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Darden cites negative health care publicity for lower outlook

Published December 4, 2012 5:16 pm

This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

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.

The company's chains, which include LongHorn Steakhouse, all are popular among diners in Utah and beyond.

Darden Chairman and CEO Clarence Otis said Tuesday that the company's promotions didn't resonate as well with "financially stretched" diners as those of competitors during its fiscal second quarter.

For the quarter, the company expects revenue at Olive Garden, Red Lobster and LongHorn locations open at least a year to be down about 2.7 percent. The metric is a key measure of health because it strips out the impact of recently opened or closed locations.

Darden, based in Orlando, Fla., said it expects a profit from continuing operations of 25 cents or 26 cents per share for its second quarter, which ended Nov. 25. Not including one-time items, it expects 31 cents per share to 32 cents per share.

Analysts had expected earnings of 46 cents per share.

The company is cutting its outlook for its full fiscal 2013, as well, noting that the more downbeat guidance reflects the potential impact of bad publicity. In October, the company had said it was putting more workers on part-time status in a test aimed at limiting costs from the country's new health care law championed by President Barack Obama.

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 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 did project a fiscal 2013 profit from continuing operations of $3.29 to $3.49 per share, which includes about 8 cents to 10 cents of transaction and closing costs related to the Yard House acquisition. Its previous guidance was for earnings of $3.76 to $3.90 per share. Analysts had expected $3.87 per share.

That guidance is based on expectations of total sales growth of 7.5 percent to 8.5 percent, boosted by contributions from about 100 new restaurants, not including the initial 40 Yard House restaurants operating at the close of the acquisition. It previously projected a revenue increase of 9 percent to 10 percent.

Darden shares fell $5.18 Tuesday, or 9.9 percent, to $47.24, after dropping as low as $47.03. Over the past 52 weeks, the company's shares have traded between $41.65 and $57.93.