DARDEN RESTAURANTS, INC. (DRI): what the price assumes

In the published model solve dated 2026-Q2, anchored at $215.63, DARDEN RESTAURANTS, INC. (DRI) is priced for +1.5% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-31 · Source: https://boothcheck.com/report/DRI

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7.2% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.3%); the inversion above states its own rate.

Per-Model Detail (n=15)

Economic-Unit Decomposition (Sum Of The Parts)

The disclosed units share an operating capital structure; consolidated cash-flow lenses remain coherent and the unit split is explanatory.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• LongHorn Steakhouse is now the engine of a company still known for Olive Garden, lifting same-restaurant sales 7.2% in fiscal 2026 and segment profit to 635.1 million dollars from 582.7 million.
• Olive Garden, at 43% of revenue, is leaning on menu price rather than volume: in the quarter ended February 22, 2026 its US same-restaurant sales came from a 3.6% higher average check set against a 0.4% decline in guest counts.
• Guidance for fiscal 2027 pairs same-restaurant sales growth of 2.5% to 3.5% with total inflation of roughly 3.0%, so the thing to watch is whether traffic returns once the price increases finish lapping.

Bull Case

Read the income statement on its own and this looks like exactly what it appears to be: a large, mature restaurant operator earning a trailing operating margin of 11.7% on more than 13 billion dollars of sales, growing by opening restaurants and raising prices. The valuation methods built for that description land well below the price, and they are not wrong about the description. They are measuring the restaurants. The asset is the machine underneath them.

What Darden actually operates is a shared cost base that its brands rent. The company says so in the structure of its own reporting: segment profit captures food, labor, restaurant expenses and marketing, while "our lease-related right-of-use assets are not managed or evaluated at the operating segment level, but rather at the corporate level". Real estate, marketing reach, purchasing and systems sit above the brands and are paid for once. The 10-K puts the marketing consequence plainly: "our scale enables us to be a leading advertiser in the full-service dining segment of the restaurant industry". Olive Garden alone did 5,594.8 million dollars of sales in fiscal 2026, which is the kind of volume that buys national television at a unit cost nobody in casual dining can match.

The effect shows up where it should, in incremental profit. Olive Garden's fiscal 2026 sales rose to 5,594.8 million dollars from 5,212.9 million and its segment profit to 1,257.9 million from 1,163.9 million. LongHorn went to 3,423.0 million dollars of sales from 3,025.5 million, with segment profit to 635.1 million from 582.7 million. In both brands profit grew faster than sales. That is what happens when volume moves through a cost base that was already paid for.

LongHorn is where the live operating story sits. Same-restaurant sales rose 9.5% in the fourth quarter and 7.2% for the fiscal year, and in the third quarter that increase came from a 3.9% higher check combined with a 3.3% rise in guest counts. Traffic growth in American casual dining is uncommon enough to state without decoration: more people are choosing to eat there.

Against the cohort, the margin gap is the scale gap. Darden's 11.7% trailing operating margin compares with 10.4% at EAT, 8.0% at TXRH, 5.0% at CAKE and 3.8% at SHAK. All of them buy the same beef and hire from the same labor market. The spread is what a purchasing and marketing platform is worth when it is spread across enough restaurants.

Cash conversion is the quiet part of the case. Operating cash flow from continuing operations was 1.28 billion dollars in the first nine months of fiscal 2026, against 1.25 billion a year earlier, and guests are effectively lending the company money at no cost: deferred gift card revenue stood at 688.5 million dollars on February 22, 2026, up from 628.8 million at the fiscal 2025 close. Gift cards are sold at Christmas and redeemed whenever, and the balance keeps growing.

Management has been returning that cash rather than hoarding it. The board lifted the quarterly dividend 8.0% to 1.62 dollars a share and authorized a new 1.5 billion dollar repurchase program on June 24, 2026. The share count has come down about 2.5% a year over the four years to February 2026. Fewer shares against a cost base that keeps absorbing volume is a slow, unglamorous compounding mechanism, and it is the one that has actually been working.

Bear Case

Name the uncomfortable thing directly: a large part of this growth is price, not people. In the quarter ended February 22, 2026, Olive Garden's US same-restaurant sales came from a 3.6% increase in average check, of which 1.3 points was off-premise catering, set against a 0.4% decline in guest counts. Fine Dining across the first nine months managed a 1.1% higher check and 0.1% fewer guests. Those two segments are more than half of revenue. Menus have been repriced; the dining rooms are not fuller.

