Retailers always find a way to blame weather for disappointing holiday sales, but the logic behind it is suspect
Believe it or not, the holiday season is upon us! It doesn't feel that way here in the northeast, as it's still 60 degrees plus every day, but the calendar's not lying.
Thanksgiving weekend, of course, means four things: food, football, shopping, and obsessing over how many people are actually shopping. Assuming this good weather continues, you'd think that retail sales will look quite good this year. After all, any time it snows for 10 minutes, retailers blame missed numbers on cold weather. Well, according to BofA-Merrill Lynch, the warm weather might ding sales, too (or at least provide an excuse for dinged sales):
"There has been a late start to the winter this year: the average temperature in October was 57.4 degrees Fahrenheit, which is the highest since 1963 and above the historical average of 54.3 degrees. Intuitively, this would depress sales of cold weather apparel, such as coats, hats, boots, etc. We therefore created an aggregate of retailers and brands that have a large composition of such apparel, dubbed 'cold weather aggregate (CWA)' to see if there is a relationship with weather patterns in October. As we show in the Chart of the Month, the CWA declined 2.5 percent ... This is not the first time weather played a role. In 2009, there was abnormally cold weather and, in turn, a surge in the CWA. If weather is playing a role, we would expect a bounce back in November, although it could be muted by heavier discounting."
I think the main point would be that last sentence. It's not going to destroy sales, it's just going to redistribute the timing of them. I'm pretty sure I'm still going to have to buy gloves at some point, so maybe I do it two weeks or a month later. Multiply me by 50 million people, and it's just pushing sales back in time a little. Yeah, they might panic and discount some stuff -- but, by the same token, isn't it going to increase sales of something else that does better when it's a little warmer than normal?
Speaking of discounting, that reminds me of another story that gets written every year. Retailers have made such sport of the Black Friday and Cyber Monday sort of sales that they've conditioned the entire world to just wait out your price. They can blame the weather all they want, but it's just more nonsense. But hey, I'm no retail analyst. Maybe the charts can tell us something. Here's the SPDR S&P Retail ETF (XRT) vs. the SPDR S&P 500 ETF Trust (SPY) this year:
The retail group underperformed a bit early this year, and then caught up in August -- mostly thanks to dropping less than the broader market. But more recently, we've seen pretty severe underperformance. Basically, XRT flatlined during the recent stock run-up. Implied volatility has crept up a little, to 23 vs. a norm of about 20.
So is that evidence of the market worried about holiday sales? Probably not. It's really just thanks to Wal-Mart Stores, Inc.'s (NYSE:WMT) recent gap down.
Back that out and you really just see a group moving with the market as a whole. Some names are going to have lousy Black Friday weekend sales, and 100% of those names are going to blame weather in some fashion. It's mostly noise.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.