Another Restaurant Chain Bites the Snow Dust. Get Ready for the Rebound?
With the release of its preliminary fiscal third-quarter results, Darden Restaurants becomes the latest winter weather casualty. Other casual-restaurant chains such as Chili's of Brinker International and even fast-food joints such as McDonald's are all feeling Old Man Winter's pinch. Believe it or not, this could all be good news for Darden Restaurants and the others going forward.
First the Darden bad news
On March 3, Darden Restaurants warned investors to expect "lower sales and higher direct costs associated with more severe winter weather than last year." This will have a $0.07 per share impact to earnings. Including that, it expects to report earnings of $0.82 per share.
Darden Restaurants' three main concepts are Longhorn Steakhouse, Olive Garden, and Red Lobster. Longhorn Steakhouse managed to drive up same-store sales by 0.3%, but the other two took a nosedive. Olive Garden fell by 5.4%, and Red Lobster plunged by 8.8%. Again, "more severe weather" was to blame. It seems to be a recurring theme at many restaurant chains.
Chilly at Chili's
Though not every restaurant has been stifled by the cold, the blame-the-snow game is certainly a recurring theme among restaurants and does sound plausible considering how often the weather is blamed.
Take Chili's of Brinker International, for example. Brinker has enjoyed 16 consecutive quarters of international same-store sales growth. Domestic same-store sales, likewise, were strong last quarter. Strong until December that is. While same-store sales inched up 0.3% in the quarter, they took a nosedive of 6.8% for the month of December led by a 4.9% drop in traffic. Same-store sales for the two preceding months must have been very strong for results to end up in the black for the quarter. Brinker International blamed the collapse on "more severe weather."
No flurry for McFlurry
For McDonald's domestic restaurants, it's a similar story. October saw a 0.2% rise. For November, a 0.8% drop. The whole quarter slipped by 1.4%, which means December must have been hit rather hard. January continued the tumble with a 3.3% fall. McDonald's blamed it on "broad-based challenges including severe winter weather."
Well, February wasn't exactly pina colada and tanning weather either for much of the country. The trend continued with a 1.4% drop, though February wasn't as bad as January.
The good news for Darden Restaurants and the rest
Take a listen to Red Robin Gourmet Burgers' most recent conference call.
Here's a company that saw same-store sales rocket 3.2% higher last quarter. Red Robin has no need to make any excuses and made no mention of the weather until the question and answer session.
During the question and answer session, CFO Stuart Brown made an interesting observation when pressed about the weather. First he kind of did the standard dismissal regarding the weather that Red Robin normally does. Brown said, "I think we are obviously affected, as everybody, as we try not to use weather as an excuse."
But then he added that any effect from bad weather would likely, at least to a decent extent, be countered by a rebound from a "cabin-fever" effect. If Brown is correct, then Darden Restaurants could see a large rebound when the weather thaws. The same should be true of most restaurants that were negatively affected by the storms.
Foolish final thought
If you think about it, it makes perfect sense. How many times have you thought about going out for a bite to eat only to change your mind during times of bad weather? That urge to be served doesn't just magically go away. It builds up. Likewise, if you're like me, once you've been snowed in for a period of time, it almost feels surreal to finally get out and escape the house.
As such, look for the second quarter to show an unusually strong sales increase for many restaurant chains or at least "less bad" results in the case of Darden Restaurants. Although the cabin-fever effect doesn't promise gains, it should be a positive tailwind.
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The article Another Restaurant Chain Bites the Snow Dust. Get Ready for the Rebound? originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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