How much does weather effect financial results in sectors where one might not expect a significant meteorological effect?

Earlier this week a brief story flitted across the news wires citing a Brunswick Corporation (boats, boat engines, bowling & fitness equipment and billiards kit) spokesperson attributing weakness in marine demand to the impact of weather conditions. Interestingly, this scribe has yet, in the good length of time he has followed the firm, to hear Brunswick attribute success at their “fun centers” (bowling, billiards and eating) to poor weather driving punters indoors. Good management obviously knows when and where to give credit.

Certain UK retailers, for example, rejoiced in crediting the recent sunny Easter weather: supermarkets (picnic items), garden centers, DIY merchants and spring fashion got a big fillip: retail footfall was up 6% to 10% according to some analysts.

Yet the same sun also, it seems, hurt large ticket items such as flooring and sofas. At least that is what sofa makers like SCS upholstery plc and flooring specialist such as Carpetright plc claimed in trading updates. In the case of the former, Chief Executive David Knight said:
"We have to blame the weather. The retail parks were extremely quiet and if you look at the travel news it seems people spent the holiday travelling to the seaside."
There is some history here. SCS also moaned about hot weather in 2002, 2003 and 2004. However, wet Easter/May holiday weather in 2005 was (commendably) mentioned by management as a bonus (although similar meteorological aid in 2006 was not).

Graphing weather data against SCS equity performance (exhibit 1) only appears to show that management, when scratching around for explanations, can sometimes make the data tie in with performance as a commentary point. But the SCS statistical case for the relationship, happily for non fatalists, is weak. In 2002 for example, all the principal April/May shopping holidays saw fair or good weather and SCS’s shares did not suffer. Yet this year they are being crucified (and the May Day forecast, for what it is worth, is for sun).

Exhibit 1: Rainfall over Easter and May Bank holidays vs SCS Upholstery's share price change

The truth is that the weather, for retail firms like SCS, sometimes ices the cake and sometimes leaves it plain. It may cause a purchase deferral for big ticket items but probably does not cause meaningful profit warnings or benefits over successive reporting periods.

The larger question, of course, is whether big ticket retail spending on household items is slowing in the UK (cf Exhibit 2) and that is not clear yet.

Exhibit 2: Household goods retail sales (volume) vs SCS Upholstery's rolling 3 month share price change

SCS is a prudent, very well run outfit with cast-iron financials. But it is unemployment, wage settlements, interest rates and inflation rather than the weather it should be concerned with.

NB: The author holds SCS equity
Sources: UK Met Office
; UK National Statistics

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  1. "Cassandra" // 4/30/2007 07:59:00 PM

    Please make a post on the French election.

    Historically, I've enjoyed the theatre and debate of it, but somehow, I am rather depressed at the thought of having to vote for someone who obviously wants it so very bad, for my natural inclination is to be suspicious of such folk for the the public face is all-too-often disingenuous...

  2. RJH Adams // 5/01/2007 10:00:00 AM

    I want to see the debate tomorrow (Wed 2 May)first.

  3. Simon // 5/02/2007 06:04:00 PM

    Dear RJH...this is what I like about the CC, you just never know what's going to the scribe's fancy.

    With reference to big ticket retail sales in the UK, I cannot believe they will remain robust for more than 1 quarter more. But then I've been predicting dire happenings for the housing market for years, so what do I know!

  4. RJH Adams // 5/02/2007 06:24:00 PM


    how marvelous to see your comment, stranger!

    Well, there is anecdotal stuff indicating a slow down in items like kitchens (outside B&Q that is) and sofas. But is it The Big One?

    At the price SCS is selling for now you have to believe it is. I don't think so - there is just too much money around...that said, UK new car registrations have done nothing but fall all year...



  5. ilanit // 4/08/2008 12:43:00 PM

    A lot of time is spent on the alpha versus beta debate but little consideration is given to another equally important but often ignored greek letter - rho or the sensitivity to changes in interest rates. Some San Diego business investors fund strategies have negative rho, that is depend on interest rates staying low. Ironically pension funds have positive rho as rising rates permit them to use a higher number to discount future liabilities. That can be a pyrrhic victory because on the asset side of the balance sheet their portfolios of stocks and bonds tend to fall in such times. It therefore makes sense for investors to diversify with OTHER strategies that tend to perform well in a RISING interest rate environment.

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