Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis below for Darden Restaurants, Inc. (Darden, the Company, we, us or our) 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 2025, which ended May 25, 2025, and fiscal 2024, which ended May 26, 2024, each consisted of 52 weeks. Fiscal 2026, which ends on May 31, 2026, will consist of 53 weeks.
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant industry. At May 25, 2025, we owned and operated 2,159 restaurants through subsidiaries in the United States and Canada under the Olive Garden ® , LongHorn Steakhouse ® , Cheddar’s Scratch Kitchen ® , Chuy’s ® , Yard House ® , Ruth’s Chris Steak House ® (Ruth’s Chris), The Capital Grille ® , Seasons 52 ® , Eddie V’s Prime Seafood ® (Eddie V’s), Bahama Breeze ® and The Capital Burger ® trademarks. We own and operate all of our restaurants in the United States and Canada, except for 5 restaurants we manage through joint venture or other contractual agreements and 85 franchised restaurants. We also have 69 franchised restaurants in operation located in Canada, Latin America, the Caribbean, Asia and the Middle East. All intercompany balances and transactions have been eliminated in consolidation.
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 $44.6 million ($36.7 million, net of tax) during the twelve months ended May 25, 2025.
Fiscal 2025 Financial Highlights
• Total sales increased 6.0 percent to $12.08 billion in fiscal 2025 from $11.39 billion in fiscal 2024 driven by a blended same-restaurant sales increase of 2.0 percent and sales from the addition of 103 net company-owned Chuy’s restaurants and 25 other net new restaurants.
• Diluted net earnings per share from continuing operations increased to $8.88 in fiscal 2025 from $8.53 in fiscal 2024, a 4.1 percent increase.
• Net earnings from continuing operations increased to $1.05 billion in fiscal 2025 from $1.03 billion in fiscal 2024, a 2.0 percent increase.
• Net loss from discontinued operations decreased to $1.4 million ($0.02 per diluted share) in fiscal 2025, from $2.9 million ($0.02 per diluted share) in fiscal 2024. When combined with results from continuing operations, our diluted net earnings per share was $8.86 for fiscal 2025 and $8.51 for fiscal 2024.
Outlook
We expect fiscal 2026 sales from continuing operations to increase between 7.0 to 8.0 percent, driven by growth of 2.0 percent related to the fifty-third week in fiscal 2026, same-restaurant sales growth (1) of 2.0 to 3.5 percent, and sales from 60 to 65 new restaurant openings. In fiscal 2026, we expect our annual effective tax rate to be 13 percent, and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between $700 million and $750 million.
(1) Annual same-restaurant sales is a 52-week metric and excludes the impact of Chuy’s, which will not have been owned and operated by Darden for a 16-month period prior to the beginning of fiscal 2026, as well as any additional locations not expected to be operated by Darden for the entirety of the fiscal year.
RESULTS OF OPERATIONS FOR FISCAL 2025 AND 2024
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 25, 2025 and May 26, 2024:
Fiscal Year Ended
Percent Change
(in millions)
May 25, 2025
May 26, 2024
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Pre-opening costs
Marketing expenses
General and administrative expenses
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense (1)
Earnings from continuing operations
Losses from discontinued operations, net of tax
Net earnings
(1) Effective tax rate
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 2025, compared with the number open at the end of fiscal 2024:
May 25, 2025
May 26, 2024
Olive Garden
LongHorn Steakhouse
Cheddar’s Scratch Kitchen
Chuy’s
Yard House
Ruth’s Chris
The Capital Grille
Seasons 52
Eddie V’s
Bahama Breeze
The Capital Burger
Total
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 25, 2025
May 26, 2024
SRS (1)
May 25, 2025
May 26, 2024
Olive Garden
LongHorn Steakhouse
Fine Dining
Other Business
(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.
(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 2025 was primarily driven by a U.S. same-restaurant sales increase combined with revenue from new restaurants. The increase in U.S. same-restaurant sales in fiscal 2025 resulted from a 4.1 percent increase in average check, which includes a 0.7 increase in off-premise catering sales, partially offset by a 2.3 percent decrease in same-restaurant guest counts.
LongHorn Steakhouse’s sales increase for fiscal 2025 was primarily driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2025 resulted from a 3.1 percent increase in average check and a 1.9 percent increase in same-restaurant guest counts.
Fine Dining’s sales increase for fiscal 2025 was driven by revenue from new restaurants offset by same-restaurant sales decreases. The decrease in same-restaurant sales in fiscal 2025 resulted from a 5.2 percent decrease in same-restaurant guest counts offset by a 2.3 percent increase in average check.
