Olive Garden: Sales Increase as Discounts and Gas Prices Fall

Olive Garden posted quarterly sales that increased by 3.4% at its established restaurants as customers spent more money at the Italian chain that has been struggling.

Darden Restaurants, the parent company, has moved away from heavy discounting that the restaurant relied on to increase traffic. Included in those deep discounts were promotional entrees that cost $9.99 or $10.99.

However, CEO Gene Lee said the Never Ending Pasta Bowl would remain. The chain was helped thanks to lower prices of gas. More people ordered appetizers and wine, said the CEO and more splurged on extras thanks to paying less at the gas pump. Overall visits by customers dropped and Lee said the company expects its traffic to remain flat during the year ahead.

Orlando, Florida based Darden Restaurants has been fighting to try to revive its Olive Garden sales by giving its menu a makeover. It recently introduced a line of sandwiches that are made from its famous breadsticks.

Starboard Value an activist and major shareholder had pressured the company by releasing a manifest of 300-pages that outlined ways the company could improves its operations and lower its costs.

Starboard was eventually successful in gaining full control of the board of directors at Darden.

For its May 31 ending fiscal year, Olive Garden said sales were up 1.3% at its established restaurants. That was the first increase for a year for the restaurant chain since 2011.

Darden, which is also the owner of chains such as The Capital Grille and Longhorn Steakhouse, said Tuesday as well that it would spin some properties off into a real estate investment trust or REIT that would function as its own company that would trade separately.

The REIT Darden is entering was expected by a number of investors since a board takeover by Starboard.

For the May 31 ending period, Darden had earnings of $105.3 million equal to 82 cents a share, including a 10 cents a share loss from its discontinued operations.

Not including items that were one time, earnings equaled $1.08 a share, which was higher than anticipated by analysts of 93 cents a share.

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