Investment Thesis
Darden demonstrates exceptional profitability with net income growing 15% YoY, outpacing revenue growth of 9.4%, and delivering a remarkable 54.7% ROE. Strong operating margins of 12% and excellent 31.5x interest coverage indicate robust business fundamentals and manageable debt. However, critically low liquidity ratios (0.31x current, 0.21x quick) and limited cash reserves of $219.5M against significant capital requirements warrant close monitoring of cash generation.
Strengths
- Exceptional ROE of 54.7% demonstrates highly efficient capital deployment and shareholder value creation
- Net income growth (15% YoY) significantly outpacing revenue growth (9.4%) indicates improving operational efficiency and margin expansion
- Strong EPS growth of 17.2% exceeding net income growth suggests effective capital allocation through buybacks or share count reduction
- Excellent interest coverage ratio of 31.5x provides substantial debt service safety and financial flexibility
- Solid operating margin of 12% is healthy for the restaurant industry and reflects competitive operational strength
Risks
- Severely low current ratio (0.31x) and quick ratio (0.21x) create potential liquidity stress despite restaurant industry norms for negative working capital
- Limited cash position of $219.5M coupled with annual capex of $734M creates dependence on operating cash flow and credit facilities with minimal buffer
- High absolute debt levels ($1.6B long-term) relative to modest equity base ($2.2B) increases financial risk in economic downturns
- Missing operating and free cash flow data prevents assessment of actual cash generation quality and sustainability of growth investments
- Working capital structure leaves no margin for error in operations or revenue disruptions
Key Metrics to Watch
- Operating cash flow and free cash flow trends—essential to validate profitability translates to actual cash generation
- Current ratio and working capital dynamics—monitor if liquidity tightens further or improves
- Debt-to-EBITDA ratio—track leverage sustainability given capital-intensive model
- Same-store sales growth—key indicator of organic business momentum beyond total revenue
- Cash conversion cycle—critical given thin liquidity to ensure vendor and operational payment reliability
Financial Metrics
Revenue
13.2B
Net Income
1.2B
EPS (Diluted)
$10.38
Free Cash Flow
N/A
Total Assets
12.9B
Cash
219.5M
Profitability Ratios
Gross Margin
20.3%
Operating Margin
12.0%
Net Margin
9.1%
ROE
54.7%
ROA
9.4%
FCF Margin
N/A
Balance Sheet & Liquidity
Current Ratio
0.31x
Quick Ratio
0.21x
Debt/Equity
0.74x
Debt/Assets
82.8%
Interest Coverage
31.53x
Long-term Debt
1.6B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-08-01T06:06:11.365730 |
Data as of: 2026-05-31 |
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