The company's own fiscal 2027 outlook says the same thing in guidance form. Same-restaurant sales growth of 2.5% to 3.5% is set against total inflation of approximately 3.0%. Read those two lines together and the plan for next year is to sell roughly the same quantity of food for more money. That can work for a long time. It is not the same thing as a business that is growing.

This matters because of what the price is paying for it. The price sits close to twice what the earnings-power methods reach, and roughly 54% above the asset-value approaches. The most conservative of the earnings methods, which capitalizes a five-year average operating profit and assumes no growth at all, lands at about a third of the price. Peer multiples are the one lens that gets there, and it gets there by holding the sector's current multiple flat. Strip out that assumption and there is not much left holding the price up.

The balance sheet is where the discomfort compounds. In the first nine months of fiscal 2026 the company paid 521.5 million dollars of dividends and repurchased 534.4 million dollars of stock while adding 290.0 million dollars of net commercial paper borrowings, and the filing attributes the quarter's higher net interest expense to exactly those increased short-term borrowings. Net debt of about 3.9 billion dollars runs at roughly 2.6 times operating profit on a funded-debt basis, and that figure excludes the leases entirely. Operating lease right-of-use assets alone stood at 3,555.9 million dollars at the fiscal 2025 close, with total lease assets of 4,850.1 million. Restaurants are a rented business, and rent does not renegotiate downward in a soft year.

Then there is the input side, which the 10-K states without hedging: "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 brand carrying the growth is a steakhouse. LongHorn's traffic gain is real, and it is also the segment most exposed to a beef market the company does not control, in a year the company itself guides to roughly 3.0% total inflation.

Finally, the portfolio is being pruned rather than extended. Bahama Breeze is being wound down entirely, with all locations expected to be closed or converted between the third quarter of fiscal 2026 and the fourth quarter of fiscal 2027; the Olive Garden restaurants in Canada were sold; and Chuy's is still being absorbed, with the 10-K naming retention of key employees and the integration of information and communications systems among the areas of focus. None of these is individually large. Together they are why the reported and adjusted earnings lines keep requiring a bridge, and why a buyer at this price is underwriting execution as much as demand.

Valuation

Two defensible ways of reading this company disagree by more than half, and the disagreement is the entire analytical question.

Start with what today's price requires. The market is paying roughly 20 times company-wide operating income, which works out to needing operating profit to advance about 0.6% a year over the next five years. That is a low bar, comfortably inside what the company has recently delivered, and it is why the assumption embedded in the price reads as ordinary rather than heroic. Against the sector it sits in the upper half of the peer multiple range, which is a premium, but not a startling one.

Now capitalize the same operating profit differently. Assume it persists and does nothing else, discount it at a cost of capital in the low eights, and the answer lands at about a third of today's price. Widen out and the pattern is consistent: the price sits close to twice the central estimate of the earnings-power methods and roughly 54% above the asset-value approaches. Only the peer-multiple lens reaches today's price, and it does that by carrying the sector's current multiple forward unchanged rather than by finding anything new in the business.

Both frames use the same trailing operating profit. One assumes it grows slowly forever; the other assumes it simply endures. The whole gap between them is durability, which is also the only thing the segment data can speak to. Fiscal 2026 gave four segments of positive same-restaurant sales, with LongHorn at 7.2%, Olive Garden at 4.0%, Other Business at 3.9% and Fine Dining at 1.2%. That is evidence for endurance. It is thinner evidence for compounding, because the Fine Dining and Olive Garden numbers lean on check rather than covers.

The cohort places the premium rather than justifying it. Darden's 11.7% trailing operating margin against 10.4% at EAT, 8.0% at TXRH and 5.0% at CAKE is a real structural gap, and the peer-multiple lens is effectively paying for it. Whether it should pay this much for it depends on whether that gap widens or simply holds.

The balance sheet neither rescues nor threatens the case. Net debt runs at about 2.6 times operating profit on a funded-debt basis, before the lease book of roughly 4.9 billion dollars of lease assets recorded at the fiscal 2025 close. Against that, fiscal 2027 guidance calls for EBITDA of 2.26 to 2.29 billion dollars and capital spending of about 875 million, which leaves room for the dividend and the new repurchase authorization without borrowing to fund them. What it does not leave is much margin for a year in which guests decide to stay home.

Catalysts

Fiscal 2026 closed on May 31, and the results landed on June 25, 2026. Total sales rose 9.4% to 13.21 billion dollars, helped by 2.1 percentage points from a fifty-third week, with blended same-restaurant sales up 4.5% and 43 net new restaurants. Reported diluted earnings per share from continuing operations were 10.44 dollars, with the extra week contributing 0.25 dollars of that. The fourth quarter itself carried consolidated same-restaurant sales of 4.6%, and every brand was positive, with LongHorn at 9.5% and Olive Garden at 2.4%.

