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October 4, 2017

U.S. Retailers Cite Effects of Hurricanes

by Jharonne Martis.

Consumers have been spooked over the last month with nature’s wrath, and retailers have not been immune to its effects.  The weather phenomena have had destructive effects on both retailers and consumers. Surprisingly, some retailers slightly benefited from weather-affected sales.  Since August, retailers have been verbal about the hurricane effects.

Retailers reporting third quarter earnings are already warning us about the negative effects of the hurricanes on their bottom line. The amount of negative EPS guidance has almost doubled since the storms hit. Prior to the weather phenomena, retailers had issued negative earnings 29 times. This has now risen to 53 (Exhibit 1).

Exhibit 1: Q3 2017 EPS and Revenue Guidance Prior vs. After Hurricanes

Source: I/B/E/S data

Harvey and Irma

Since the storms hit the U.S., Same Store Sales (SSS) estimates polled by Thomson Reuters have significantly dropped for a few retailers. With headquarters in Houston, Francesca’s was the worst affected. The retailer said, “Hurricane Harvey had a devastating impact on south Texas and Louisiana.” (Source: FRAN Q2 earnings, 9/6/17) As a result, its Q3 SSS estimates have dropped 17.8% (Exhibit 2). During the week prior to Harvey hitting Houston, Francesca’s had a 0.8% Same Store Sales estimate for Q3 2017. Today, however, the retailer is expected to post a 17% decline in SSS for Q3 2017. Thus, the 17.8% decline in estimate expectations.

Exhibit 2: Drop in Q3 2017 Same Store Sales Estimates After the Hurricanes

Source: I/B/E/S data

Rise In Q3 SSS estimates

Despite the negative tone in various earnings calls, some retailers have seen a spike in same store sales estimates, suggesting that they might have received a boost from hurricane-related sales. After all, consumers must prep before a hurricane and replenish afterwards by purchasing items such as food, water and batteries.  These sale gains help some retailers offset some of the losses they faced including store repairs and closures.

Prior to the hurricanes, our Thomson Reuters Same Store Sales Index was expected to grow 0.8% for Q3 2017, and 0.3% ex-Walmart. (Walmart has the biggest weighting in our retail index.)  Today, however, those estimates have grown to 1.0% and 0.7% ex-Walmart, respectively.

So, which retailers seem to have seen a spike in Same Store Sales estimates?

The Dollar Tree saw the biggest improvement in Q3 SSS estimates. The retailer was expected to post a 2.4% SSS estimate in August, prior to the hurricanes. However, Dollar Tree now has a 3.0% SSS estimate for Q3 2017. As expected, other discounters also saw a slight uptick in estimates including Target, Costco and Ollie’s Bargain Outlet.

Consumers also went to the home improvement stores for supplies and repairs. As a result, both Lowe’s and Home Depot saw a slight uptick in Q3 SSS estimates:

Exhibit 3: Rise in Q3 2017 Same Store Sales Estimates After the Hurricanes

Source: I/B/E/S data

Look out for construction costs

The damages weren’t only in the U.S. For instance, Marriott International Inc. said it was hit in the Caribbean, and that “it’ll be interesting to see, based on hurricane recovery efforts in Texas and Florida, what happens to construction resources and construction costs. That could be a potential negative risk in the near term. But financing has remained quite plentiful and quite cheap, and occupancies are high and our owners continue to say, ‘no, let’s keep going.’” (Source: Marriott International Conference Presentation Transcript, 9/14/17)

Still, many retailers cite the hurricanes in their latest earnings calls and retail conferences over the past few weeks, including Macy’s, Gap, Bed Bath & Beyond, Restoration Hardware. Thus, although some might have experienced a slight improvement in sales, the declines in SSS estimates were more significant.

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