As fuel prices continue to rise, companies targeting high-income customers may be in the best position to weather the fallout, according to Deutsche Bank. The ongoing conflict in the Middle East has sent shockwaves through the global energy supply chain in recent weeks, with Brent crude oil futures prices soaring above $110 a barrel on Friday. Deutsche Bank analysts said in a note Friday that diesel prices are above $5 a gallon for the first time since 2022, which could have a secondary impact on the U.S. retail sector. @LCO.1 Mt Brent Crude Oil Futures Over The Past Month “We acknowledge the significant uncertainty surrounding the duration and impact of the ongoing Middle East conflict,” said analyst Christina Catai. “We have limited revenue exposure in the Middle East across our coverage. A bigger issue is the risk of cost pressures from rising diesel and input costs, which could add significant strain to U.S. household budgets and intensify the stress already seen across our U.S. customer cohort.” Katai compared the correlation between quarterly same-store sales and stock prices to pump price movements over the past five years to find the companies whose sales are least affected by rising oil prices. “Retailers and brands whose customer bases skew toward higher incomes have historically shown a positive relationship between oil and fuel prices and (same-store sales),” she wrote. This cohort includes Ulta Beauty, Costco Wholesale, and Casey’s General Stores. Meanwhile, 100-yen stores such as BJ’s Wholesale Club and Burlington Stores have a negative correlation with gas prices, Katai said. Analysts said the findings support suspicions that low-income customers buy less when gasoline prices rise. He added that the Sprouts Farmers Market also showed an inverse relationship with gas price changes, which analysts attributed to its nature as a secondary destination. In an environment of high gas prices, consumers are more likely to consolidate their travel and stay closer to home. Certain companies, such as Birkenstock, also have significant exposure to Europe, the Middle East, and Africa. According to Deutsche Bank, about 37% of its revenue goes to these parts of the world. The sandal maker is followed by VF Corp, Ralph Lauren and Nike, with revenue exposure to EMEA of 34%, 30% and 27%, respectively, the company said. “That said, all brands and retailers globally are likely to see the negative impact of a stronger US dollar, and European consumers risk coming under further pressure,” Katai said. The dispute could also affect other products, including petroleum-based raw materials and synthetic fibers such as polyester and nylon. However, analysts noted that most global brands carry at least two quarters’ worth of finished goods inventory, which reduces the risk of near-term margin pressure. “Specifically, Amer Sports and Birkenstock have over 200 days of finished goods inventory, closely followed by Ralph Lauren with 195 days,” Katai said. “By our calculations, Nike and Lululemon account for just over a quarter of finished goods inventory.” —CNBC’s Michael Bloom contributed reporting.
