Digital Adoption And International Franchising Will Redefine Dining Landscape

Key Takeaways

• Rapid expansion of off-premise and digital strategies is transforming sales mix and driving sustainable revenue growth and margin expansion across brands.
  
• International franchising and industry consolidation are positioning Darden for long-term, high-margin earnings growth and durable competitive advantages.
  
• Heavy reliance on key brands, rising labor costs, and shifting consumer and digital trends expose Darden to margin pressure, brand risk, and challenges to sustained revenue growth.

Catalysts

Owns and operates full-service restaurants in the United States and Canada.

• While analyst consensus holds that Olive Garden's Uber Direct rollout will incrementally boost sales and average check size, the rapid adoption-with delivery now nearly doubling weekly orders and attracting a younger, higher-income, and net new customer base-suggests off-premise could transform Olive Garden's sales mix much faster, driving both outsized revenue growth and sustained margin expansion as delivery scales across other brands.
  
• Analysts broadly agree that LongHorn Steakhouse's relentless focus on quality and culture will sustain above-industry comp sales, but given recent investments in portion sizing, labor, and ongoing menu/culture leadership, LongHorn is poised for structural share gains and step-change improvements in guest satisfaction, translating into durable margin leadership and compounding earnings outperformance.
  
• Darden's acceleration of international franchising, including multi-decade area development agreements for Olive Garden and Ruth's Chris in Canada, India, Spain, and Asia, opens up a long runway for high-margin, asset-light royalty income, setting up a step-function in future earnings growth that is not fully reflected in current financial projections.
  
• The company is uniquely positioned to harness the long-term trend of digitization and personalized marketing: its scaled investments in connected TV, data-driven promotions, and loyalty will allow Darden to capture higher visit frequency and spend per guest across an expanding demographic spectrum, providing a meaningful lift to both traffic and average check that fuels revenue and EPS upside.
  
• Industry consolidation and Darden's recent selective closures, combined with its scalable supply chain and unmatched balance sheet, pave the way for accelerated acquisition of struggling chains at favorable valuations or for opportunistic land grabs on premium real estate, which will drive above-trend unit growth and structural advantages in both revenue and net margins over the next several years.

Darden Restaurants Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Darden Restaurants compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Darden Restaurants's revenue will grow by 6.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.7% today to 10.5% in 3 years time.
• The bullish analysts expect earnings to reach $1.5 billion (and earnings per share of $13.69) by about September 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.9x on those 2028 earnings, up from 23.5x today. This future PE is greater than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.28%, as per the Simply Wall St company report.

Darden Restaurants Future Earnings Per Share Growth

Risks

• Darden's reliance on Olive Garden and LongHorn Steakhouse for the majority of its sales exposes the company to heightened brand concentration risk; if consumer trends shift away from these brands or negative sentiment arises, Darden could face significant revenue and earnings volatility.
  
• Rising labor costs and persistent labor market tightness are already resulting in labor inflation of 3.5% for fiscal 2026, and ongoing increases in minimum wages will further pressure operating costs, likely constraining net margins in future years.
  
• The consumer preference shift toward healthier, plant-based eating could reduce demand for Darden's traditional, calorie-dense menu items, potentially leading to slower traffic growth and dampening long-term revenues across its core brands.
  
• Accelerating digital adoption and growth of third-party delivery and "virtual restaurant" competitors threaten to erode Darden's market share, as consumers become less loyal to in-person dining, impacting both sales and customer retention, which could in turn put downward pressure on revenue growth.
  
• The company acknowledges the need for substantial, ongoing capital expenditures-guided at $700 to $750 million-to fund restaurant modernization and digital infrastructure, sustain competitive positioning, and support global franchising growth, which risks lowering future free cash flow and operating margins if returns on these investments underperform.

Valuation

• The assumed bullish price target for Darden Restaurants is $255.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Darden Restaurants's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $255.0, and the most bearish reporting a price target of just $157.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $14.7 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 9.3%.
• Given the current share price of $211.85, the bullish analyst price target of $255.0 is 16.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.