Potential Tariff Risks for Major US Retailers
Investing.com — Bernstein analysts on Tuesday highlighted potential tariff risks for major US retailers in light of President-elect Trump's commitment to impose tariffs on imports from Canada, Mexico, and China.
Key Points:
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Exposed Retailers: Dollar Tree (NASDAQ:DLTR) and Target (NYSE:TGT) are notably vulnerable due to heavy reliance on imported goods, making up a significant part of their cost of goods sold (COGS).
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Affected Goods: Consumer items such as computers, cellphones, toys, games, electric apparatus, and apparel & textiles from China and Mexico would be impacted.
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Indirect Impacts: Increased commodity prices (oil & gas, aluminum) may also affect costs, though this could be balanced by domestic production increases.
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Import Exposure Estimates: Target and Dollar Tree have import exposure of 50% or more, ranking high based on their shipping container imports per $100M sales in FY23.
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COGS from Imports: Target has around 50% of its COGS tied to imports, more than any other mass retailer, followed by Walmart (NYSE:WMT) at about one-third. Apparel, toys, and sporting goods, particularly from China, could be at higher risk.
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Home Improvement Sector: Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) rely on imports for 40-50% of their COGS. Lowe's may face higher vulnerability due to appliance and electrical imports.
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Historical Impact: In 2019, Target and Dollar Tree faced gross margin decreases of 30-40 basis points due to tariffs, with Lowe's experiencing about 25-40 basis points.
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Future Risk Considerations: Any new tariffs could similarly pressure margins for retailers reliant on Chinese imports. Tariffs on Canadian and Mexican imports might have lesser effects, but electronics and appliances could still be impacted due to significant imports from Mexico.
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