Summer is finally here... Well, sort of. Despite the wind, rain and generally disappointing temperatures doing their best to make it seem otherwise, it is indeed summer. But how does summer, or more specifically the weather, relate to trading?
Well, where we see nice summer weather as an opportunity to top-up our tans, certain companies’ profits depend on good or bad weather. Here are three stocks to watch this summer, whose performances over the coming months may largely be dictated by the weather.
Superdry is a clothing brand that specialises in coats and jackets. Naturally, this means the company is going to fall victim to nature’s course. Were the UK to experience sub-zero-degree temperatures eight months of the year consistently for consecutive years, profits would be booming.
It’s simple economics. The weather has a direct impact on demand, and if demand is higher then profits will also be higher – assuming all other things remain equal. Similarly, persistent hot weather will nullify the necessity for Superdry’s main products (coats and jackets) and thus cut into its profits.
This is exactly what happened last winter. Unseasonably warm temperatures directly impacted upon Superdry’s profits. When it came to releasing their earnings report, the less than expected figures sent worry throughout the market and Superdry’s share price fell as a result.
Superdry CEO, Peter Williams, will be hoping a repeat of last year’s summer heatwave doesn’t occur, or the coming months might not be lucrative. Having said that, they would have factored in a fall in coat and jacket sales during the summer, so in a way they are in a no-lose situation. Warm summer: performance is as expected. Cool summer: more coats and jackets are sold, and it’s a bonus. Equally, winter profits would have been adjusted for an increase in sales, so it’s the opposite; a no-win situation. If it’s cold, it will be profit as expected. If it’s a warm winter profits are likely to be damaged.
As a water company, the demand for United Utilities’ product is directly affected by the weather.
Let’s think about it. There are many different uses for water; cleaning, hydration, leisure. Taking each of those, there are further different uses within those categories. For instance, using washing for cleaning can mean cleaning a car, the dishes or clothes. This doesn’t apply for all these uses, but for many the amount of water consumed will increase when it’s hotter.
To stay hydrated in hotter weather, it requires more water to be consumed. In terms of watering plants, during the summer there’s typically less rainfall and so more water is needed from the taps. Even when it comes to leisure, nobody’s blowing up the paddling pool in mid-January when it’s dark by 16:00, the sky is permanently grey and sub-zero temperatures are the norm.
So, it seems that in several cases water usage will increase considerably during hot months in the summer. If it’s hot and dry enough for long enough, United Utilities may be seeing the dollar signs – provided a hosepipe ban stays off the table!
From water to air, the final pick for a stock that will have a good or bad summer depending on the weather is British Airways. It could have been any airline, but as the UK’s largest airline by number of passengers (44.1 million passengers in 2018), it makes sense to choose this flag carrier airline.
An aviation pick is perhaps not going to be as affected by the weather as the other stocks mentioned, but it still has potential to fall victim to the weather.
But say the UK experiences a long summer full of warm weather and great temperatures. People will feel less of a need to ‘escape the dismal weather’ and go chasing the sun on holidays abroad. It’s the same way that those residing in extremely hot countries all year-round travel to cooler countries in what would be considered as a typical holiday.
Of course, people are still going to travel even when the UK has long heat waves, but there will likely be a significant number of people who choose to simply save the money and holiday domestically instead.
Adding another (rather optimistic) point, the maximum temperature that a standard passenger jet can operate at is 49.0C. Admittedly, the highest temperature ever recorded in the UK is 38.5C, but if it did ever reach 49.0C then planes would be grounded. We’d then be talking about further losses to profits for all airlines. Ice lolly sales would presumably hit the roof though.