Hurricanes Helene and Milton drive hardline sales – analyst

The one-two punch of Hurricane Helene and Milton – less than three weeks apart – will have an impact on U.S. retailers over the next several quarters, with some feeling the brunt of less spending on discretionary items, while others will capitalize on demand for rebuilding materials. Initial estimates, according to AccuWeather estimates, range from $225B to $250B for Hurricane Helene and $160B to $180B for Hurricane Milton. Although estimates are changing daily, UBS expects the impact on retailers to mirror that from Hurricanes Irma (August 2017), Ian (September 2022), and Harvey (August 2017).

Leading up to the storm, retailers like Walmart (NYSE:WMT) and Costco (NASDAQ:COST) benefited from stockpiling. The combination of Helene and the port strikes translated into a 9% sales increase for Costco (COST) which will be reflected in fiscal Q1 results. These results could be muted by store closures and lost sales in hurricane zones, some of which last for several days to a full week.

Conversely, stockpiling could also delay purchases as consumers work through pre-Hurricane excesses in toiletry items, bottled water, non-perishable goods, pet food, fuel, and medications.

Some retailers benefit from both the front and back end of the storms, i.e. preparation and rebuilding. According to UBS Evidence Lab data, 12% of Home Depot (NYSE:HD) and 15% of Lowe’s (NYSE:LOW) stores were in areas impacted by Helene and/or Milton versus 4.5% for Home Depot (HD) and 8.2% for Lowe’s (LOW) during Hurricane Ian in 2022. Based on information from Hurricane Sandy (Oct 2012), Home Depot (HD) sales increased by ~$500M for 4 quarters afterward, while Lowe’s (LOW) saw a 40-50 basis point tailwind for 4 quarters.

Hurricane repair and rebuilding could give a ~400-800 basis point lift to same store sales for Floor & Decor Holdings (NYSE:FND) based on comparable data from Hurricane Harvey in August 2017 with the bulk occurring the quarter immediately after the storm. During both Helene/Milton and Harvey, FND had roughly 17% of its stores in the path of all three hurricanes.

Hurricane-related flooding and debris damage to vehicles may drive sales at auto parts retailers, though the gains will be significantly less meaningful than tied to housing damage. UBS data shows Advance Auto Parts (NYSE:AAP) is most exposed to Helene/Milton with 20.2% of stores in effected areas, followed by 11.8% for AutoZone (NYSE:AZO), 10.2% for O’Reilly (NASDAQ:ORLY), and 8.6% for NAPA (NYSE:GPC).