Other Business’s sales increase for fiscal 2025 was driven by a U.S. same-restaurant sales increase combined with revenue from new restaurants including the acquisition of Chuy’s. The increase in same-restaurant sales in fiscal 2025 resulted from a 2.6 percent increase in average check offset by a 2.4 percent decrease 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 25, 2025 and May 26, 2024.
Fiscal Year Ended
May 25, 2025
May 26, 2024
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Marketing expenses
Pre-opening costs
General and administrative expenses
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense
Earnings from continuing operations
Total operating costs and expenses from continuing operations were $10.71 billion in fiscal 2025 and $10.08 billion in fiscal 2024.
Fiscal 2025 Compared to Fiscal 2024:
• Food and beverage costs decreased as a percent of sales primarily due to a 0.9 percent impact from pricing leverage and a 0.2 percent impact from cost savings, partially offset by a 0.3 percent impact from mix and other and a 0.2 percent impact from inflation.
• Restaurant labor costs decreased as a percent of sales primarily due to a 0.8 percent impact from sales leverage, a 0.2 percent impact from productivity improvement and a 0.2 percent impact from lower benefits expense, partially offset by a 1.1 percent impact from inflation.
• Restaurant expenses increased as a percent of sales primarily due to a 0.5 percent impact from inflation, a 0.2 percent impact from brand mix, including Chuy’s and a 0.1 percent impact from Uber Direct fees, partially offset by a 0.4 percent impact from sales leverage and a 0.2 percent impact from other expenses.
• Marketing expenses increased as a percent of sales primarily due to increased marketing and media.
• Pre-opening costs remained flat as a percent of sales.
• General and administrative expenses increased as a percent of sales primarily due to a 0.4 percent impact from Chuy’s acquisition and integration costs, 0.1 percent impact from inflation, a 0.1 percent impact from mark to market adjustments and a 0.1 percent impact from restaurant closures, partially offset by a 0.4 percent impact from reduced Ruth’s Chris acquisition and integration costs and by a 0.2 percent impact from sales leverage.
• Depreciation and amortization expenses increased as a percent of sales primarily due to the acquisition of Chuy’s as well as incremental depreciation on brand assets.
• Impairments and disposal of assets, net increased as a percent of sales primarily due to the decision to close twenty-two underperforming restaurant locations during the fourth quarter of fiscal 2025.
INCOME TAXES
The effective income tax rates for fiscal 2025 and 2024 for continuing operations were 11.5 percent and 12.3 percent, respectively. During fiscal 2025, we had income tax expense of $136.2 million on earnings before income tax of $1.19 billion
compared to income tax expense of $145.0 million on earnings before income taxes of $1.18 billion in fiscal 2024. This change was primarily driven by federal tax credits.
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 may impact the timing and magnitude of certain tax deductions. Key provisions include the permanent extension of several business tax benefits originally introduced under the 2017 Tax Cuts and Jobs Act. We are currently evaluating the provisions of the OBBBA to assess their potential impact on our financial position, results of operations and cash flows.
NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net earnings from continuing operations for fiscal 2025 were $1.05 billion ($8.88 per diluted share) compared with net earnings from continuing operations for fiscal 2024 of $1.03 billion ($8.53 per diluted share).
Net earnings from continuing operations for fiscal 2025 increased 2.0 percent and diluted net earnings per share from continuing operations increased 4.1 percent compared with fiscal 2024.
LOSS FROM DISCONTINUED OPERATIONS
On an after-tax basis, results from discontinued operations for fiscal 2025 were a net loss of $1.4 million ($0.02 per diluted share) compared with a net loss for fiscal 2024 of $2.9 million ($0.02 per diluted share).
SEGMENT RESULTS
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Chuy’s, Yard House, Ruth’s Chris, The Capital Grille, Seasons 52, Eddie V’s, Bahama Breeze and The Capital Burger in the U.S. and Canada 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 25, 2025
May 26, 2024
Olive Garden
LongHorn Steakhouse
Fine Dining
Other Business
The increases in the Olive Garden and LongHorn Steakhouse segment profit margins for fiscal 2025 were both driven primarily by positive same-restaurant sales and lower food and beverage costs, partially offset by higher restaurant expenses and marketing costs. The decrease in the Fine Dining segment profit margin for fiscal 2025 was driven primarily by negative same-restaurant sales and higher restaurant labor and restaurant expenses, partially offset by lower food and beverage costs. The increase in the Other Business segment profit margin for fiscal 2025 was driven primarily by positive same-restaurant sales and lower food and beverage costs, partially offset by increased restaurant expenses and marketing costs.
