NEW YORK (AP) — Problems with avoiding the effects of the Patient Protection and Affordable Care Act (PPACA) have contributed to earning forecast cuts at the parent company of Olive Garden and Red Lobster.
The company, Darden Restaurants Inc., said it has cut the forecasts partly because of marketing challenges and partly because it was hit by a publicity backlash from tests intended to gauge how it could limit costs for workers’ health care.
Starting in 2014, big employers such as Darden will be required to provide health insurance to full-time workers. The company had tested hiring more part-time workers and replacing full-time workers who left with part-time workers in select markets to gauge how it could mitigate those costs.
Clarence Otis, the Darden chief executive officer, said the media coverage was a “secondary issue” that hurt the quarterly results.
He said coverage of the test “misinterpreted our actions against a stand against health care reform.” The company has since said it will not move any full-time workers to part-time status as a result of the regulations.
With the topic set to remain an issue the coming year, he said it could continue to be a factor on the company’s results.
The remarks came in a conference call with analysts to discuss Darden’s fiscal second-quarter results, which showed a 37 percent drop in net income. For the three months ended Nov. 25, the company said it earned $33.6 million, or 26 cents per share. That’s compared with $53.7 million, or 40 cents per share, a year ago.
Analysts predicted slightly higher earnings of 27 cents per share, according to FactSet.
Earlier this month, the company had warned that revenue would fall 2.7 percent at U.S. restaurants open at least a year for its three biggest chains; it fell 3.2 percent at Olive Garden, 2.7 percent at Red Lobster and 0.8 percent at LongHorn Steakhouse during the quarter. The figure is a key metric because it strips out the impact of newly opened and closed locations.
Darden has about 2,000 locations in North America; roughly 1,500 of them are Olive Garden and Red Lobster restaurants. The company plans to scale back slightly on new openings, with about 95 new locations planned for the year, down from 100 to 110. The figures do not reflect locations for Yard House, one of the company’s smaller chains.
Darden also said it is retooling its strategy to attract diners with more promotional deals and continuing efforts to update the image of its flagship chains and appeal to younger diners in their 20s and 30s, who increasingly prize fresh, high-quality ingredients. The problem is that many of those same diners also want cheaper prices and convenience, reflecting the rise of chains such as Chipotle Mexican Grill Inc. and Panera Bread Co., which offer food that’s a step up from traditional fast-food for slightly higher prices.
In addition to those shifting tastes, Darden and other casual dining chains such as Applebee’s are dealing with customers who are being more careful about where and how often they eat out in the weak economy.
To address the “affordability many guests need right now,” Darden plans to dial back on its efforts to build revamp the image of its chains for now and increase the frequency of promotions that underscore value, said Drew Madsen, the company’s chief operating officer. He declined to specify the exact nature of the revamped strategy, however, noting that the element of surprise is critical in a “highly competitive” industry that is once again expected to see only modest growth in the year ahead.