Research firm Sterne Agee published an Industry report today focusing on the impact of this year’s extremely cold winter and increased natural gas prices on heating bills. The report suggests that heating bills are increasing dramatically in many parts of the country and that the additional costs are going to have an impact on the balance sheet of a number of popular restaurant and entertainment stocks.

Natural Gass Average Temperature

Natural gas heating bills to increase by 70%

Sterne Agee analysts Charles Grom et al. argue that many residential and commercial heating bills will increase by as much as 70% compared to last year when you figure in the very cold winter and the 26% average increase in the cost of natural gas compared to last year. “To this end, we estimate natural gas bills will rise ~73% this winter translating into a ~6% drag on consumer spend with particular ramifications in the Midwest/Northeast.”

Monthly Natural Gas Price

Retail and restaurant sector exposure

Grom et al determined which companies were likely to experience significantly higher heating costs in 4Q 201313/1Q 2014 by geographic exposure across the top 30 states whose temps have dropped at least 5 degrees from last year on average as well as regional store concentration in these markets.

This screening methodology produced the following list of retail and restaurant stocks most exposed to higher heating bills this winter:

Broadlines Retailing: Five Below Inc (NASDAQ:FIVE), Dollar General Corp. (NYSE:DG), Family Dollar Stores, Inc. (NYSE:FDO), J.C. Penney Company, Inc. (NYSE:JCP), Kohl’s Corporation (NYSE:KSS), and Dollar Tree, Inc. (NASDAQ:DLTR).

Specialty Retailing: Vera Bradley, Inc. (NASDAQ:VRA), The TJX Companies, Inc. (NYSE:TJX), Signet Jewelers Ltd. (NYSE:SIG), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), and Michael Kors Holdings Ltd (NYSE:KORS)

Restaurants: Sonic Corporation (NASDAQ:SONC), Texas Roadhouse Inc (NASDAQ:TXRH), Panera Bread Co (NASDAQ:PNRA), Darden Restaurants, Inc. (NYSE:DRI), and CEC Entertainment, Inc. (NYSE:CEC).”

The analysts conclude by emphasizing that although the increased heating cost drag on earnings may only be a seasonal effect, it is still likely to have an impact on earnings for two or three quarters as high heating costs impact consumers as well as businesses. “Looking ahead, beyond the negative 4Q effect on the retail top line due to shoppers simply just staying home, we see increases in home heating costs as another significant (and possibly lingering) headwind, particularly when we consider the sharp drop in temperatures relative to the prior two.”