A Justified Weather-Related Earnings Decline

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2862537, ~/Articles/ArticleHandler.aspx, 8/27/2015 5:39:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Matt Thalman

Matt primarily covers the Dow Components, the Major Indexes daily moves, Consumer Goods stocks, and General Investing Topics.

Today's Market

updated Moments ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 4:02 PM
DRI $68.85 Up +0.69 +1.01%
Darden Restaurants… CAPS Rating: ***
GPS $32.97 Up +0.13 +0.40%
Gap CAPS Rating: ***
PIR $9.99 Down -0.11 -1.09%
Pier 1 Imports, In… CAPS Rating: **