Another Restaurant Chain Bites the Snow Dust. Get Ready for the Rebound?


Source: Darden Restaurants

With the release of its preliminary fiscal third-quarter results, Darden Restaurants (NYSE: DRI  ) becomes the latest winter weather casualty. Other casual-restaurant chains such as Chili's of Brinker International (NYSE: EAT  ) and even fast-food joints such as McDonald's (NYSE: MCD  ) 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.

Source: Darden Restaurants

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' (NASDAQ: RRGB  ) 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.


Source:  Darden Restaurants

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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Read/Post Comments (11) | Recommend This Article (9)

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.

  • Report this Comment On March 13, 2014, at 12:00 PM, JimG wrote:

    People that can only afford hot dogs and pork and beans from Wal Mart are not patronizing restaurants. The really doesn't need to be over-analyzed.

    It's not the weather

    It's not changing demographics

    It's not population shift

    It's not the alignment of Mars in Virgo

    it's the economy stupid.

  • Report this Comment On March 13, 2014, at 12:02 PM, dogjudge wrote:

    Howard Johnson isn't around any more either.

    What do most of these restaurants have in common?

    You could go into them 10-20 years ago and you can go into them now and the menus haven't changed much.

  • Report this Comment On March 13, 2014, at 1:11 PM, imDanielle2 wrote:

    I wish they would just close down.. Tired of hearing about their failing business every day .. They decided to get involved in politics and now the boycotts are doing their job!

  • Report this Comment On March 13, 2014, at 4:23 PM, al8603 wrote:

    The reason is simple. Lousy imitation Italian food at one. "Lobster" that is rubbery, small and tasteless at the other.

    Longhorn is different, it has good food. It's not high-end prime but, it is well prepared choice. I believe the weather outside of the Longhorns is the same weather outside the other two.

    Darden's management apparently doesn't understand how stupid they sound playing this ridiculous excuse. I wouldn't invest a dime in a company with management this lame.

  • Report this Comment On March 13, 2014, at 4:52 PM, wasukasa wrote:

    To paraphrase somebody: it's the food, stupid.

    Charging $10 and up for a plate of spaghetti that you can make yourself at home (and using the same sauce, according to a friend of mine who used to work there) doesn't seem like a great idea.

    We stopped eating there years ago because the food is just not worth what they're charging. If it were about the economy, Buffalo Wild Wings would not be having the boom that they've been having.

  • Report this Comment On March 13, 2014, at 4:56 PM, bamissfa wrote:

    ok to put this so liberals can understand.

    when people are out of work, unemployed, underemployed AND are taxed to the max by obama and democrats AND they are forced to buy obamacare, tthey cannot afford to eat

    obama economy you liberal fools can no longer blame bush and republicans

  • Report this Comment On March 13, 2014, at 5:00 PM, moshercav wrote:

    I get tired of having to be at the restaurant by 4:30 in order to sit down before 6. Where do all these people come from?

  • Report this Comment On March 13, 2014, at 7:48 PM, tpicciani wrote:

    It's not the economy. It's the economy of cheap food that people are no longer tolerating. With shows like Kitchen Impossible showing what happens to businesses that serve frozen food, people are learning they can do better. Darden and other chain restaurant businesses don't get it. There's nothing special about the food and there's nothing special about the people preparing it. And when you don't put out a decent product, we just buy pizza and wings. And that's the end of the story.

  • Report this Comment On March 13, 2014, at 10:06 PM, Tommylee2 wrote:

    Bad weather, economic situation, ridiculously high prices, wild menu changes, unrealistic demands by monster corporations who own the chains? Does anyone think that ALL of these are reasons that profits are down in many restaurant chains?

    I love Red Lobster and Olive Garden and have to really say that they are my two favorite places for informal, yet good dining experiences. However, it is hard to shell out a hundred bucks or more per meal for a family of four all the time so now instead of eating at one or the other at least twice a month we go there maybe once every three months. Each time we go we are met with new and more varied menus often with items on them that really don't appeal to us in the atmosphere we are in. I mean, Chipotle in a seafood restaurant? C'mon.

    Tex-Mex in an Italian restaurant? Yuck.

    But this is what the management is doing and they are ruining the dining experience and desire to eat there for us all. Hey, if we want a taste of everything in the world we'll go to a buffet someplace and eat a whole lot cheaper.

    Dardin leaders, get your heads out of each other's rectums and return the restaurants to what made them famous to begin with and you WILL see profits shoot back up higher than you are aiming for or continue like you are and choke them slowly to death.

  • Report this Comment On March 14, 2014, at 11:20 AM, rickshelton53 wrote:

    I wouldn't be a big loss if McDonalds when out of business ,,,

  • Report this Comment On March 17, 2014, at 7:48 PM, brainlpb wrote:

    I wonder if you show up at Lunch time if you can keep ordering unlimited soup, salad and bread sticks all the way into the dinner hour??? Maybe I'll take my laptop and try it one day...

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