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Likely Retail Winners, Losers In The Hurricane Irene Story

By Andria Cheng NEW YORK -(Dow Jones)- With Hurricane Irene approaching the U.S. Eastern seaboard, Home Depot Inc. has dispatched more than 500 truckloads stocked with items from generators to flashlights, to its more than 400 stores in the potentially affected areas the past week. Some of the company's vendors are also shipping things like plywood and water directly to stores. "Customers are buying products almost as fast as they get there," said spokesman Stephen Holmes, adding that the Atlanta-based company (HD) also is keeping some stores along the coastal parts of Virginia and North Carolina open 24 hours. However, it has temporarily shut a store in Cape May, N.J., as the coastal region has been evacuated in advance of the storm. Home Depot's smaller rival Lowe's Cos. (LOW) said it's also closing stores in Jacksonville, N.C., and some other costal cites in the state on Saturday at the request of local authorities. On the other hand, 16 stores in Virginia, North Carolina and Maryland are opening for extended hours. Lowe's has shipped more than 500 truckloads of emergency supplies to about 300 stores in affected areas. Hurricane Irene is expected to be a mixed blessing for retailers such as Home Depot and Lowe's, as consumers purchase things such as grills, charcoal and propane ahead of the storm, along with chain saws and cleaning supplies afterward, analysts said. On the other hand, the hurricane is expected to lead to store closings and dent traffic in the industry's key back-to-school shopping weekend, they added. "We expect a material impact to sales in the affected areas, since the brunt of the storm will hit during the weekend," according to MKM Partners analyst Patrick McKeever. While retailers selling basic merchandise and necessities are likely to see some benefit, those stores selling nonessential items may see a more negative hit from lost traffic and store closings. "Home-improvement retailers and the discounters are likely going to be the biggest beneficiaries," said BMO Capital Markets analyst Wayne Hood in an interview. "It's very important for them to make sure they are in stock of those in-demand items, and make sure they open back up for business as early as possible. But there's no question [that] you lose business when you close stores. Department stores and specialty retailers will likely be most hurt." Among Citigroup analyst Deborah Weinswig's coverage retailers, supermarket chain Supervalu Inc. (SVU) has the biggest store exposure to the hurricane at 35%, followed by Home Depot at 31%. Lowe's Cos. has a 26% exposure, Weinswig's data showed. Wal-Mart Stores Inc. (WMT) and its smaller rival Target Corp. (TGT) each has a 21% and 23% store exposure, the analyst wrote in a report. Family Dollar Stores Inc. (FDO) has a 27% exposure. In stock-market action Friday, Home Depot stock was up 1.5%. Lowe's rose 0.7%. Wal-Mart inched up 0.4%. Among department stores, Macy's Inc. (M), Saks Inc. (SKS) and Kohl's Corp. (KSS) each has a 30%, 29% and 26% exposure, respectively, according to Weinswig. Ahead of a major hurricane, shares of auto-parts retailers such as Advance Auto Parts Inc. (AAP) and O'Reilly Automotive Inc. (ORLY) tend to underperform the market because of anticipated store closings and sales losses, while Home Depot and Lowe's tend to outperform after the passing of the hurricane, said Barclays Capital analyst Alan Rifkin. "Although it's difficult to quantify the exact impact hurricanes have on a company's operations, there's a noticeable impact on sales ... from store closures and damages," he commented. "The positive impact on [same-store sales] for some companies can lag over a one-year period following a hurricane, driven by pent-up demand and rebuilding efforts. This is the case for both the retail operations at the auto-parts companies and the home-improvement names." Retailers such as Dick's Sporting Goods Inc. (DKS), Staples Inc. (SPLS) and Bed, Bath & Beyond Inc. (BBBY) have a respective store exposure of 30%, 29% and 26% in the potential storm states, said J.P. Morgan analyst Christopher Horvers. "Even if no damage occurs, we expect some traffic impact from the threat and/or unfavorable weather from the storm," he wrote in a note. "The impact on back-to-school sales in August could be material, but the severity is still unknown. While demand is often recaptured, some portion is usually lost." -Andria Cheng; 415-439-6400;

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