Every year, a natural disaster gives me the opportunity to discuss how retail management teams are able to, not only blame the weather for a disappointing top-line, but also financially benefit from a catastrophic event.

What follows is a true story from my days as a Treasurer at ex-GYMB in the late-1990′s.

In the late-1990′s, a massive hurricane shut down malls/stores up and down the east coast. Generally, stores closed for 4-5 days. Obviously, comp store sales were negatively impacted (i.e. zero sales this year vs. sales the prior year). That’s how we, as a management team, calculated the comp sales impact versus the prior year.

I was relatively new to the industry and had not yet experienced a natural disaster. But, it was a complete shock to me that in roughly 5 days following the re-opening, our stores were generating +90% to +100% comps versus the prior year. I even went as far to surmise that over the complete ~10 day period, it would have been difficult to argue a ‘true’ impact on “comp store sales.”

Thus began one of my first lessons on how a retail management team can best ‘spin’ information for the purpose of diverting attention (at the time, our top-line was struggling mightily).

As the individual in charge of the insurance program, I began to inquire with our insurance broker re: our “business Interruption” coverage and began to put together a claim with our insurer.

My broker told me to provide year-over-year sales info for the five days the stores were closed (i.e. zero sales this year versus $X,XXX sales last year for each of the affected stores). I did. But, the insurance carrier, which shocked me, never inquired what the sales were the following five days post re-opening. They seemed oblivious to my finding that sales dramatically rebounded in the 5-7 days following the event.

But, what GPM% would I use? I asked our insurance broker and he suggested that I enter a ratio that approximated the “initial price minus the initial cost.” Naturally, I was perplexed. Would our insurance carrier believe that we sell all of our goods at full price?

You can see where this is going. In the calculation that I provided the insurance carrier, I claimed that we ‘lost’ ~5 days sales at 150++ affected stores at FULL INITIAL MARGIN.

At this point, I believed that eventually I would get a call from the insurance carrier asking to see either (1) the sales in the week following the event – versus the prior year, and/or (2) what a more typical GPM% rate would be for our product. The call never came. Instead a big fat check arrived in the mail approximately three months later.

Not only was I shocked that the sales, for the most part, bounced completely back. But, insurers were as clueless re: this phenomenon as anyone.

The takeaway? Ex-GYMB actually made $$$ from the hurricane. The money received from insurer was ‘buried’ as offset to SG&A Expense and investors were none the wiser.

So, while everyone today frets about the impact of the storm on the retail industry… investors/analysts should ask management teams (1) what was the company’s comp sales for the week following the re-openings, and…(2) Did the company file a business interruption claim with their insurer and did that $$$ help to offset SG&A Expense?