(Recasts; adds CEO and analyst comment, byline, relativeperformance; updates share activity)

By Lisa Baertlein

LOS ANGELES (Reuters) - Olive Garden and RedLobster owner Darden Restaurants Inc reported aweaker-than-expected rise in quarterly sales for its keyeateries, and its shares fell 2 percent in extended trading.

Combined sales at Olive Garden, Red Lobster and LongHornSteakhouse restaurants open at least 16 months were up 1.1percent for the fiscal first quarter, the company saidTuesday.

That result was better than the restaurant industryoverall, but fell short of the 2.3 percent rise expected byanalysts at firms like Deutsche Bank and Bernstein Research.

"The industry is flat. We feel pretty good about (theresult)," Darden Chairman and Chief Executive Clarence Otistold Reuters in an interview.

"We think same-store sales will continue to improvethroughout the year," said Otis, who added that the companyimproved its lead against rivals in the latest quarter.

The Orlando, Florida-based Darden repeated its call forsame-restaurant sales growth of 2 percent to 3 percent at OliveGarden, Red Lobster and LongHorn Steakhouse combined for fiscal2011.

That forecast for the company's "Big Three" brands sets ahigh bar and assumes considerable outperformance versus thebroader industry, Deutsche Bank analyst Jason West said in anearnings preview note to clients.

Darden shares are up more than 25 percent so far this year,just ahead of the 22 percent rise in the Dow Jones U.S.Restaurant and Bars index.

West, who has a "hold" rating on Darden shares, saidDarden's stock is relatively fully valued.

CEO Otis said visits to LongHorn Steakhouse were up inAugust and that Olive Garden saw traffic rise in both July andAugust. Menu price increases also helped to fuel the gain inoverall same restaurant sales.

"We're seeing improvement," he said.

By brand, first-quarter same-restaurant sales increased 2.7percent at Olive Garden and 2.2 percent at LongHorn Steakhouse.They were down 1.7 percent at Red Lobster.

Elsewhere, rival Brinker International Increcentlyreported a 4.1 percent drop in quarterly same-restaurant salesat Chili's, which accounts for about 85 percent of companysales. Brinker's smaller Maggiano's Little Italy chain sawsame-store sales rise 1.3 percent.

Darden, one of the top performing full-service diningchains, said net income from continuing operations was $113.3million, or 80 cents per share, for the fiscal first quarterended Aug. 29, up from $95 million, or 67 cents per share, inthe year-earlier period.

Analysts, on average, were looking for a profit of 77 centsper share in the latest quarter, according to Thomson ReutersI/B/E/S.

Sales from continuing operations were up 4.2 percent at$1.81 billion.

The company also backed its earlier call for earningsgrowth of 14 percent to 17 percent for its fiscal year endingMay 2011.

Shares in Darden, which also owns the upscale CapitalGrille steakhouse chain, closed down 2.2 percent to $44.02before falling further to $43.10 in extended trade after thenews was released. (Reporting by Lisa Baertlein; Editing by Phil Berlowitz; CarolBishopric)