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The broader retail industry is set to benefit from significant weather-related tailwinds in the 1Q numbers.  350 basis points of an 8.9% quarter-to-date comparable restaurant sales number at PNRA has been attributable to weather, according to a recent earnings call.  HD's 4Q comp of 6.1% was helped by a tailwind of 200-250 basis points.  Here we examine one metric, snow coverage, both nationally and by selected regions, in order to contemplate just how significant the 1Q weather sales lift might be and which restaurant companies may benefit most.

Nationally, as the first chart shows below, 1Q to-date has seen far less snow coverage than during the same time period in 2011.  The average 1Q to-date coverage across the United States so far this year was 28.54% versus 48.41% last year.  Additionally, on the weekends, as the second chart below indicates, 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.

 

WINTER WONDERLAND - snow national

 

WINTER WONDERLAND - snow national weekends

Below we have broken out three regions, the Midwest, the East Coast, and the South.  The National Operational Hydrologic Remote Sensing Center, the source of the snow coverage data, divides the country into many regions with some of the dividing lines running through State lines.  Therefore, in our conclusions as to which companies will derive the most benefit from weather differentials in the three regions we have decided to analyze, we are forced to approximate.  So, when we use “Midwest”, “South” and “East Coast” below, we are referring to the regions shown in this map and inferring as best we can which restaurant companies each region most pertains to.

WINTER WONDERLAND - nohrsc regional breakout

In the Midwest, as the first chart shows below, 1Q to-date has seen far less snow coverage than during the same time period in 2011.  The average 1Q to-date coverage across the region so far this year was 16.45% versus 51.19% last year.  Additionally, on the weekends, as the second chart below indicates, the difference between 2011 and 2012 was consistent with the overall picture.  Again, we are checking this because weekends are so important to restaurants in terms of traffic.  PNRA and BWLD are two companies with significant percentages of their system in this region.  It is difficult to reconcile the regions assumed in the snow coverage data with actual state lines but we estimate that PNRA and BWLD have roughly 30% and 45% of their system units in this region, respectively.  During its recent earnings call, BWLD was asked about the weather impact on its 1Q to-date performance (+12.9% comps) but management did not address the topic. Considering the high level of exposure the company has to the Midwest, and the data shown in the charts below, we contend that the impact of weather on BWLD's top line has likely been significant.  CBRL is another concept heavily exposed to the Midwest, with roughly 35% of its system in the region.

WINTER WONDERLAND - snow midwest

 

WINTER WONDERLAND - snow midwest weekends

In the Eastern Coastal region too, as the first chart shows below, 1Q to-date has seen far less snow coverage than during the same time period in 2011.  The average 1Q to-date coverage across the region so far this year was 2.65% versus 19.61% last year.  Additionally, on the weekends, as the second chart below indicates, the difference between 2011 and 2012 was consistent with the overall picture.  Again, doing our best to reconcile the regions in the map, above, with state lines, we believe that RT and PNRA should benefit from the improved weather this year with roughly 33% and 22% of their systems in the region, respectively.

WINTER WONDERLAND - snow east coast

 

WINTER WONDERLAND - snow east coast weekends

While it is strange to conduct research on snow coverage in the South, we believe that it will be meaningful for the restaurant companies that were impacted by last year's harsh conditions.  On Saturday February 5th, 2011, The New York Times ran a story with the headline, “Snow and Ice Paralyze Texas From Rio Grande to Oklahoma Border”.  In states such as Texas, where such weather is less common than in other areas of the country, we contend that its impact on consumers’ willingness to get in the car and go out to eat is likely severe.  As the first chart shows below, 1Q to-date has seen far less snow coverage than during the same time period in 2011.  The average 1Q to-date coverage across the region so far this year was 2.65% versus 19.61% last year.  Additionally, on the weekends, as the second chart below indicates, the difference between 2011 and 2012 was consistent with the overall picture.   PFCB and SONC are two companies that are set to see a 1Q benefit from this year-over-year improvement in weather in Texas.  PFCB has 32% of its Pei Wei units in Texas.  SONC and EAT (Chili's) have roughly 27% and 14% of their systems, respectively, in the Lone Star State.

WINTER WONDERLAND - snow south

 

WINTER WONDERLAND - snow south weekends

We are sure that restaurant companies will be less keen to discuss the weather as they have been in previous years.  PNRA was an exception during its earnings call a couple of weeks ago, highlighting the 350 basis point impact of positive weather impact as the company rolled over storms of 1Q11.  We expect benefits of similar magnitude for many of the restaurant companies – particularly those highlighted in this post – during this quarter.  In order to get specifics, however, we may need to wait until next year when weather is a headwind once again.

Howard Penney

Managing Director

Rory Green

Analyst