Retail

Q12018’s Big Retail Chill

“Blame It On the Rain” is more than the song that ended the musical career of early 90s sensation Milli Vanilli. The phrase is also a familiar refrain in retail — sung by retailers when disappointing results come at the same time as a streak of unusual and unseasonable (aka lousy) weather. It doesn’t have to be rain, of course — maybe the extreme cold, extreme heat, extreme snow, hurricanes or whatever weather that keeps shoppers from getting to the stores.

This included multiple recurring blizzards in the Northeast in 2015, an usually warm fall in 2016 that kept people from buying coats and winter clothes until very late in the season, and the tragic series of hurricanes that left a number of American cities crippled for weeks last summer.

In Q1 of 2018, the cooler than usual spring/summer contributed to retailers posting less than stellar sales. Target, Lowe’s, The Dollar Tree, JCPenney, and Home Depot all reported that a very chilly spring slowed sales at their stores.

The specific issue this year, retailers say, is that the weather was essentially the one-two punch in early 2018 that knocked sales off its perch. Severe winter storms across the Northeast and Mid-Atlantic regions, coupled with a slow and delayed spring across multiple markets (particularly in the East), collectively put the brakes on the consumers interest in spending money throughout Q1.

Lowe’s CEO Robert Niblock said during the post-earnings debrief with investors, “In the first quarter, we experienced a delayed spring selling season due to prolonged unfavorable weather across geographies that impacted outdoor categories,” a sentiment that echoed through a few earnings reports, according the Washington Examiner.

Are sunnier skies ahead?

It Wasn’t Just The Clothes This Time

When the weather goes bad — and customers stop buying — retailers (as noted above) are often the most vocal complainers, since consumers tend to buy and dress for the weather they are experiencing at the moment. If there is a mismatch between what’s on the shelves and what’s going on outside, it becomes noticeable rather quickly by way of retail sales. This time around, the two big DIY home improvement chains commented that the long winter took a noticeable bite out of their pre-season ambitions for spring.

Home Depot CEO Craig Menear told investors during his conference call, “From a geographic perspective, weather impacts can be seen in the variability of performance across Canada, our three U.S. divisions, and nineteen regions. Our largest division is the northern division, which posted flat comps due to weakness in our seasonal categories.”

Those seasonal categories include lawn care essentials, flower, plantings and gardening equipment that consumers were reticent to purchase in the north due to the continual snow falls.

The home improvement category was not alone in taking a hard hit. Target — which missed both top and bottom line expectations from analysts — also called out a chilly spring as depressing seasonal inventory sales, though Target did try to put a more positive spin on it, noting success in other areas.

CEO Brian Cornell said in a statement, “Strong sales growth in our home, essentials, and food & beverage categories offset the impact of delayed sales in temperature-sensitive categories, which accelerated rapidly in recent weeks as weather improved across the country.”

The Dollar Store also notched the rare miss and saw its stock price drop 10 percent as a result of the weak earnings report. CEO Gary Philbin, in a press release, gave a similar explanation for the weaker than projected results — blaming the underperformance on inclement weather and noting that things are already looking much better as the weather has become more seasonal.

Philbin said, “Our teams worked hard to deliver top-line sales and bottom-line earnings results within our range of guidance, despite headwinds related to increasing freight costs, colder-than-normal spring weather in many parts of the country and an earlier Easter holiday. … While weather impacted the discretionary side of our business in the first quarter, we have seen an acceleration in sales with warmer weather in May.”

So is it fair to blame the weather for the relative cold shoulder consumers gave retailers in early 2018? According to the experts … sort of.

An Uneven Freeze Out

Though some retailers had rougher than expected runs in Q1, not every retailer felt the “big chill,” as it were. Macy’s, a large apparel retailer one might have expected to have a sluggish spring, reported that sales shot up 4.4 percent in Q1. That growth “exceeded our expectations” across all of its brands, according to Chairman and CEO Jeff Gennette.

Kohl’s also beat expectations and, though its CEO Bruce Besanko referenced the weather in his call with investors, it was largely to point out how Kohl’s managed to account for weaker seasonal sales with greater focus on less seasonal goods, such as home goods and active footwear.

“We’re pleased to report such strong comps in the first quarter despite unfavorable weather from snowstorms, which we estimate reduced our first quarter comps by approximately a 100 basis points,” Besanko told investors, reported the Washington Examiner.

Walmart’s report was similar — the nation’s largest retailer, by size and sales, noted that weather had effected comparably during Q1 — but still reported same-store sale growth north of 2 percent, carried largely by emerging strength in grocery sales and eCommerce. Chilly weather or not, consumers still have to eat — and they can still shop online.

The weather had an effect, according to the experts — though, perhaps, not quite as dire an effect as some retailers portrayed.

Simeon Siegel, a senior equity analyst with Nomura Securities, told the Washington Examiner, “The fact that some are calling it out and some are not shows that it is a very real impact, but it’s a very real impact that can be side-stepped and avoided. It’s a very difficult thing to plan for, and I wouldn’t fault retailers for not being able to plan for it by putting the right product out. The question is though: Is there a point at which you need to account in your internal planning for the flexibility to deal with things that are out of your control?”

Some retailers — the ones that managed to escape Q1 without a hit to revenue — seem to have found a way to build in that advanced planning. So that the hit, while perhaps noticed, did not turn the tide on the entire quarterly earnings picture. It seems that smart money is on following that lead.

The other option? Blaming it on the rain — and hoping investors don’t notice.

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