Maybe I've been too harsh on McDonald's (NYSE:MCD) for blaming its domestic sales woes on winter. Its failed Mighty Wings promotion at first made the weather seem like a cop out. It should have been enough that Chili's of Brinker International (NYSE:EAT), The Cheesecake Factory (NASDAQ:CAKE), and many others faulted the storms. But two things in particular from DineEquity's (NYSE:DIN) earnings results and conference call have made the snow excuse an officially valid one, at least in my eyes.
Hopping on DineEquity's results
DineEquity owns the Applebee's and IHOP chains. On Feb. 26, the company reported fiscal fourth-quarter results. Revenue comparisons are not meaningful; 2013 was the first full year as a 99% franchised company, which tends to result in lower revenue but hopefully higher profits. Same-store sales slipped 0.7% at Applebee's and climbed 4.5% at IHOP. Adjusted net income leaped 20% to $18.6 million, or $0.98 per share.
CEO Julia Stewart stated, "We are extremely proud of the results that the IHOP team and franchisees have achieved and hope to build on this success going forward. Applebee's continued to outperform its category, but we know that we can do better." She added that DineEquity is looking to carry the momentum into 2014.
Meanwhile, IHOP posted its third quarter of positive same-store sales growth and its highest annual increase since 2006. The 4.5% IHOP increase was even better than the 3.6% spike during the third quarter. This is remarkable since so many other chains reported "weakish" results in the fourth quarter and blamed the winter, but IHOP was able to overcome it.
Chilly at Chili's with frosting on the cake
Take Chili's of Brinker International and Cheesecake Factory as examples. For the fourth quarter, Chili's did OK with a 0.3% gain, though it got noticeably weaker than previous quarters. For December alone, same-store sales took a nosedive of 6.8% due to a 4.9% drop in traffic. Brinker International blamed it on "more severe weather."
Cheesecake Factory felt the frost on its cakes. Last quarter it would have had a 1.6% gain in same-store sales, the company estimates. Instead, Cheesecake Factory posted a 0.9% gain. "Severe winter storms" clipped nearly in half its same-store sales growth.
Even McDonald's saw same-store sales drop domestically in December between 1.5% and 2% due to "broad-based challenges including severe winter weather." For January, McDonald's saw a 3.3% fall and a 1.4% slip in February. Again, each time the storms were faulted.
The DineEquity validation
The economy has been weak, so there is always a question whether companies are using the weather to hide their bad performance during tough times. After all, many restaurants such as Chipotle Mexican Grill (NYSE:CMG) have been able to overcome the winter.
Last quarter, Chipotle Mexican Grill reported record revenue, net income, and even a same-store sales pop of 9.3%. But Chipotle Mexican Grill had been already growing so fast that it's hard to tell if the winter affected the company...and if it could have potentially posted even better results.
The conference call from DineEquity was most convincing. Stewart said, "As others have noted, the severe weather experience in parts of the country during the fourth quarter clearly had an adverse impact on same-restaurant sales. The weather has been extraordinary over the last few months."
It was what was said in the question and answer session that was particularly strong. Stewart said, "The weather...hit very, very hard, and we don't talk about weather. I don't think I've ever talked about weather; but as I said in my prepared remarks, it was extraordinary."
Foolish final thoughts
When a company has never used weather as an excuse before and it chooses to do so for the first time, it's time to listen. Expect many bad reports when the first- quarter numbers start coming out for restaurants, but Fools should look past the numbers for the single quarter. There appears to be ample evidence of validity behind the winter storm explanations that's much more than an excuse.