Weather Won’t Waylay Quality Retailers

by Alyssa Oursler | April 16, 2013 2:10 pm

Weather might just be a deciding factor in daily outfits and perfect small talk for strangers to most of us, but for retailers, it can be a source of stress.

Just ask Target (NYSE:TGT[1]).

The big-box discount retailer announced this morning that it likely will report flat same-store sales for the first quarter[2] thanks to “softer-than-expected sales trends particularly in seasonal and weather-sensitive categories across the store.”

As a result, adjusted EPS will fall short of the low end of its previous range of $1.10 to $1.20 … and as a result of that, Target stock slipped into the red Tuesday.

Target isn’t the only one feeling the bite of a snowy first quarter. Last month, same-store retail sales rose a mere 1.4% — short of expectations — while they slid 1.8% in February. So with a slew of retail earnings reports right around the corner, should investors be worried about other companies doling out similar warnings as well?


In terms of the March miss for same-store retail sales — sure, Target admitted its struggles, and other companies clearly have issues. However, companies like Ross Stores (NASDAQ:ROST[3]), Costco (NASDAQ:COST[4]) and others beat expectations for March same-store sales, so there’s no guarantee Q1 will be ugly across the board just because of the cold.

Of course, analyst Judith Russell said it best[5]: “It’s kind of like Ryan Gosling’s SAT scores — these numbers don’t mean anything.” That’s because so few companies report monthly same-store sales that they’re hardly representative at this point.

And while one or two months’ numbers can get bumped around by a snowstorm or a hurricane, they hardly make or break a company for long.

Several companies — not just retailers[6], but businesses like UPS (NYSE:UPS[7]) and Cablevision (NYSE:CVC[8]) — blamed Hurricane Sandy on their worse-than-expected earnings late last year. Meanwhile, Home Depot (NYSE:HD[9]) actually got a huge boost[10] from the subsequent pile of people rebuilding their homes in the aftermath. Still, UPS, HD and CVC, after their immediate post-earnings moves, have each gained around 5% following the Sandy-affected announcements.

Meanwhile, Q4 presented the opposite problem as Q1 for some; warmer-than-normal weather weighed on Dick’s Sporting Goods (NYSE:DKS[11]). The company missed estimates as a result, and shares tumbled 11% in one day. And even Dick’s — which Tom Taulli points out was struggling for several other reasons[12] — has regained around 6% since that drop.

So yes, weather occasionally can cause some short-term hits, but they’re often quickly smoothed over.

On top of that, the weather might have only displaced sales — the thought being that although fewer people bought spring items in March thanks to cold and snow, they’ll be making up for it in April and May. And thus, a weak first quarter might just show up as strength in Q2.

As Yahoo recently reported[13], “pent-up demand for spring apparel could lead to better results this month, especially for retailers in the U.S. regions that were slow to warm up last month,” according to Paul Walsh, vice president of weather analytics at The Weather Channel.

Regardless, the end result is the same: Weather is a short-term headwind … and one that can turn on a dime. Any solid retailer you want to hold can endure these blips — I have no doubt Target will. Considering TGT’s losses have slowed from nearly 2% to a quarter of a percent in the time it took to write this, my guess is other investors feel the same way.

So unless you’re looking for a quick swing trade, don’t read too much into these weather-worrisome headlines.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

  1. TGT:
  2. flat same-store sales for the first quarter:
  3. ROST:
  4. COST:
  5. analyst Judith Russell said it best:
  6. retailers:
  7. UPS:
  8. CVC:
  9. HD:
  10. got a huge boost:
  11. DKS:
  12. was struggling for several other reasons:
  13. As Yahoo recently reported:

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