A Justified Weather-Related Earnings Decline

Darden Restaurants' 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 , 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 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.

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The article A Justified Weather-Related Earnings Decline originally appeared on Fool.com.

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.

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