What Retailers are Saying About Tariffs - Part 5

A busy week in retail earnings! This is a continuation of previous articles from April 21, May 8 and May 11 and May 18.

As noted in the previous articles, this is a compilation of quotes from shippers taken from earnings transcripts (Seeking Alpha). Note that links will take you to the individual company’s investor relations page.

There’s alot of content noise so I find it useful to understand the market by reading what shippers are directly saying each quarter.

Look for another article later this week. The topic/report will be on the logistics M&A so far this year. The report will be available free for paid Substack subscribers but I’ll provide a summary and a link to the report in case you’re interested in either purchasing it separately or paying for an anuual subscribtion to my Substack articles. 🙂

Part 6 of the What Retailers Are Saying Series will be posted on June 1. 😉

A big thanks to you all for reading my articles. 🙏🙏🙏

Retailers

Home Depot

Q1 ending May 4. Reported May 20

• Let me take a moment to comment on our global sourcing strategy. Today, more than 50% of our purchases are sourced in the United States. Over the last several years, we have worked diligently with our vendors to further diversify our global supply chain. During that period, the vast majority of our supplier partners developed diversified sourcing strategies across several countries, including the United States. As a result, we now have tremendous sourcing flexibility. We are already taking action and anticipate that 12 months from now, no single country outside of the United States will represent more than 10% of our purchases. Ted Decker - Chair, President & CEO

• We see in our business we intend to generally maintain pricing across our portfolio. We'll continue to use the portfolio approach that we've talked a lot about in the past, but we don't see broad-based price increases for our customers at all going forward. Billy Bastek - EVP of Merchandising

TJX Companies

Q1 ending May 3. Reported May 21

• We are maintaining our full year comp sales growth, pretax profit margin and diluted earnings per share outlook. This guidance assumes that we can offset the significant incremental pressures we have seen and expect to see from tariffs on both our direct and indirect imports this year. We believe we can do this primarily through our buying process, our ability to adjust our ticket while maintaining our value gap and our ability to diversify our sourcing. Further, we are focused on cost efficiencies and productivity initiatives. John Klinger - Senior Executive Vice President and Chief Financial Officer

• Q2 is really our most impacted quarter for tariff pressures as the tariffs were put in place after we had placed the orders for goods that we directly import. So we have significant mitigation efforts in place for Q2, and we expect those mitigation efforts to continue into the back half. John Klinger - Senior Executive Vice President and Chief Financial Officer

Lowe’s Company

Q1 ending May 2. Reported May 21

• To provide a better perspective about our global sourcing, roughly 60% of our purchases originate in the U.S. or approximately $30 billion on an annual basis. Over the past several years, we've been partnering with our private and national brand suppliers to diversify our global sourcing efforts. As a result, approximately 20% of our purchase volume is currently concentrated in China. Although we are pleased with this reduced dependency, we're not satisfied, and we're working to accelerate our diversification efforts. Our global sourcing team has identified exciting diversification opportunities in the U.S. and around the globe that we're actively pursuing. We're also using our best-in-class product cost management and sophisticated pricing capabilities while leveraging the strength of our cross-functional teams across merchandising, assortment planning, supply chain and finance. Marvin Ellison - Chairman, Chief Executive Officer

Target

Q1 ending May 3. Reported May 21

• Our teams have been hard at work to minimize tariff headwinds through multiple strategies, including negotiating with our vendor partners, reevaluating assortment decisions, changing country of production where we are able, adjusting order timing, and where necessary, adjusting prices. We're building these plans with a premium on flexibility, allowing our team to read and react to changing tariff impacts and consumer trends as we navigate through the uncertainty. Rick Gomez- Executive Vice President, Chief Commercial Officer

