I always assumed he was saying "OH! DAISY" because she turns into a monster the first three times you get to her. But I think the text comes up before she actually changes, so who knows what they were thinking.
I would like to take a moment to say that I've always been bothered by the "Oh! Daisy" punctuation. It makes me feel like Mario is surprised to find her there, like their running into each other was simply a coincidence.