An analyst breaks down how natural disasters like hurricanes and fires impact Home Depot and Lowe's
- Home Depot and Lowe's tend to benefit from natural disasters because of the nature of the home-improvement business.
- Both companies also have centers dedicated to emergency preparation and response, and they donate millions of dollars and a robust assortment of resources to disaster relief.
- Business Insider spoke to Seth Basham, the managing director of equity research at Wedbush Securities, about how different natural disasters affect the home-improvement retailers.
We're living in an age of natural disasters.
Hurricanes are becoming stronger and more devastating. Thanks to a warming atmosphere, these storms are capable of driving deeper and deeper inland, leaving an even wider swath of destruction in their wake.
Meanwhile, on the West Coast, deadly wildfires are so increasingly common that some experts have argued that the very concept of a "fire season" is a relic.
And it's not going to get any better. In its summary of the The National Climate Assessment, the Weather Channel reported that extreme weather brought about by global warming has "already become more frequent, intense, widespread or of long duration."
These extreme weather events typically result in casualties and shattered lives. But two retailers in particular could, in some instances, benefit from damage wrought by natural disasters: Home Depot and Lowe's. And, as the rise of extreme weather shows no sign of abating, this trend is only going to continue as consumers flock to home-improvement stores in order to repair their damaged properties.
Business Insider spoke to Seth Basham, the managing director of equity research at Wedbush Securities, about how the Camp Fire - which claimed at least 86 lives as it raged across California in November - stood to impact the two home-improvement retailers.
"The rebuilding effort will obviously require a fair amount of goods that Home Depot and Lowe's sell," Basham told Business Insider. "To the extent that you have homes burn down and you're rebuilding, there's going to be a lot of activity in Home Depot and Lowe's' stores."
Basham added that not all storms have the same effect on the home-improvement market. Wildfires are hard to predict, but a trackable disaster like Hurricane Harvey can bring about a "pre-catastrophe preparation" boost to the stores, in addition to recovery-related spending. In 2017, the Associated Press reported that hurricane-related sales for both companies spiked in the aftermath of the hurricane season.
In the case of a sudden disaster like the Camp Fire, or even a random calamity with no relation to the weather like the recent Alaskan earthquake, the retailers won't even feel the bump for a few quarters.
"It typically lags one to two quarters from the day of the catastrophe and lasts about three to four quarters," Basham said.
For example, Home Depot posted a $242 million sales gain in the quarter following Hurricane Sandy, according to Fortune. And the Motley Fool reported that Lowe's saw a $200 million boost from back-to-back hurricanes Harvey and Irma in 2017.
But it's not necessarily as simple as home retailers always getting an immediate boost from weather emergencies.
A spokesperson for Home Depot told Business Insider that any increased subsequent bounce in recovery-related sales typically evens out due to initial factors affecting the retailer, like price freezes, transportation and staffing costs, and damage to stores.
The companies have also made large donations to various emergency response efforts. According to the chain's website, the Home Depot Foundation pledged to donate $4 million to disaster relief in 2018, as did Lowe's.
Both home-improvement giants dedicate plenty of funds and resources toward helping affected areas to recover from natural disasters. Home Depot and Lowe's each staff an emergency command center specifically focused on tracking catastrophes and organizing relief efforts. These centers are also responsible for determining what products should be stocked in an area facing an imminent or ongoing disaster.
Rick Neudorff, who runs Lowe's emergency command center, recently told Business Insider about the work his team does to forecast and monitor disasters, provide emergency relief, and help with recovery efforts.
"It's a challenge but it's very rewarding when you see the stories of the people in the communities that have been able to carry on in a situation that seems hopeless because Lowe's was able to help them take care of their family and their property," he said.
A Home Depot spokesperson also pointed out the retailer's commitment to disaster relief.
"We were extremely active on the disaster front in terms of working with our suppliers and transportation providers moving in supplies, and The Home Depot Foundation committed more than $5 million in disaster response assistance," the spokesperson said. "That included the hurricanes, wildfires and flooding in the Midwest."
- Read more:
- A look inside Lowe's emergency command center, where employees monitor natural disasters like hurricanes and deploy supplies to devastated parts of the country
- How to hurricane-proof your home, according to an architect who designs homes that could withstand Category 4 hurricanes
- From mudslides to wildfires, these were some of the most devastating California disasters of 2018
- Alaska's governor issued a declaration of disaster after a magnitude 7.0 earthquake hit Anchorage
- A dog whose family home burned down in the California wildfires guarded the ruins for weeks while his owner was gone