RESULTS OF OPERATIONS FOR FISCAL 2024 COMPARED TO FISCAL 2023
For a comparison of our results of operations for the fiscal years ended May 26, 2024 and May 28, 2023, 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 26, 2024, filed with the SEC on July 19, 2024.
SEASONALITY
Our sales volumes have historically fluctuated seasonally. Our average sales per restaurant are highest in the winter and spring, followed by the fall and summer. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of 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. We recently operated in a period of 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, 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. 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.
Leases
We evaluate our leases at their inception to estimate their expected term, which commences on the date when we have the right to control the use of the leased property and includes the non-cancelable base term plus all option periods we are reasonably certain to exercise. Our judgment in determining the appropriate expected term and discount rate for each lease affects our evaluation of:
• The classification and accounting for leases as operating versus finance;
• The rent holidays and escalation in payments that are included in the calculation of the lease liability and related right-of-use asset; and
• The term over which leasehold improvements for each restaurant facility are amortized.
These judgments may produce materially different amounts of lease liabilities and right-of-use assets recognized on our consolidated balance sheets, as well as depreciation, amortization, interest and rent expense recognized in our consolidated statements of earnings if different discount rates and expected lease terms were used.
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 the 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 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 exist.
During fiscal 2025, we elected to perform a qualitative assessment for our annual review of goodwill and trademarks to determine whether or not indicators of impairment exist. In considering the qualitative approach related to goodwill, we evaluated factors including, but not limited to, macro-economic conditions, market and industry conditions, commodity cost fluctuations, competitive environment, share price performance, results of prior impairment tests, operational stability, the overall financial performance of the reporting units and the impacts of discount rates. As it relates to trademarks, we evaluate similar factors from the goodwill assessment, in addition to impacts of royalty rates. As a result of the qualitative assessment, no indicators of impairment were identified, and no additional indicators of impairment were identified through the end of our fourth fiscal quarter that would require us to test further for impairment.
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 $3.5 million for fiscal 2025.
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.
Assessment of uncertain tax positions requires judgments relating to the amounts, timing and likelihood of resolution. As described in Note 13 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report), the $21.4 million balance of unrecognized tax benefits at May 25, 2025, includes $1.3 million related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations. All of such $1.3 million relates to items that would impact our effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures for new restaurants and to remodel and maintain existing restaurants, to pay dividends to our shareholders and to repurchase 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 (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 25, 2025, we had no outstanding balances and were in compliance with all covenants under the Revolving Credit Agreement. As of May 25, 2025, $0.2 million of letters of credit were outstanding, which was backed by this facility. After consideration of letters of credit backed by the Revolving Credit Agreement, as of May 25, 2025, we had $1.25 billion of credit available 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 (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 (Amendment) to the Revolving Credit Agreement, which replaced the 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.
On September 16, 2024, we entered into a senior unsecured $600 million 2-year Term Loan Credit Agreement (Term Loan Agreement) with BOA, as administrative agent, the lenders and other agents party thereto, the material terms of which were consistent with the Revolving Credit Agreement. The intended use of the proceeds was to finance our acquisition of Chuy’s and we subsequently terminated the Term Loan Agreement on October 3, 2024, in connection with the closing of our senior notes issuance discussed below. We did not draw any funds, and there were never any outstanding borrowings under the Term Loan Agreement.
On October 3, 2024, we issued and sold $400.0 million aggregate principal amount of 4.350 percent Senior Notes due 2027 (2027 Notes) and $350.0 million aggregate principal amount of 4.550 percent Senior Notes due 2029 (2029 Notes and, together with the 2027 Notes, the Notes), pursuant to the provisions of the Underwriting Agreement, dated September 30, 2024, among the Company and BofA Securities, Inc., Truist Securities, Inc., U.S. Bancorp Investments, Inc. and Wells Fargo Securities, LLC, as representatives of the several underwriters named therein. The Notes were issued under the Company’s Indenture, dated as of January 1, 1996, between the Company and Computershare Trust Company, National Association (as successor to Wells Fargo Bank, National Association, successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association), as trustee (Base Trustee), as amended and supplemented by the Second Supplemental Indenture, dated as of October 4, 2023, among the Company, the Base Trustee and U.S. Bank Trust Company, National Association, as a successor trustee with respect to the Notes. We used the proceeds from our issuance of the Notes to finance our acquisition of Chuy’s and for general corporate purposes.
The 2027 Notes will mature on October 15, 2027, and the 2029 Notes will mature on October 15, 2029. Interest on the Notes will be paid semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2025, to holders of record on the preceding March 31 or September 30, as the case may be.