• The strategies that the teams are employing as we speak include diversifying the country of production, half of what we sell comes from the U.S. But beyond that, we have the most control of where we produce when it comes to our own brands. And with our own brands, we have been on a multiyear journey to diversify countries of production. So going back to 2017, we were 60% coming out of China. We brought that down to 30%, and we are well on our way to be less than 25% by the end of next year. We are expanding into new countries, Asia as well as the Western Hemisphere, but I think it's important to note that we're also exploring opportunities here in the U.S. Rick Gomez- Executive Vice President, Chief Commercial Officer

• We are partnering very closely with our vendors and our suppliers to ensure that we are able to provide the best value that we can for the consumer. So through those strategies, we feel that we can offset the vast majority of the tariff impact. Rick Gomez- Executive Vice President, Chief Commercial Officer

Ross Stores

Q1 ending May 4. Reported May 22

• As tariffs remain at elevated levels, we will be working to find the right combination of pricing versus merchandise margin compression. We believe we have a number of levers available to minimize the overall impact, but it is possible that we will see short-term pressure on our profitability. James Conroy - Chief Executive Officer

• There's three very obvious ways to mitigate the cost. The first of which is to work with our vendors and get better cost in which we've done at this point even in the second quarter. There is -- you can pass along the price, but we want to be very careful with price increases. We don't want to be the first one to raise prices and we want to make sure that we keep our value or pricing umbrella versus mainstream retail. And that's a substantial value gap to make sure we're delivering the values that customers come to expect. We also have the same toolkits other off-pricers have and that includes taking advantage of closeouts already in the country. We did that in the second quarter. We also have our packaway. Again, much of that arrived prior to the tariffs. So those are unburdened by tariffs and we'll use those as well. And in some cases, we'll be able to shift country of origin. Michael Hartshorn - Group President and Chief Operating Officer

Williams-Sonoma

Q1 ending May 4. Reported May 22

• As it relates to tariffs, we have been actively and aggressively managing through these additional costs with our six-point plan, which includes several key actions. First, we are successfully obtaining cost concessions from our strong vendor community. This includes reductions on current product pricing, but also reductions in price on the newness that we are bringing in and developing in the future. Second, we are actively resourcing goods to lower-tariff countries, including further reductions from China. Third, we are identifying further supply chain efficiencies in our network. Fourth, we are reducing SG&A expense through tight cost control and financial discipline. Fifth, we are expanding our made in the USA assortment, production, and partnerships. And lastly, we are carefully taking select price increases on products to offer strong value with a focus on maintaining competitive pricing. We believe the six-point plan will allow us to absorb the additional tariffs since we last spoke, and yet still reiterate our annual guidance today. Laura Alber - President and Chief Executive Officer

• We were very aggressive when we saw the impact of the tariffs, particularly after the reciprocal tariffs, and we gave our inventory teams the authority to go out and grab whatever they could, and that's both foreign goods and domestic goods. So what we could ship early from overseas that had already been produced, but maybe we intended to flow later in the year, we brought in. And then domestically, where we could obtain goods, we aggressively pursued that, and we think that will give us a benefit later in the year, and those goods are now on our books territory. Jeff Howie - Executive Vice President and Chief Financial Officer

Advanced Auto Parts

Q1 ending April 19. Reported May 22

• About 40% of what we source can have some applicability to tariff. Now, some of it might be a subcomponent in a good. So, before you just take the 30% times the 40% to say that's the economic impact, know that there's sub-componentry there. Shane O'Kelly - President & Chief Executive Officer

• Our strategy first is we push back on all cost increases and really work with our vendor suppliers. Then, we look at alternative sources of supply. So, we'll look for that, and I'll touch on that in a second as well. And then, finally, anything we can't mitigate between vendors, sources of supply, we're passing that on to price. And it's been fairly constructive, and we've been able to pass that along. Ryan Grimsland - Executive Vice President & Chief Financial Officer