Two capital decisions came with the print. The board raised the quarterly dividend 8.0% to 1.62 dollars a share, payable August 3, 2026 to holders of record on July 10, and on June 24 authorized a new repurchase program of up to 1.5 billion dollars, replacing the prior authorization. The company repurchased approximately 0.7 million shares for 138 million dollars during the quarter.

The fiscal 2027 outlook is the number the next twelve months get measured against: total sales of 13.60 to 13.75 billion dollars, same-restaurant sales growth of 2.5% to 3.5%, 75 to 80 new restaurant openings, capital spending of approximately 875 million dollars, total inflation of approximately 3.0%, an effective tax rate near 13.5%, and diluted earnings per share from continuing operations of 11.10 to 11.35 dollars on roughly 114 million weighted average diluted shares. Two housekeeping items sit inside that guide: Bahama Breeze locations are expected to be closed or converted by the fourth quarter of fiscal 2027, and the annual meeting is scheduled for September 23, 2026 with a record date of July 29.

Peer Cohorts (Per Segment, With Filing Citations)

Olive Garden (reported)

• EAT (BRINKER INTERNATIONAL, INC.)
• FY2025 10-K: …officers have an average of more than 20 years of experience in the restaurant industry. For decades, our culture has been built on our purpose of making people feel special, and that starts with our team members. We affectionately call them Brinkerheads, Chiliheads or Maggiano's Teammates, and we know that when they…
• FY2025 10-K: …sales accounting for the remainder. Maggiano's Little Italy Maggiano's is a full-service, national, polished casual restaurant brand offering Italian-American cuisine. With a passion for making people feel special, the brand is known for catering to special occasions and large parties. Each Maggiano's location is…
• CAKE (THE CHEESECAKE FACTORY INCORPORATED)
• FY2025 10-K: …below.) Distinctive Restaurant Design and Decor. We place significant emphasis on the contemporary interior design and decor of our restaurants, which create a high-energy ambiance in a casual setting and contribute to the distinctive dining experience enjoyed by our customers. We have evolved our restaurants' design…
• FY2025 10-K: …and/or changes in menu mix. We generally update The Cheesecake Factory menus twice a year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that supports both our margin and customer traffic objectives. Prior to fiscal 2022, we targeted menu price increases of…
• TXRH (Texas Roadhouse, Inc.)
• FY2025 10-K: …and delivery is offered at a majority of locations. Our first Bubba's 33 restaurant opened in May 2013 in Fayetteville, North Carolina. Jaggers is a fast-casual restaurant concept offering burgers, hand-breaded chicken sandwiches and chicken tenders, made-to-order fresh salads, and hand-spun milkshakes. Jaggers…
• FY2025 10-K: …of leadership positions across our restaurants, we provide a pathway and training for thousands of individuals across the country to advance from entry-level jobs into management roles. In addition, our geographic footprint often allows us to offer our restaurant team members relocation options at similar roles due…

LongHorn Steakhouse (reported)

• TXRH (Texas Roadhouse, Inc.)
• FY2025 10-K: …segment of consumers seeking high quality, affordable meals served with friendly, attentive service. This strategy guides our purpose statement of "Serving Communities Across America and the World." Restaurant Concepts As of December 30, 2025, we owned and operated 714 restaurants and franchised an additional 102…
• FY2025 10-K: …company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba's 33, and Jaggers. As of…
• EAT (BRINKER INTERNATIONAL, INC.)
• FY2025 10-K: …officers have an average of more than 20 years of experience in the restaurant industry. For decades, our culture has been built on our purpose of making people feel special, and that starts with our team members. We affectionately call them Brinkerheads, Chiliheads or Maggiano's Teammates, and we know that when they…
• FY2025 10-K: …Act of 1934, we have signed in our indicated capacities on August 15, 2025: Name Title /S/ KEVIN D. HOCHMAN President and Chief Executive Officer of Brinker International, Inc. and President of Chili's Grill & Bar and Maggiano's Little Italy (Principal Executive Officer) and Director Kevin D. Hochman /S/ MICHAELA M.…
• CAKE (THE CHEESECAKE FACTORY INCORPORATED)
• FY2025 10-K: We maintain our day-to-day operating cash balances in non-interest-bearing transaction accounts, which are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. We invest our excess cash in a money market deposit account, which is insured by the FDIC up to $250,000. Although we maintain…
• FY2025 10-K: …and labor productivity inefficiencies commonly associated with new, highly complex restaurants such as ours. Restaurant Operations Our ability to consistently execute a complex menu offering items prepared daily with high-quality, fresh ingredients in an upscale casual, high-volume dining environment is critical to…

