitchen®, The Capital Grille®, Chuy’s®, Seasons 52®, Eddie V’s Prime Seafood®, Bahama Breeze®, and The Capital Burger® restaurant brands located in the United States and Canada. Through subsidiaries, we own and operate all of our restaurants in the United States, except for four restaurants operating under contractual agreements, one restaurant that we jointly own with a third party and operate independently, and 87 franchised restaurants. We also have 80 franchised restaurants located in Canada, Latin America, the Caribbean, Asia, the Middle East, and Europe. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior-period amounts have been reclassified to conform to the current period’s presentation.
On July 14, 2025, we closed on the sale of the Olive Garden Canada Restaurants to Recipe. All gains and losses on disposition have been aggregated in impairments and disposal of assets, net on our consolidated statement of earnings. See Note 4 for additional information. At the closing, Darden and Recipe entered into an area development agreement and franchise agreements, pursuant to which Recipe will operate current and any new restaurants contemplated thereunder under the Olive Garden trade name and will pay royalties for use of the trade name.
On our June 2025 earnings call, we announced the decision to explore strategic alternatives for the Bahama Breeze brand, which, at that time, included 28 company-owned restaurants and one franchised restaurant. As part of this review, we evaluated a potential sale of the brand as well as the conversion of certain restaurants to other Darden brands. On February 3, 2026, we announced the completion of this process and our decision to permanently close approximately half of the Bahama Breeze restaurants, which we completed on or about April 5, 2026, and our expectation to convert the remaining restaurants to other Darden brands over the next 12–18 months. As of the end of fiscal 2026, we have completed one conversion. During the third and fourth quarters of fiscal 2026, we impaired the assets related to the 14 Bahama Breeze restaurants that were permanently closed. See Note 4 for additional information.
For fiscal 2026, 2025, and 2024, impairment charges and disposal costs, along with the sales, costs, expenses, and income taxes attributable to previously disposed brands, have been classified as discontinued locations, and have been aggregated in a single caption entitled “Losses from discontinued operations, net of tax benefit” in our consolidated statements of earnings for all periods presented. Neither the sale of the Olive Garden Canada Restaurants nor the closings and conversions of Bahama Breeze restaurants meet the requirements to be classified as discontinued operations.
Fiscal Year
We operate on a 52/53-week fiscal year, which ends on the last Sunday in May. Fiscal 2026, which ended May 31, 2026, consisted of 53 weeks. Fiscal 2025, which ended May 25, 2025, consisted of 52 weeks, and fiscal 2024, which ended May 26, 2024, consisted of 52 weeks.
Use of Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments such as bank deposits and money market funds that have an original maturity of three months or less. Amounts receivable from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of cash and cash equivalents are as follows:
Short-term investments $ 0.7 $ 21.3
Total cash and cash equivalents $ 219.5 $ 240.0
As of May 31, 2026, and May 25, 2025, we had cash and cash equivalent accounts in excess of insured limits. We manage the credit risk of our positions through utilizing multiple financial institutions and monitoring the credit quality of those financial institutions that hold our cash and cash equivalents. We had restricted cash of $8.1 million as of May 31, 2026 and $14.5 million as of May 25, 2025, which represents cash held as security for a standby letter of credit. Restricted cash is included in Prepaid Expenses and Other Current Assets on the balance sheet. See Note 16, Commitments and Contingencies.
Receivables, Net
Receivables, net of the allowance for doubtful accounts, represent their estimated net realizable value. Provisions for doubtful accounts are recorded based on historical collection experience and the age of the receivables. Receivables are written off when they are deemed uncollectible. See Note 12 for additional information.
Inventories
Inventories consist of food and beverages and are valued at the lower of weighted-average cost or net realizable value.
Land, Buildings, and Equipment, Net
Land, buildings, and equipment are recorded at cost less accumulated depreciation. Building components are depreciated over estimated useful lives ranging from 3 to 30 years using the straight-line method. Leasehold improvements, which are reflected on our consolidated balance sheets as a component of buildings in land, buildings, and equipment, net, are amortized over the lesser of the expected lease term or the estimated useful lives of the related assets using the straight-line method. Equipment is depreciated over estimated useful lives ranging from 2 to 20 years also using the straight-line method. See Note 5 for additional information. Gains and losses on the disposal of land, buildings, and equipment are included in impairments and disposal of assets, net, while the write-off of net book value associated with the replacement of equipment in the normal course of business is recorded as a component of restaurant expenses in our accompanying consolidated statements of earnings.Depreciation and amortization expense from continuing operations associated with buildings and equipment and losses on replacement of equipment were as follows:
Fiscal Year Ended
Depreciation and amortization on buildings and equipment $ 541.2 $ 496.1 $ 435.1
Losses on replacement of equipment 3.5 3.9 3.0
Capitalized Software Costs and Other Definite-Lived Intangibles
Capitalized software, which is a component of other assets, is recorded at cost less accumulated amortization. Capitalized software is amortized using the straight-line method over estimated useful lives ranging from 1 to 10 years. The cost of capitalized software and related accumulated amortization was as follows:
Capitalized software, net of accumulated amortization $ 90.4 $ 83.0
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have other definite-lived intangible assets, including assets related to the value of reacquired franchise rights resulting from our acquisitions that are included as a component of other assets and definite-lived intangible liabilities related to the value of below-market agreements resulting from our acquisitions that are included in other liabilities on our consolidated balance sheets. Definite-lived intangibles are amortized on a straight-line basis over estimated useful lives of 1 to 20 years.The cost and related accumulated amortization was as follows:
Definite-lived intangible assets $ 30.7 $ 30.7
Accumulated amortization (18.2) (16.4)
Definite-lived intangible assets, net of accumulated amortization $ 12.5 $ 14.3
Definite-lived intangible liabilities $ (3.0) $ (3.0)
Accumulated amortization 2.7 2.4
Amortization expense from continuing operations associated with capitalized software and other definite-lived intangibles included in depreciation and amortization in our accompanying consolidated statements of earnings was as follows:
Fiscal Year Ended
Amortization expense - capitalized software $ 18.2 $ 18.2 $ 22.9
Amortization expense - other definite-lived intangibles 1.7 1.8 1.9
Based on the net book values of our definite-lived intangible assets and liabilities at May 31, 2026, we expect amortization of capitalized software and other definite-lived intangible assets will be approximately $26.0 million annually for fiscal 2027 through 2031.
