Restaurant Stocks: Will The Warm Winter Bring Strong Earnings?
Feb 29th 2012 4:06PM
Updated Feb 29th 2012 4:08PM
The unusually mild winter weather may take a toll on industries that thrive on winter activity, such as ski resorts, but it has done wonders for the retail industry. In fact, many in the sector anticipate their first-quarter bottom lines to beat internal expectations.
Already, Home Depot reported that the warm weather helped to spur outdoor repair and home improvement purchases. And now restaurants are reporting the mild chill may improve first-quarter earnings.
The impact of cold or rainy weather on an individual's willingness to walk or drive to a nearby store or restaurant can be severe, especially in the Southern regions, where snow is a rarity to begin with.
It serves to remind that last year's string of harsh winter storms paralyzed some retailers' bottom lines. Power outages destroyed perishable inventory and supply chains.
Howard Penney and Rory Green of Hedgeye report: "The average [snow] coverage across the United States so far this year was 28.54% versus 48.41% last year. Additionally, on the weekends ... the difference between 2011 and 2012 was consistent with the total picture. This is important as weekends are crucial to restaurants from a traffic perspective."
Restaurants with heavy exposure
Penny and Green examined snow coverage in the Midwest, Southern, and Coastal regions and its possible effects on the restaurant industry. Here are their speculations:
Midwest: This region saw average snow coverage drop from 51.19% last year to 16.45%. "Panera Bread Company (PNRA) and Buffalo Wild Wings (BWLD) are two companies with significant percentages of their system in this region ... We estimate that Panera and Buffalo Wild Wings have roughly 30% and 45% of their system units in this region, respectively." In addition, "Cracker Barrel (CBRL) is another concept heavily exposed to the Midwest, with roughly 35% of its system in the region."
Eastern Coastal: This region saw snow coverage drop from 19.61% last year to 2.65%. "We believe that Ruby Tuesday (RT) and Panera should benefit from the improved weather this year with roughly 33% and 22% of their systems in the region, respectively."
Southern Region: This region also saw snow coverage drop from an average of 19.61% last year to 2.65%. "PFCB and SONC are two companies that are set to see a 1Q benefit from this year-over-year improvement in weather in Texas. P.F. Chang's (PFCB) has 32% of its Pei Wei units in Texas. Sonic (SONC) and Chili's (EAT) have roughly 27% and 14% of their systems, respectively, in the Lone Star State."
Business section: Investing ideas
Interested in Penny and Green's winter weather theory? Here's a list of all the restaurants mentioned above. (Click here to access free, interactive tools to analyze these ideas.)
1. Buffalo Wild Wings (NAS: BWLD) : Engages in the ownership, operation, and franchise of restaurants in the United States. Market cap of $1.61B. Exhibiting strong upside momentum -- currently trading 10.54% above its SMA20, 23.28% above its SMA50, and 36.29% above its SMA200. The stock has had a good month, gaining 32.39%
2. Cracker Barrel Old Country Store (NAS: CBRL) : Engages in the operation and development of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. Market cap of $1.28B. The stock is a short squeeze candidate, with a short float at 9.23% (equivalent to 7.22 days of average volume). The stock has gained 14.12% over the last year
3. Brinker International: Develops, operates, and franchises various restaurant brands primarily in the United States. Market cap of $2.17B. The stock is a short squeeze candidate, with a short float at 12.98% (equivalent to 6.25 days of average volume). The stock has gained 19.42% over the last year
4. P.F. Chang's China Bistro: Engages in the ownership and operation of restaurants in the United States. Market cap of $826.96M. The stock is a short squeeze candidate, with a short float at 19.99% (equivalent to 9.78 days of average volume). Exhibiting strong upside momentum -- currently trading 11.19% above its SMA20, 19.31% above its SMA50, and 19.88% above its SMA200. The stock has had a good month, gaining 20.57%
5. Panera Bread (NAS: PNRA) : Operates, and franchises retail bakery-cafes in the United States and Canada. Market cap of $4.91B. The stock has gained 32.5% over the last year
6. Ruby Tuesday (NYS: RT) : Develops, operates, and franchises casual dining restaurants in the United States, Puerto Rico, Guam, and internationally. Market cap of $513.43M. The stock is a short squeeze candidate, with a short float at 9.15% (equivalent to 10.41 days of average volume). The stock has lost 39.75% over the last year
7. Sonic (NAS: SONC) : Operates and franchises a chain of quick-service drive-in restaurants in the United States. Market cap of $491.67M. The stock has had a good month, gaining 17.68%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.
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