Adverse Weather Could Hamper Q2 And Q3 Retail Sales: Sterne

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Weather has become the go-to culprit for weak December earnings in some corners (even though the market’s 2013 rally was never motivated by earnings in the first place), and according to Weather Trends International (WTI) it will continue to frustrate investors and retailers for most of the year.

“Net/net, after all the weather disruptions we saw in 2013, retailers will not see a bounce back year – a discouraging development that most companies will need to consider when providing ’14 guidance in the coming weeks,” write Sterne Agee analysts Charles Grom, Renato Basanta and John Parke, after talking to WTI CEO Bill Kirk.

Cold weather to continue into Q2

This quarter is forecast to be the second coldest in 18 years and to have the second most snowfall in 21 years, both of which are expected to take a bite out of retail sales (or possibly divert sales from brick and mortar stores to online competitors). The initial drop in sales, which is already evident in comps, will likely continue into the second quarter as higher than average heating bills put an estimated 6% drag on consumer spending, and WTI (which apparently forecasts with 85% accuracy) says we’re in for another round of cold weather and heavy snow at the end of the year.

A warm Q3 brings is also problematic

The third quarter is forecast to be hot and dry, but that brings its own share of problems.

“The warmest weather in a decade and the driest in over 100 years have left reservoirs at all-time lows in California,” the analysts write. “Notably, limited water supplies for the start of growing season will likely limit crop production and therefore drive up prices for key food commodities.”

Higher food costs will stretch consumer spending everywhere else, and the effects of a drought typically stretch on for a number of quarters. If WTI’s forecasts are correct, we’re looking at twelve or more months of exactly the opposite weather patterns that you’d like to see, with repercussions that can continue even after the weather clears.

There are good reasons to think that there’s more to the falling market than poor weather, but if it really is a major factor it’s not one that looks like it will let up soon.

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

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