A Justified Weather-Related Earnings Decline

When can a company blame the weather and back it up?

Mar 3, 2014 at 10:30PM

Darden Restaurants' (NYSE:DRI) earnings report this morning wasn't exactly a feast for investors. Earnings per share of $0.82 fell well short of the $0.93 analyst target, and while revenue rose 0.3% at its Longhorn Steakhouse chain, it was down sharply at Olive Garden (5.4%) and Red Lobster (8.8.%). Management said its strategic plan -- which includes cutting costs, slowing unit growth, and splitting off the struggling Red Lobster -- lopped off $0.06 per share from the quarter's earnings figures.

Management also blamed the weather -- to the tune of a lost $0.07 per share.

We hear lots of companies blaming the weather when earnings come up short, especially now, in the midst of the rough winter that's hit much of the country. Sometimes I don't buy the excuse, but I'll cut Darden some slack. If bad weather closes restaurants or keeps people from getting there, the family that planned to eat out will just cook at home instead. That's lost revenue the company will probably never make up. Moreover, if a restaurant has to close for a few days straight, or if sales are slow for an extended period because no one is venturing out, a lot of the restaurant's food is going to go to waste, and that's lost money, too.

But if you aren't dealing in perishable goods, the weather excuse gets a lot more flimsy. The jeans aren't going to spoil at Gap (NYSE:GPS), and it's not as if I'll just make a pair at home if the weather keeps me from getting out. Sure, Gap may lose a sale if the homebound consumer ends up buying his pants online from a competitor, but then that's not the weather's fault. It's the fault of Gap's management team for failing to attract the customer to the Gap website.

I'm picking on Gap, but the company actually beat expectations in its latest quarter and didn't need to blame anyone for anything. On the other hand, Pier 1 Imports (NYSE:PIR) did blame the weather, just this past Friday, for a dip in its store traffic. The retailer acknowledged that the weather setback will be temporary, but the fact is, management still used the weather as an excuse. I'll make this point again: If I need a lamp from Pier 1 on Tuesday and I'm snowed in at home, I'm still going to need the lamp on Thursday, when I can safely get to the store.

Final thoughts
Parts of the nation have been hit with more bad weather recently, so keep an eye on who continues to use that as an excuse for poor company performance. Is the weather really to blame, or is management passing the buck on to Mother Nature? Separating legitimate complaints from bad excuses will help you find reliable and trustworthy management teams, and that, in turn, will help you find solid investments for the long run.

Looking for the next big thing? Look no further
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Matt Thalman and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers