Darden's Restaurant (DRI - Get Report), like Papa John's, is also threatening to cut workers hours so it won't have to provide health-care benefits for them. Darden's chains are sit-down restaurants as opposed to fast food like Papa John's.
Darden recently reported its fiscal first-quarter rsults and food costs increased more than labor costs. In fact, labor costs and restaurant expenses as a percentage of sales actually fell in the fiscal first quarter of 2013 from last year. Darden has been working to restore revenue growth to its flagship Olive Garden chain. The turnaround is taking time and the chain may not show strong growth until fiscal 2015.
Its Red Lobster chain is struggling too. The chain's same-store sales have been erratic and quarterly sales in the most recent three-month period were lower than the same time last year.
A glut in lobsters has driven down the price of the ritzy crustacean. Still, Red Lobster has not been able to capitalize on that. The chain is running a Crab Fest, but lobster is still on the menu for $33. It's practically giving pasta away at Olive Garden, but charging customers a fortune for lobster. Maybe that's why customers are staying away - they see lobsters at their grocery store for $4.99 a pound, while the restaurant charges considerably more.It makes a provocative headline to blame the election and the president for your company's problems. However, for each of these examples there are peers in the same sector that are now having the same issues with the mandate. Starbucks (SBUX - Get Report) is cutting back, but only on the management side -- not hourly workers. While Starbucks said last year that it wasn't too happy with the mandate, it hasn't acted on those complaints. The medical device tax is being levied on an industry that sells $116 billion in products in the United States alone every year. The idea is that this money will lead to more people having insurance and then ultimately more people buying more medical devices. The margins tend to be 15-22% for the group, so a 2.3% tax doesn't seem onerous. This group is fighting for an appeal, but if a company has a good product and demand is high, 2.3% won't hurt it. Investors need to look a little closer at the companies that howl over changes post-election. Is it truly the change or is it a good way to mask another problem the company is having? -- Written by Debra Borchardt in New York.
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