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magazineWashout weather could hurt retailers and push up food prices
For UK retailers, 2018’s late April-to-early August hot weather already provided a demanding comparative for the same period in 2019. Trade in the period was also boosted by the Royal Wedding and the England football team’s strong showing at the World Cup in Russia. Unfortunately for the nation’s shopkeepers, it is now raining cats and dogs which suggests forthcoming trading updates could be ugly.
Downpours keep consumers indoors and away from high streets and retail parks. The UK’s midsummer monsoon compounds the weak footfall flagged up in May’s BRC-Springboard data (10 Jun).
Grocery sales last summer were boosted by record temperatures which stoked demand for everything from beer to ice cream, as well as the Royal Wedding celebrations. Comparatives for the likes of Tesco (TSCO), Sainsbury’s (SBRY) and Morrisons (MRW) are tough and should heavy rainfall persist, consensus earnings estimates could prove overly optimistic.
In the general retail sector, Next (NXT) notched up 4.5% sales growth for its first half to 28 July 2018 as unusually warm weather boosted takings at the high street fashion-to-homewares giant, now up against demanding comparatives.
Torrential rain won’t have helped hard-pressed B&Q owner Kingfisher (KGF) to shift DIY and gardening ranges and the weather presents a modest headwind for high street snack seller Greggs (GRG) too.
Retail wet weather beneficiaries are few and far between. However, indoor leisure plays including Cineworld (CINE) and Hollywood Bowl (BOWL) may have benefited from the rain.
And while unhelpful for the core JD fascia, recent downpours may have driven demand for the waterproof apparel sold by JD Sports Fashion’s (JD.) outdoor businesses.
Shore Capital analyst Clive Black says: ‘Every cloud has a silver lining but most of Britain’s retail and food and beverage chiefs will be hoping for more clement weather sooner rather than later, otherwise the skies will start to feature into trading updates and earnings forecasts.
‘Ongoing wet conditions could perhaps feature too in food prices if sodden fields hit crop production, as the US Department of Agriculture has reported for US corn, where plantings are behind plan, leading to downgrades to corn production expectations.’
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