Omicron Hammers Consumer Firms as Profit Warnings Pile Up
The omicron-fueled Covid wave sweeping through the U.S. since early December has left its mark on retailers.
(Bloomberg) -- The omicron-fueled Covid wave sweeping through the U.S. since early December has left its mark on retailers.
Sherwin-Williams Co. said Friday that omicron led to “meaningful labor challenges” in December, including reduced staff availability and store hours in some locations. The paint company joins more than a half-dozen others across consumer-facing industries that have blamed profit warnings this week on the highly contagious variant and cautioned about what lies ahead.
Not only is the new virus strain rekindling 2020-style fears about shopping in person, it’s also causing many workers to call in sick. Across the country there have been reports of barren grocery shelves and stores and restaurants cutting back hours. Business owners now are starting to figure out how much that’s going to cost them on their financial results.
“Many of our suppliers and customers have also reported labor-related impacts due to the ongoing Covid resurgence,” Sherwin-Williams Chief Executive Officer John Morikis said in a statement.
Studies suggest the omicron variant causes less-severe disease than earlier strains of the coronavirus, even among unvaccinated people. But it seems to spread more easily and can evade immunity acquired from vaccines and natural infection, leading to a record number of new Covid cases. The U.S. Centers for Disease Control and Prevention recommends a five-day isolation period for anyone who tests positive.
The viral spread is taking a toll on economic and market data. U.S. retail sales fell in December by the most in 10 months, missing estimates, Commerce Department figures showed on Friday. Since Dec. 1, the S&P Retail Select Industry Index has fallen about 7%, compared with a 3% gain in the broader S&P 500.
Omicron is “definitely impacting us,” Taco Bell CEO Mark King said in an interview on Jan. 13. “We have more people out than we had the prior four, five, six months due to illness.”
King said when restaurants are short-staffed, they will sometimes open at 11 a.m., skipping the breakfast rush, and then close early around 8 p.m. or 9 p.m. At Taco Bell, owned by Yum! Brands Inc., typical operating hours are usually 7 a.m. until 1 a.m.
On Jan. 11, burger chain Shake Shack Inc. said its operating hours have dropped since the last two weeks of the year due to a “sharp increase” in Covid-19 cases among its staff. “We expect these trends to continue to impact sales,” the company said.
On Jan. 10, athletic-apparel brand Lululemon Athletica Inc. said that results this quarter are trending toward the low end of previous guidance as omicron causes “increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations.”
Big Lots Inc., a discount retailer with more than 1,400 stores in 47 states, cut its quarterly earnings forecast the same day and said the rapid spread of omicron has led to softer traffic and sales trends since early January.
Small-Cap Struggles
Plus-size fashion brand Torrid Holdings Inc., which has a market value of about $1 billion, said Jan. 10 that a strong start to the quarter was interrupted by omicron, which caused “labor challenges at both our distribution center and a portion of our stores.” The retailer cut its sales and earnings outlook for the quarter while saying the challenges it’s facing are “largely transitory.”
The theme was the same at Destination XL Group Inc., which sells big and tall men’s apparel. The company, which has a market value of about $380 million, cut the high end of its annual sales forecast on Jan. 10.
“With the resurgence of Covid-19 infections from the omicron variant, we are experiencing a softening of sales which we attribute to growing public concern which we have reflected in our updated guidance,” Destination XL said in a statement.
Restaurant chain Denny’s Corp. reported disappointing same-store sales and said the spread of omicron “has caused some near-term uncertainty.” Carrols Restaurant Group Inc., a fast-food chain operator with a market capitalization of less than $150 million, said in a statement that omicron began slowing sales trends in the last two weeks of December.
Omicron hasn’t been a headwind for every consumer company. Grocery operator Albertsons Cos. is off to a “very good start” in its current fiscal quarter, which began in early December, CEO Vivek Sankaran said on a conference call Jan. 11. He attributed the strength in part to demand from people hunkering down and channeling more of their food budget to supermarkets.
“More recently with omicron, I think you’re seeing people eating more at home,” Sankaran said.
©2022 Bloomberg L.P.