Brands

VF Corporation

Q4 ending March 29. Reported May 21

• We are activating a multi-pronged plan to address the potential impact from tariffs and believe we can offset these. Let me start by sharing some additional information on our sourcing structure into the U.S. From a total company perspective, approximately 35% of our global cost of goods sold is related to product costs for goods sold in the U.S. And geographically, our exposure looks like this - Starting with China. China is less than 2% of total cost into the U.S. and some may recall a higher global number for China. That was because we do manufacture in China, but mostly for goods sold within China. Outside of that, our top sourcing regions of Southeast Asia and Central and South America in aggregate account for about 85% of what comes into the U.S. Included in the 85%, our top four sourcing countries are Vietnam, Bangladesh, Cambodia and Indonesia in that order. I also want to suggest that the potential of additional costs created by the current 10% incremental tariff for goods coming into the U.S. Paul Vogel - EVP & CFO

• We actually believe we can offset the impact from the tariffs, and we've activated our plans to do so. This entails cost management, select sourcing relocations and pricing actions. We are leveraging our deep and long-standing relationships with our partners and are working with them to ensure that we have the right cost structure. And on pricing, our approach is strategic and thoughtful. We have strong brands, which is always an advantage in pricing. In cost and supply chain locations, remember we have an asset-light model, as Bracken mentioned. This provides us great flexibility to move things and adjust quickly. Paul Vogel - EVP & CFO

Deckers Outdoors

Q4 ending March 31. Reported May May 22

• From a sourcing perspective, less than 5% of our footwear production comes from China, some of which would not be routed for sale into the U.S. The remainder of our production comes from Southeast Asian countries, primarily Vietnam. Our teams are closely monitoring changes to tariff policies and continue to evaluate levers to mitigate the impact on our business, including, but not limited to, flexing the pricing power of our brands, which we are assessing for strategic, selective and staggered implementation in the U.S. market and negotiating cost sharing with our factory partners. Although even with these mitigation efforts, we expect to absorb a portion of the tariff impact as we do not anticipate that these actions will fully offset incremental costs in fiscal year 2026. We also believe there is potential to see demand erosion associated with the combination of price increases and general softness in the consumer spending environment. Steve Fasching – CFO

• I think comparatively speaking to prior years, you are going to see a bigger increase in inventory. A couple of reasons for that. One is, how we're taking a look at tariffs and bringing inventory in a little bit earlier in the U.S. The other call out, I would say, is that we are going through a DC transition in Europe. So we've brought more inventory in early to mitigate any potential issues with that warehouse transfer. So you're going to see inventory increasing intentionally more this year early on compared to last year as we navigate kind of those 2 events. But as you know, our inventory is incredibly lean and tight and well managed. Steve Fasching – CFO

Ralph Lauren

Q4 ending March 29. Reported May 22

• With the recent tariff announcements, what we're doing is we're assessing and we're activating our various proven levers to offset the related impact. And these levers include the first, as you know, we've already significantly diversified our global supply chain over the past eight years, nine years. And as the cost equation shifts, we'll continue to reallocate production to markets with lower overall landed costs, while at the same time maintaining our high levels of quality. Today, as a result of our diversification, no single country is over 20% of our production exposure, and our China to the US production is a single-digit percentage. Second, we are working together with our strategic supply chain partners to drive greater cost efficiencies. Third, continuing to drive overall cost savings across the value chain and increasingly leveraging AI and analytics to enable even more efficient inventory planning. And fourth, assessing selective pricing actions and further reductions in discounting, both in North America and in our other regions, with a continued focus on providing a compelling value proposition to our consumers. So specifically, Jay, to your question, we expect AUR for Q1 to trend consistently with the quarter we just reported, so up roughly high single-digits to last year. And for balance of the year, we're staying flexible. We have a range of established levers we can activate as needed. Justin Picicci – CFO

Stay tuned for more quotes on tariffs. Part 6 will go out June 1.

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Thanks!

- Cathy

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I wear a number of hats these days. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC & other published articles and providing an outlook for the week ahead. In addition, be sure to check out my website and be sure to sign up to receive more blog posts.