Fine Dining (reported)

• CAKE (THE CHEESECAKE FACTORY INCORPORATED)
• FY2025 10-K: …bites, small plates, pastas, salads, sandwiches and omelettes, including a selection of vegan and gluten-free items. Our ability to create, promote and attractively display our unique line of desserts is also important to the competitive positioning and financial success of our restaurants. We offer approximately 45…
• FY2025 10-K: …below.) Distinctive Restaurant Design and Decor. We place significant emphasis on the contemporary interior design and decor of our restaurants, which create a high-energy ambiance in a casual setting and contribute to the distinctive dining experience enjoyed by our customers. We have evolved our restaurants' design…
• EAT (BRINKER INTERNATIONAL, INC.)
• FY2025 10-K: …results. The restaurant business is highly competitive as to price, service, restaurant location, convenience, and type and quality of food. We compete within each market with locally-owned restaurants as well as national and regional restaurant chains. The casual dining segment of the restaurant industry has not…
• FY2025 10-K: …strategically pursue expansion of Chili's internationally in areas where we see the most growth opportunities. Our international agreements provide for development fees and initial franchise fee revenues in addition to subsequent royalty fee revenues based on the gross sales of each restaurant. We expect future…
• TXRH (Texas Roadhouse, Inc.)
• FY2025 10-K: …of fast-casual and quick-service restaurants and better execution of to-go sales, together with negative economic conditions could cause consumers to choose less expensive alternatives. Although we believe that we compete favorably with respect to each of the above channels, other restaurants and retail…
• FY2025 10-K: …company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba's 33, and Jaggers. As of…

Other Business (reported)

• EAT (BRINKER INTERNATIONAL, INC.)
• FY2025 10-K: …processing, certain payroll processing, tax filings and other accounting processes. We also continue to evaluate our other business processes to determine if additional outsourcing is a viable option to accomplish our goals. We make a diligent effort to ensure that all providers of outsourced services are observing…
• FY2025 10-K: …Other risk factors may adversely affect our financial performance. Other risk factors that could cause our actual results to differ materially from those indicated in forward-looking statements, include, without limitation, changes in financial and credit markets (including rising interest rates); increased fuel…
• CAKE (THE CHEESECAKE FACTORY INCORPORATED)
• FY2025 10-K: …additional costs if we are unable to renew our restaurant leases on similar terms and conditions, or at all, or to relocate our restaurants in certain trade areas, which could materially adversely affect our financial performance. We currently lease all our restaurant premises and, although we may consider other…
• FY2025 10-K: …translation process. Translation gains and losses are reported as a separate component in our consolidated statements of comprehensive income and would only be realized upon the sale or upon complete or substantially complete liquidation of the business. Gains and losses from foreign currency transactions are…
• TXRH (Texas Roadhouse, Inc.)
• FY2025 10-K: …of fast-casual and quick-service restaurants and better execution of to-go sales, together with negative economic conditions could cause consumers to choose less expensive alternatives. Although we believe that we compete favorably with respect to each of the above channels, other restaurants and retail…
• FY2025 10-K: …and overall financial performance could be materially adversely affected. The strength of our Company depends heavily on the value and reputation of our brands. Our ability to attract and retain guests, employees, and franchise partners; maintain pricing power; and grow domestically and internationally is directly…
• SHAK (SHAKE SHACK INC.)
• FY2025 10-K: …consumer spending. In poor economic conditions, guest traffic could be adversely impacted if our guests choose to dine out less frequently or reduce the amount they spend on meals while dining out. Reduced guest traffic could result in lower Shack sales and licensing revenue, as well as a decline in our profitability…
• FY2025 10-K: …have developed criteria to evaluate and screen prospective developers and licensees, we cannot be certain that the developers and licensees we select will have the business acumen necessary to open and operate successful licensed Shacks in their territory. Our licensees compete for guests with other restaurants in…
• WING (WINGSTOP INC.)
• FY2025 10-K: …results may be adversely affected. Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand. We believe that our trademarks and other proprietary rights are important to our success and our competitive position, and,…
• FY2025 10-K: …upon sale to the customer. The Company collects and remits sales, food and beverage, alcoholic beverage, and hospitality taxes on transactions with customers and reports such amounts under the net method in its Consolidated Statements of Comprehensive Income. Accordingly, these taxes are not included in gross…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.