Darden Restaurants Inc.

07/24/2026 | Press release | Distributed by Public on 07/24/2026 14:03

Annual Report for Fiscal Year Ending May 31, 2026 (Form 10-K)

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.
•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
(in millions) May 31, 2026 May 25, 2025 2026 v. 2025
Sales $ 13,210.9 $ 12,076.7 9.4%
Costs and expenses:
Food and beverage
4,038.8 3,657.0 10.4%
Restaurant labor
4,182.4 3,833.1 9.1%
Restaurant expenses
2,127.2 1,944.0 9.4%
Marketing expenses 180.4 169.9 6.2%
Pre-opening costs 34.5 24.8 39.1%
General and administrative expenses 514.4 520.3 (1.1)%
Depreciation and amortization 561.1 516.1 8.7%
Impairments and disposal of assets, net
(10.7) 49.2 NM
Total operating costs and expenses
$ 11,628.1 $ 10,714.4 8.5%
Operating income $ 1,582.8 $ 1,362.3 16.2%
Interest, net 194.2 175.1 10.9%
Earnings before income taxes $ 1,388.6 $ 1,187.2 17.0%
Income tax expense (1) 174.9 136.2 28.4%
Earnings from continuing operations $ 1,213.7 $ 1,051.0 15.5%
Losses from discontinued operations, net of tax
(7.0) (1.4) NM
Net earnings $ 1,206.7 $ 1,049.6 15.0%
(1) Effective tax rate 12.6 % 11.5 %
NM- Percentage change not considered meaningful.
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:
May 31, 2026 May 25, 2025
Olive Garden 949 935
LongHorn Steakhouse 618 591
Cheddar's Scratch Kitchen 184 181
Chuy's 110 108
Yard House 93 88
Ruth's Chris 83 82
The Capital Grille 74 71
Seasons 52 44 43
Eddie V's
31 29
Bahama Breeze 13 28
The Capital Burger 3 3
Total 2,202 2,159
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
(in millions) May 31, 2026 May 25, 2025 SRS (1) May 31, 2026 May 25, 2025
Olive Garden $ 5,594.8 $ 5,212.9 7.3 % 4.0 % $ 5.8 $ 5.6
LongHorn Steakhouse $ 3,423.0 $ 3,025.5 13.1 % 7.2 % $ 5.6 $ 5.2
Fine Dining $ 1,375.7 $ 1,304.8 5.4 % 1.2 % $ 7.3 $ 7.2
Other Business $ 2,817.4 $ 2,533.5 11.2 % 3.9 % $ 5.9 $ 5.8
$ 13,210.9 $ 12,076.7
(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
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
May 31, 2026 May 25, 2025
Sales 100.0 % 100.0 %
Costs and expenses:
Food and beverage 30.6 30.3
Restaurant labor 31.7 31.7
Restaurant expenses 16.1 16.1
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 %
Operating income 12.0 % 11.3 %
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.
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
Segment May 31, 2026 May 25, 2025 2026 vs 2025
Olive Garden 22.5% 22.3% 20 basis points
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.
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
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
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).
A summary of our contractual obligations and commercial commitments at May 31, 2026, is as follows:
(in millions) Payments Due by Period
Contractual Obligations Total Less Than
1 Year 		1-3
Years 		3-5
Years 		More Than
5 Years
Long-term debt (1) $ 2,915.0 $ 606.4 $ 548.2 $ 465.6 $ 1,294.8
Leases (2) 2,862.8 540.3 938.6 643.8 740.1
Purchase obligations (3) 849.8 805.7 41.2 2.9 -
Benefit obligations (4) 368.3 37.1 74.0 73.7 183.5
Unrecognized income tax benefits (5) 22.8 1.7 6.0 15.1 -
Total contractual obligations $ 7,018.7 $ 1,991.2 $ 1,608.0 $ 1,201.1 $ 2,218.4
(in millions) Amount of Commitment Expiration per Period
Other Commercial Commitments Total
Amounts
Committed 		Less Than
1 Year 		1-3
Years 		3-5
Years 		More Than
5 Years
Standby letters of credit (6) $ 88.6 $ 88.6 $ - $ - $ -
Guarantees (7) 83.3 25.0 31.7 19.1 7.5
Total commercial commitments $ 171.9 $ 113.6 $ 31.7 $ 19.1 $ 7.5
(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.
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:
(in millions, except ratios) May 31, 2026 May 25, 2025
Short-term debt, excluding unamortized discount and issuance costs $ 694.0 $ -
Long-term debt, excluding unamortized discount and issuance costs and fair value hedge 1,689.1 2,189.1
Lease-debt equivalent 3,184.8 2,988.9
Guarantees 83.3 76.5
Adjusted Debt $ 5,651.2 $ 5,254.5
Calculation of Adjusted EBITDAR
Earnings from continuing operations $ 1,213.7 $ 1,051.0
Depreciation and amortization 561.1 516.1
Interest, net 194.2 175.1
Income tax expense 174.9 136.2
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
Minimum rent
530.8 498.1
Adjusted EBITDAR $ 2,768.5 $ 2,555.9
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.
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.
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