As of May 25, 2025, our outstanding long-term debt 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 millions 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 25, 2025, no such adjustments have been made to this rate.
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 25, 2025, is as follows:
(in millions)
Payments Due by Period
Contractual Obligations
Total
Less Than
1 Year
Years
Years
More Than
5 Years
Long-term debt (1)
Leases (2)
Purchase obligations (3)
Benefit obligations (4)
Unrecognized income tax benefits (5)
Total contractual obligations
(in millions)
Amount of Commitment Expiration per Period
Other Commercial Commitments
Total
Amounts
Committed
Less Than
1 Year
Years
Years
More Than
5 Years
Standby letters of credit (6)
Guarantees (7)
Total commercial commitments
(1) Includes interest payments associated with existing long-term debt. Excludes discount and issuance costs of $20.2 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 2035.
(5) Includes interest on unrecognized income tax benefits of $2.3 million, $0.3 million of which relates to contingencies expected to be resolved within one year.
(6) Includes letters of credit for $80.0 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 EBITDAR ratio must be 3.50 to 1.00 or lower in order to be in compliance with our financial covenants. As of May 25, 2025, our adjusted debt to EBITDAR ratio was 2.1. For fiscal 2025, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $498.1 million. The calculation of adjusted debt to EBITDAR ratio is shown in the following table:
(in millions, except ratios)
May 25, 2025
Long-term debt, excluding unamortized discount and issuance costs and fair value hedge
Lease-debt equivalent
Guarantees
Adjusted Debt
Calculation of EBITDAR
Earnings from continuing operations
Depreciation and amortization
Interest, net
Income tax expense
Impairments and disposal of assets, net
Transaction and integration costs
Non-cash stock based compensation
Minimum rent
Adjusted EBITDAR
Adjusted Debt/ EBITDAR Ratio
Prior to the Amendment, the ratio was calculated as adjusted debt to adjusted total capital and the maximum permitted was 75 percent. As of May 26, 2024, our adjusted debt to adjusted capital ratio was 66 percent. For fiscal 2024, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $464.4 million. The composition of our capital structure is shown in the following table:
(in millions, except ratios)
May 26, 2024
Capital Structure
Short-term debt
Long-term debt, excluding unamortized discount and issuance costs and fair value hedge
Total debt
Stockholders’ equity
Total capital
Calculation of Adjusted Capital
Total debt
Lease-debt equivalent
Guarantees
Adjusted debt
Stockholders’ equity
Adjusted total capital
Capital Structure Ratios
Debt to total capital ratio
Adjusted debt to adjusted total capital ratio
Based on these ratios, we believe our financial condition is strong. 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 our Revolving Credit Agreement.
Net cash flows provided by operating activities from continuing operations were $1.71 billion and $1.62 billion in fiscal 2025 and 2024, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $1.05 billion in fiscal 2025 and $1.03 billion in fiscal 2024. Net cash flows provided by operating activities from continuing operations increased in fiscal 2025 primarily due to higher net earnings from continuing operations.
Net cash flows used in investing activities from continuing operations were $1.3 billion in fiscal 2025 and 2024. Capital expenditures incurred principally for building new restaurants, remodeling existing restaurants, replacing equipment, and technology initiatives were $644.6 million in fiscal 2025, compared to $601.2 million in fiscal 2024. Net cash used in the acquisition of Chuy’s was $613.7 million during fiscal 2025. Net cash used in the acquisition of Ruth’s Chris was $701.1 million during fiscal 2024.
Net cash flows used in financing activities from continuing operations were $385.8 million and $483.4 million in fiscal 2025 and 2024, respectively. 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-debt of $750.0 million and proceeds from the exercise of employee stock options. Net cash flows used in financing activities in fiscal 2024 included dividend payments of $628.4 million and share repurchases of $453.9 million, partially offset by the issuance of commercial paper of $86.8 million, net proceeds from the 2033 Notes of $500.0 million and proceeds from the exercise of employee stock options. Dividends declared by our Board of Directors totaled $5.60 and $5.24 per share for fiscal 2025 and 2024, 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 our Revolving Credit Agreement should be sufficient to finance our capital expenditures, debt maturities and other operating activities through fiscal 2026.
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 $937.7 million at May 25, 2025, compared with $822.8 million at May 26, 2024. The increase was primarily due to an increase in cash and cash equivalents driven by cash from operations.
Our total current liabilities were $2.25 billion at May 25, 2025 and $2.19 billion at May 26, 2024. The increase was primarily due to increases in accounts payable as well as an increase in other current liabilities associated with our non-qualified deferred compensation plan, operating and financing leases and sales tax liability.
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.
