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we gather sales data daily and regularly analyze the guest traffic counts and the mix of menu items sold to assist in developing menu pricing, product offerings, and prom otional strategies. We view guest traffic counts as an indication of the long-term  health of a concept, while increases in average check and menu mix may con- tribute more significantly to near-term profitability. We continually focus on balancing our pricing and product offerings with other initiatives to generate sustainable growth in sam e-restaurant sales. 

Incremental same-restaurant sales increases make a significant contribution to our profitability . Many restaurant-level expenses are relatively fixed in nature and do not vary  with sales volumes. Therefore, same-restaurant sales increases can improve our profit- ability. We define same-restaurants as restaurants that have been open at least 16 months. New restaurants experience an adjustment period before sales levels and operating m argins normalize, and sales at newly opened restaurants generally do not make a signif- icant contribution to profitability  in their initial months of opera- tion. Our sales and expenses can be impacted significantly by the number and timing of the opening of new restaurants, and the closing, relocation, and remodeling of existing restaurants. Pre-opening expenses each period reflect the costs associated with opening new restaurants in current and future periods . 

There are significant risks and challenges that could im pact our oper- ations and ability to increase sales and earnings. The casual dining restaurant industry is highly competitive and sensitive to economic turns, trends in lifestyles and fluctuating costs. Operating m argins for our concepts are susceptible to changes in the price of com modities, including seafood, beef, pork, chicken, cheese, produce, natural gas, and other energy supplies. Other risks and uncertainties include the price and availability of labor, insurance and media,- possible unfavor- able publicity relating to food safety  or other concerns,- government regulation and litigation,- and factors that could im pact our growth plans, including the availability of suitable restaurant locations, con- struction cost increases, construction delays, and other factors. 

## RESULTS OF OPERATIONS FOR FISCAL 2004,2003 AND 2002 

The following table sets forth selected operating data as a per- centage of sales for the 53-week period ended May  30, 2004, and t he 52-week periods ended May 25, 2003, and May 26, 2002. 

All information is derived from the consolidated statements of 

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## SALES 

Sales were $5.00 billion in fiscal 2004, $4.65 billion in fiscal 2003, and $4.37 billion in fiscal 2002. The 7.5% increase in company- wide sales for fiscal 2004 was prim arily due to a net increase of 54 company-owned restaurants since fiscal 2003, sam e-restaurant sales increases at Olive Garden, and the additional operating week in fiscal 2004. These sales increases were partially offset by decreased same-restaurant sales at Red Lobster. After adj usting for $90 million of sales contributed by the additional operating week, total sales would have been $4.91 billion for fiscal 2004 on a 52-week basis, a 5.5 percent increase from fiscal 2003. 

Red Lobster sales of $2.44 billion were 0.1 percent above last y ear. U.S. same-restaurant sales for Red Lobster decreased 3.5 percent due to a 6.5 percent decrease in same-restaurant guest counts, offset partially by a 3.0 percent increase in average check. Average annual sales per restaurant for Red Lobster were $3.6 m illion in fiscal 2004 (on a 52-week basis). 

## Financial Review 2004 

