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Hurricane Michael could cost retailers up to $250M

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Hurricane Michael could cost retailers up to $250M

Hurricane Michael was the strongest storm ever to hit the Florida Panhandle but it will likely spare the retail industry the massive sales hit that other recent major storms imposed on the sector, experts said.

Though a Category 4 storm when it made landfall on Oct. 10 just east of Panama City, Fla., —and with winds just one mile per hour short of registering as a Category 5 storm — Michael's trajectory likely will make it less destructive from an economic perspective, said Evan Gold, executive vice president of global services for Planalytics.

Gold said the weather analytics firm is projecting that Michael, a destructive and deadly storm that tore through parts of Florida and Georgia, will cost retailers up to $250 million in lost sales, especially in discretionary areas as consumers dedicate purchases to recovery efforts.

For comparison, Planalytics estimated that Hurricane Florence, which ravaged parts of North and South Carolina in September, would cost retailers $700 million in lost sales.

"This storm is interesting because when you look at this relative to Florence, Michael is going to be a more powerful storm and likely have more insurance-based losses, but I actually think it's going to be much less in terms of lost sales and consumer impact," Gold said, adding that Planalytics may revise its forecast after a further assessment. "It really skirted most of the major markets. You're talking a smaller population and less amount of time."

The storm took a northeast trajectory and was still churning quickly through parts of Georgia, North Carolina and South Carolina on Oct. 11, while avoiding direct hits to Tallahassee, Fla. and Atlanta, carving a path through an area that represents roughly 1% of nominal Gross Domestic product, Ryan Sweet, director of real-time economics at Moody's Analytics, said in an interview.

"I think the economic cost of this storm will be less significant than other natural disasters to hit major metropolitan areas like Sandy, Katrina and Harvey," Sweet said, referring to past hurricanes. "It's not an enormous affected region, but still will likely affect national retail sales."

Obvious sectors that can expect a dip in sales in the near term are entertainment centers and restaurants, Sweet said.

"Restaurants are typically the losers during these types of storms," Sweet said.

One retail sector that typically sees an uptick in sales from destructive storms is home improvement. Gold said he expects an uptick in sales at building materials stores, motor vehicle dealers, gas stations, grocery stores, and potentially furniture stores due to damage from wind and flooding.

Unlike Florence, where residents had more than a week of preparations, Michael strengthened from a Category 1 storm on Oct. 8 in the Gulf of Mexico to near-Category 5 strength by the time it made landfall the afternoon of Oct. 10. This meant less preparation time, and perhaps less spending at grocery and big box retailers, he added.

Big Box Retailer, Restaurant Impact, Exposure

Walmart Inc. closed 43 of its Walmart and Sam's Club locations in Florida and Georgia, while Target Corp. said two Florida locations and one Georgia location remained closed as of the morning of Oct. 11.

Home Depot Inc., the Atlanta-based home improvement store, had three stores still closed as of Oct. 11, one apiece in Florida, Georgia and Alabama, while Lowe's Cos. Inc. still had two store closures in Panama City, Fla. and Panama City Beach, Fla. that morning.

All four companies did not return requests for comment regarding store damage as a result of the storm.

As with big box sellers, grocers usually see a spike in sales in the days before and after a hurricane as residents stock up on preparedness and recovery supplies, Gold said.

But several southeast grocers, including Publix Super Markets Inc., are also still experiencing store closures.

SunTrust Robinson Humphrey, Inc., an Atlanta-based investment banking services firm, said in a Oct. 10 note that it expected "minimal impact" and limited damage exposure for a number of fast-food restaurants in the southeast.

"With Hurricane Michael approaching the Florida Panhandle as a Category 4 hurricane, we note limited exposure for our covered companies in the region, but a potentially larger impact as the storm moves into Georgia," Jake Bartlett, senior equity research analyst with SunTrust, said in the note.

Wendy's Restaurants LLC operates 4.8% of its U.S. locations in northwest Florida, as well as another 4.8% in Georgia, according to SunTrust, while Bojangles' Inc. has the highest exposure in Georgia, with 13.4% of its U.S. locations in Georgia, followed by Cracker Barrel, with 7.4% of its U.S. locations in the Peach state.

The damage projection for Michael is also dwarfed by the destruction caused by Hurricanes Harvey and Irma in the summer of 2017, which Planalytics estimated cost $1 billion and $2.75 billion in lost sales, respectively. That was primarily due to their landfalls near major metropolitan areas, including Houston, which suffered dozens of inches of rain and crippling weeks-long flooding.

The U.S. Census Bureau will release its monthly retail sales report for September on Oct. 15, one that will likely include impacts from Florence. The October retail sales report could also see fluctuation from preparation and recover efforts, Sweet added.

"There's going to be a lot of volatility rebuilding from Hurricane Florence and being pretty close to back-to-back storms," Sweet said. "It will be hard to decipher what's attributed to Florence and what's attributed to Michael."