Hurricane Sandy Will Reduce Quarterly Retail Sales by 1-2%: Citigroup

Published on

Hurricane Sandy is expected to make landfall Central/Southern NJ Monday PM & impact expected to range from Mid-Atlantic to Southern New England. Flooding/Damaging wind gusts expected New Jersey, NYC, Long Island, Delmarva, Philadelphia, Boston, Washington DC and could adversely impact 60 million people. Airports adversely impacted: Washington D.C., Philadelphia, New York, and Boston. The first reports are out on how Hurricane Sandy could impact economic numbers for the month.

Oliver Chen, CFA, an analyst at Citigroup, is out with a report analysing the impact to retail sales for the month of November.

Expect a 2-3% Hit to Sales in Retail Calendar’s November, Probably Slightly Less Bad Than Feared 

Hurricane Sandy will negatively impact traffic and retail sales in the retail calendar’s November Week 1. Oliver notes that Week one is historically approximately 22.4% of Novembers’s sales and he estimates that traffic could be down approximately 40% for the week in negatively impacted areas. He calculates that Hurricane Sandy could negatively impact November monthly comps by 2-3% based on 22% (Week one mix of month) * -40% (Citigroup traffic/comp headwind assumption) * 24% mix (average mix of stores impacted). A negative impact of 2-3% in November would yield a negative quarterly impact of approximately 1-2%.

Retailers in Citigroup’s coverage list have 24% of Stores in Storm Region on Average: Most American Eagle Outfitters (NYSE:AEO) with 32% and Least Coach, Inc. (NYSE:COH) With 12%

Oliver calculates that his sector has 24% of stores on average in the negatively impacted area. Based on Citigroup’s
calculations on a relative basis, they estimate that the most significant impact likely at American Eagle Outfitters (NYSE:AEO) (32% of stores impacted), Urban Outfitters, Inc. (NASDAQ:URBN) (29%), and Limited Brands, Inc. (NYSE:LTD)’s-Victoria Secrets (29%), and the least impacted retailers rank as Coach, Inc. (NYSE:COH) (12%) and Ross Stores, Inc. (NASDAQ:ROST) (14%).

Other retailers impact: 25%. Citigroup notes that retailers have significant exposure to this region affected by the storm. Their analysis includes: CT, DC, DE, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, & VT as the impacted area.

Citigroup expects a  negative 40% or greater impact for the week at discretionary apparel and accessory retailers given a
combination of store closures and severely depressed traffic levels; on the other hand, retailers focused on consumer staples and home improvement are likely to have traffic surges as customers seek emergency supplies, food, and home repair items.

Traffic Decelerated Into the Weekend

Weekend mall traffic was weaker given Friday was -2.2%, and Saturday-1.6% versus 1H’s approximately flat yielding October week 4 traffic of approximately 0.65% (week 4 ending Saturday 10/27). For the month of October traffic was -0.40% versus September’s flat number and August’s negative one percent.

Disclosure: No position in any securities mentioned

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!