Hurricane Response: A Strategic Need For Home Depot

In the aftermath of the devastating Hurricane Harvey and Hurricane Irma, the focus will turn towards recovery and rebuilding. In such a time, a company like Home Depot (NYSE:HD) will be most suitably positioned to supply the much needed tools and materials needed for these purposes. Seeing this potential, the stock of the company has rallied upwards in the past month. Customers, as well as officials, and first responders, have been thronging the stores even before the hurricanes hit, to better prepare for the impending storms.

For Home Depot, the need for a strategic plan to deal with such storms was first felt after Hurricane Andrew, a quarter of a century earlier. In the time since, the company has established four distribution centers armed with hurricane-related goods, located within easy reach of the hurricane-prone areas — in Baytown, Texas; Lakeland, Florida; Cranbury, New Jersey; and one near the company headquarters in Atlanta. HD’s hurricane response plan has been honed over many hurricane seasons, with the purpose of curtailing disruption and ensuring the continued delivery of the essential materials.

Home Depot To Capitalize On The Surge In Demand

As Hurricane Harvey and Irma are expected to devastate many houses, there will be a greater need to fix these post the storms. Such a scenario will boost the demand for products of home improvement companies such as Home Depot and Lowe’s (NYSE:LOW), which cater to not only the do-it-yourself (DIY) segment, but also to professionals in the home improvement/remodeling and construction space. Homeowners face the likelihood of severely damaged properties, necessitating the demand for home improvement equipment and materials. Moreover, since a majority of the properties in the flood-affected areas are without insurance, people will be forced to pay out of their pockets for the repair work. Hence, a substantial portion of the work can be expected to be conducted by the DIY segment, which is a core customer base for both Home Depot and Lowe’s. Even prior to the storms, the companies had been selling large volumes of small-ticket items such as bottled water, tarps, and straps, as well as larger ticket items like fans, blowers, air conditioning units, and generators.

According to projections by Planalytics, Hurricane Harvey could cost retailers as much as $1 billion in lost sales, with the corresponding figure for Hurricane Irma being $2.75 billion. Home Depot also has to spend a considerable amount of money for its disaster response. Burt Flickinger, managing director at Strategic Resource Group, has estimated that it will cost the retailer $50 million to deal with the hurricanes. However, careful planning and ample preparedness can help Home Depot to see a sales boost. As per Flickinger’s estimations, such an investment undertaken by Home Depot will be repaid 10 to 15 times more in increased sales.

Numerous Stores In The Impacted States

Of Home Depot’s 2,282 stores, 1,980 are located in the United States. The company has a number of stores located in the states impacted the most by the hurricanes. Recently, Hurricane Maria struck Puerto Rico, and devastated the island country. HD has 341 stores in Texas, Florida, and Puerto Rico alone. If the other states affected – Louisiana, Alabama, Georgia, North Carolina, and South Carolina – are included, the number rises to 552. This means that almost a quarter of the company’s stores are present in the impacted states. While all the stores may not be in the areas affected in the states, many of these outlets will receive a boost in sales as a result of the natural disasters.

According to Home Depot, after Hurricane Sandy hit the New Jersey shores in October 2012, the sales attributed to the storm came in at $242 million in the fourth quarter, which was $112 million higher than the sales related to Hurricane Irene in the same period a year prior. Moreover, according to UBS analysts, HD’s revenues improved by $500 million in the four quarters following Hurricane Sandy. Therefore, this time around, they expect a 50 to 100 basis points positive impact from the hurricanes in the next few quarters. Since the tailwinds from the storm-related sales continue well after the quarter in which it hits, there may be an uptick in the sales for the remainder of FY 2017.

See complete analysis for Home Depot’s stock

Have more questions on Home Depot? See the links below.

• Improving Housing Trends Bode Well For Home Improvement Companies
• Home Depot: Winning In The Multichannel Space
• Improved Housing Market And Higher E-Commerce Sales Result In A Stellar Quarter For Home Depot

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