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Home Depot, Wal-Mart among retailers that could get a boost from hurricanes Harvey, Irma

MarketWatch

By: Tonya Garcia

Others, like Francesca’s, will need time to recover.

While hurricanes Harvey and Irma are wreaking havoc for many people, there are some in the retail and consumer sector that are likely to get a bump from the storms, according to UBS analysts led by Michael Lasser.

With Texas Gov. Greg Abbott estimating damage in his state could reach $180 billion, UBS said Home Depot Inc. HD, +0.47% and Lowe’s Cos. LOW, -0.56% will benefit from rebuilding efforts. Each retailer has 3% of their stores in places impacted by Harvey. And both have 7% of their stores in the metropolitan areas threatened by Irma.

“For perspective, [Superstorm] Sandy increased Home Depot’s sales by about $500 million for four quarters after the event,” analysts wrote. “Based on these data points, we think it’s reasonable to expect home improvement comps to be boosted by 50-to-100 basis points for the next few quarters.”

Grocers like Kroger Co. KR, -0.89% and Sprouts Farmers Market Inc. SFM, -1.95% have high exposure to places hit by Harvey, while Target Corp. TGT, +0.97% and Wal-Mart Stores Inc. WMT, +0.62% have 7% and 6% of their stores, respectively, in major Florida markets.

“We believe retailers with large presences in these regions could see a bump from stock-up trips ahead of the storms,” UBS wrote.

. . .

Advance Auto Parts Inc. AAP, -1.44% and O’Reilly Automotive Inc. ORLY, -1.53% have been disrupted by weather-related store closures in the past, but, according to UBS analysis, sales have bounced back once affected areas return to normal.

Already, two companies are discussing the damage wrought by these powerful hurricanes.

Francesca’s Holdings Corp. FRAN, -3.36% issued a profit warning on Wednesday after its corporate headquarters, distribution center and other facilities were hit by Harvey.

As of Tuesday, September 5, the company said that all but one of 40 stores in the region as well as its corporate facilities were back in operation. Six of the company’s boutiques have suffered “real damage,” said Chief Executive Steven Lawrence, but even they are in “good enough shape to be operational.”

Still, Francesca’s expects same-store sales to decline in the mid-to-high teens for the third quarter because it will take a couple of weeks for the supply chain to get back to normal.

. . .

“[A]s most of our workforce were stranded in their homes for a week or more, we’re unable to either receive new goods at our distribution center or send merchandise out to our boutiques,” said Lawrence, a circumstance with “meaningful impact” to all of its stores.

Francesca’s shares are down nearly 4% in Wednesday trading.

Newell Brands Inc. NWL, -1.83% also issued a profit warning on Wednesday because of the effect Harvey is anticipated to have on the company’s resin business.

“Since Hurricane Harvey’s landfall on August 25, 2017, nearly all of Newell Brands’ resin suppliers with facilities in Texas and Louisiana have declared force majeure, with many facilities shut down for more than a week and some still not operating,” the release said.

The company lowered its full-year EPS guidance to $2.95 to $3.05 from $3.00 to $3.20. Shares are down 4% in Wednesday trading.

Hurricane Irma, which is already a Category 5 storm and the second strongest on record in the Atlantic, has the potential to cost the consumer and retail sector $1.45 billion in lost sales, according to data from Planalytics, a weather analytics company.

“While Harvey was a major (Category 4) hurricane, the impacts were primarily driven by flooding as some locations in Houston received upwards of 50 inches of rain,” the Planalytics report said. “Irma is a larger storm in size as well as a stronger storm, meaning that damages will be driven by high winds and storm surge.”

Planalytics says the population in Irma’s path is three times that impacted by Harvey, including not just Fort Lauderdale, Orlando and Tampa, in Florida, but also Columbia and Charleston, SC and Charlotte, NC.

Planalytics says companies like Bloomin’ Brands Inc. BLMN, -2.02% whose chains include Outback Steakhouse and Carrabba’s Italian Grill, Stein Mart Inc. SMRT, -0.42% and Stage Stores Inc. SSI, -0.28% are under threat from Irma. Planalytics estimates that Bloomin’ Brands has 15% of its store base in Irma’s path, Stein Mart has 13%, and Stage Stores has 26%.

Even with the severity of these storms, Instinet analysts led by Simeon Siegel caution against retailers using these hurricanes as a “good excuse” for fourth-quarter earnings misses.

“We believe that fears around holiday spending within impacted areas (Harvey and the pending landfall of Irma) appear fair, but we highlight (and apologize for the callousness) that blaming hurricanes for a weaker fourth quarter may end up proving a ‘convenient’ excuse for companies that had risk to their hockey-sticked guide anyway,” Instinet said.

Companies with “hockey-sticked” fourth quarter guidance include Urban Outfitters Inc. URBN, -1.36% Gap Inc. GPS, -0.46% and Coach Inc. COH, -0.73%

The SPDR S&P Retail ETF XRT, +0.15% is down 9.2% for the year so far while the S&P 500 index SPX, -0.07% is up 10.2% for the period.

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