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Olive Garden parent Darden suffers from bad specials, 'Obamacare'

December 04, 2012|By Tiffany Hsu
  • Olive Garden owner Darden said its second quarter earnings will be worse than expected, blaming penny-pinching consumers and Obamacare.
Olive Garden owner Darden said its second quarter earnings will be worse… (Darden )

Darden Restaurants Inc. won’t be looking as good as expected next week when the restaurant company is set to release its second-quarter earnings, it said Tuesday.

The Olive Garden, Red Lobster and LongHorn Steakhouse parent lowered its profit and revenue projections for the quarter ended Nov. 25, blaming sour promotions in its eateries, Superstorm Sandy, its purchase of the Yard House USA chain and even its efforts to mitigate the coming costs of healthcare reform, also known as "Obamacare."

Earnings per share from continuing operations over the period will come in at 25 to 26 cents, Darden said. The October tempest on the East Coast cut EPS by one cent, while the July purchase of Irvine-based Yard House dropped it down another 5 cents.

Wall Street had expected EPS of more than 45 cents a share.

Quiz: How well do you know fast food?

Darden forecast same-store sales at Olive Garden slumping 3.2% as revenue at Red Lobster dipped 2.7% and 0.8% at LongHorn. But at the company’s specialty restaurants, including the Bahama Breeze and Seasons 52 chains, sales are expected to get a 0.7% boost.

Recent promotional offers also didn’t resonate well with “financially stretched consumers,” especially as “newer promotions from competitors” lured them away, said Darden Chief Executive Clarence Otis in a statement.

The company’s “cautious” outlook also reflects the impact “of negative media coverage that focused on Darden…and how we might accommodate healthcare reform.”

Earlier in the fall, Darden tested plans to cut back on healthcare costs by putting more workers on part-time schedules. President Obama’s healthcare law would slap Darden and other large companies with fines unless they offer basic health insurance for full-time workers.

The restaurant industry has bemoaned the requirement as a calamitous blow in an industry that operates on razor-thin margins. Darden has more than 2,000 restaurants and more than 185,000 employees.

“We are also committed to accommodating healthcare reform in ways that work for our employees and guests,” Otis said.

For the 2013 fiscal year, Darden said it expected earnings per share of $3.29 to $3.49, a more pessimistic view from its earlier estimate of $3.76 to $3.90.

Net revenue is expected to grow 7.5% to 8.5% overall, down from previous projections of 9% to 10% expansion. Same store sales for Red Lobster, Olive Garden and LongHorn, however, will likely be negative or flat for the year, the company said.

In morning trading in New York, Darden stock fell as much as 10.3% to $47.03 a share on the news. S&P Capital IQ lowered its call on the company to hold from buy.

“We think traffic will stay weak, as consumers continue to shift to lower-priced menu offerings,” wrote analyst Jim Yin in a note to investors. “We also see margin pressure from rising commodity prices.”

Darden will release final earnings results on Dec. 20.

ALSO:

Darden's Olive Garden, Red Lobster sales disappoint

Darden Restaurants to buy Yard House chain for $585 million

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