Red Lobster Fears Diner Backlash From Anti-Obamacare Stance
Darden Restaurants, owner of Red Lobster and Olive Garden, fears a backlash from customers angry about its efforts to convert more workers into part-time positions so it can avoid paying for their health care.
How concerned is the chain? So much so that the world's largest full-service restaurant company used a veiled reference to this possible boycott as partly to blame for its lowered 2013 forecast.
"Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform," said Clarence Otis, Darden CEO, in Tuesday's news release.
The company started running a test program to limit more workers' hours to under 30 per week in certain markets. This would lower costs for Darden in 2014, when the new health care bill will require companies to provide benefits to all full-time employees. (Read More: Prepping for Obamacare, Chain Cuts Workers' Hours)
Darden shares got slammed after it said earnings for 2013 would be as low as $3.29 a share. The consensus estimate among analysts was $3.88 EPS. (Read More: Wal-Mart Employees to Pay More for Health Care)
Many investors laughed off Darden's suggestion that the "media" would keep diners away next year as it takes step to skirt so-called Obamacare. They said a miss that big was due to structural problems facing the restaurant space.
"Costs at restaurants are set to continue to rise," said Brad Lamensdorf, manager of the Active Bear ETF (HDGE). "A rising minimum wage and rising costs of food inputs, especially organic, should keep pressure on restaurant margins for 2013."
The manager is short — or betting against — Chipotle (CMG) for these very reasons.
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