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Olive Garden has first annual sales growth at established stores in 4 years as diners splurge


ORLANDO, Florida — Olive Garden's quarterly sales rose 3.4 percent at established locations as customers spent more at the struggling Italian chain.

Parent company Darden Restaurants is moving away from some of the heavy discounting Olive Garden had relied on in the past to boost traffic, such as promotional entrees for $9.99 and $10.99. The "Never Ending Pasta Bowl," however, is here to stay, CEO Gene Lee assured investors during a conference call.

The chain got some outside help in the form of lower gas prices. More people were ordering wine and appetizers. Lee said more people are splurging on extras because they're spending less at the pump.

Overall, customer visits fell and Lee said he expects traffic to be "flatish" in the year ahead.

"Our work at Olive Garden is still in its early stages," Lee said.

Darden Restaurants Inc., based in Orlando, Florida, has been fighting to revive sales at Olive Garden by revamping its menu, recently introducing sandwiches made with its famous breadsticks. The company has been pressured by major shareholder Starboard Value, which released a nearly 300-page presentation outlining ways that Darden could improve operations and cut costs. Starboard eventually succeeded in gaining control of Darden's board.

For its fiscal year ending May 31, Olive Garden's sales rose 1.3 percent at established locations. That was the first annual increase for the chain since 2011.

Darden, which also owns chains including Longhorn Steakhouse and The Capital Grille, also said Tuesday it would spin off some of its properties into a real estate investment trust that will function as its own publicly traded company.

Sears Holdings Corp. has done the same in a bid to raise cash and plans to sell more than 250 properties.

The decision to create a REIT at Darden had been expected by many investors since Starboard's board takeover.

For the period ending May 31, Darden earned $105.3 million, or 82 cents per share, including a loss of 10 cents per share from discontinued operations. Not including one-time items, earnings were $1.08 per share. That was better than the 93 cents per share analysts expected, according to Zacks Investment Research.

Total revenue for the quarter was $1.88 billion, which also beat the $1.87 billion Wall Street projections.

Shares of Darden rose 4 percent to $71.90 in early trading.

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