Darden cuts outlook, cites failed promotions
Orlando-based Darden Restaurants Inc. is cutting its profit forecast for the year, with the owner of Olive Garden and Red Lobster blaming failed promotions and negative publicity generated by its tests to limit health care costs for workers.
Darden's stock tumbled 8 percent.
Darden said it expects a profit from continuing operations of 25 cents or 26 cents per share for its second quarter, which ended Nov. 25.
The company said it expects costs related to its acquisition of the Yard House USA Inc. chain to reduce profit from continuing operations by about 5 cents per share and costs related to Superstorm Sandy to reduce it by about 1 cent.
Analysts polled by FactSet had expected earnings of 46 cents per share.
Darden also said that it expects combined U.S. same-restaurant revenue for the quarter to be down about 2.7 percent at its Red Lobster, Olive Garden and LongHorn Steakhouse chains, but increase about 0.7 percent at its specialty restaurant group. The metric is a key measure of a restaurant's health, because it excludes revenue at restaurants that recently opened or closed.
Darden also said bad publicity from its statements on health care could hurt it. In October, the company had said it was putting more workers on part-time status in a test aimed at limiting costs from President Barack Obama's health care law.
Under the new law, companies with 50 or more workers could be hit with fines if they do not provide basic coverage for full-time workers and their dependents. Those penalties and requirements could significantly boost labor costs for some companies, particularly in low-wage industries such as retail and hospitality, where most jobs don't come with health benefits.
The company plans to release its final fiscal second-quarter sales and earnings results before the markets open on Dec. 20.
Darden chairman and CEO Clarence Otis said the company's promotions didn't resonate with "financially stretched" diners and show the need for bold changes in its promotional approach at its three major brands. As a result, Darden is revising its promotional calendars at those chains for the rest of the year to better fit with the financial realities and expectations of diners, he said.