Trust-Owned Life Insurance
We have a trust that purchased life insurance policies covering certain of our officers and other key employees (trust-owned life insurance or TOLI). The trust is the owner and sole beneficiary of the TOLI policies. The policies were purchased to offset a portion of our obligations under our non-qualified deferred compensation plan. The cash surrender value for each policy is included in other assets, while changes in cash surrender values are included in general and administrative expenses.
Liquor Licenses
The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in other assets. Liquor licenses are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Annual liquor license renewal fees are expensed over the renewal term.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Goodwill and Intangible Assets
Our goodwill and trademark balances are allocated as follows:
Goodwill Trademarks
We have eleven reporting units, eight of which have goodwill and nine of which have trademarks. Goodwill and trademarks are not subject to amortization and have been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.We review our goodwill and trademarks for impairment annually, as of the first day of our fourth fiscal quarter, or more frequently if indicators of impairment exist. In fiscal 2026, we performed a quantitative assessment as a part of our annual impairment review.
We estimate the fair value of each reporting unit using the best information available, including market information (also
referred to as the market approach) and discounted cash flow projections (also referred to as the income approach). A market
approach estimates fair value by applying sales or cash flow multiples to the reporting unit’s operating performance. The
multiples are derived from observable market data of comparable publicly traded companies with similar operating and
investment characteristics of the reporting units. The income approach uses a reporting unit’s projection of estimated operating
cash flows which are based on a combination of historical and current trends, organic growth expectations, and residual growth
rate assumptions. These cash flows are discounted using a weighted-average cost of capital (“WACC”) that reflects current market conditions. We recognize a goodwill impairment loss when the fair value of the reporting unit is less than its carrying value.
We estimate the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to
projected sales from the reporting unit’s projection of estimated operating cash flows; assumed royalty rates that could be payable
if we did not own the trademarks; and a discount rate based on the WACC for each reporting unit. We recognize an impairment loss when the estimated fair value of the trademark is less than its carrying value.
We performed our annual impairment test of our goodwill and trademarks as of February 23, 2026, the first day of our fiscal 2026 fourth quarter. Based on the results of this testing, we determined that our goodwill and trademarks were not impaired.
We evaluate the useful lives of our other intangible assets to determine if they are definite or indefinite-lived. A determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets.
Impairment or Disposal of Long-Lived Assets
Land, buildings and equipment, operating lease right-of-use assets, and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. If such assets are determined to be impaired, the recognized impairment is measured by the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined based on appraisals, sales prices of comparable assets or discounted future net cash flows expected to be generated by the assets. Restaurant sites and certain other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell, and are included in assets held for sale on our consolidated balance sheets when certain criteria are met. These criteria include, among other factors, the requirement that the likelihood of disposing of these assets within one year is probable. Assets not meeting the “held for sale” criteria remain in land, buildings and equipment until their disposal is probable within one year.
We account for exit or disposal activities, including restaurant closures, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 420, Exit or Disposal Cost Obligations. Such costs include the cost of disposing of the assets as well as other facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. See Note 4 for additional information. For restaurants operated under non-cancellable leases, on the date we commit to a plan to either abandon the related right-of-use (“ROU”) asset or sublease the underlying asset, we evaluate the ROU asset for potential impairment and determine the go-forward accounting based on the requirements in FASB ASC Topic 842, Leases.
Insurance Accruals
Through the use of insurance program deductibles and self-insurance, we retain a significant portion of expected losses under our workers’ compensation and general liability programs. Accrued liabilities have been recorded based on our estimates of the anticipated ultimate costs to settle all claims, both reported and not yet reported.
Revenue Recognition
Sales, as presented in our consolidated statements of earnings, includes the sale of food and beverage products, royalties from our franchised restaurants, and royalties from the sale of consumer product goods. Revenue from restaurant sales is recognized when food and beverage products are sold and is presented net of discounts, coupons, employee meals, and complimentary meals. Revenue is presented net of sales tax. Sales taxes collected from customers are included in other accrued taxes on our consolidated balance sheets until the taxes are remitted to governmental authorities.
During the second quarter of fiscal 2025, we entered into an exclusive multi-year delivery arrangement with Uber Technologies, Inc. (“Uber”). The agreement enables our guests to order delivery via Darden restaurant channels, with delivery handled by Uber. During fiscal 2026, we completed the Uber rollout to Cheddar’s Scratch Kitchen and further expanded the program with a rollout to Yard House. Revenue from orders through Company-owned platforms includes delivery fees and is recognized when the delivery partner transfers the order to the guest as the Company controls the delivery. For these sales, the Company receives payment directly from the guest at the time of sale. For all delivery sales, the Company is considered the principal and recognizes revenue on a gross basis.