What Retailers are Saying About Tariffs - Part 6
Another busy week in retail earnings! This is a continuation of previous articles from April 21, May 8 and May 11, May 18 and May 25.
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 finally be on the logistics M&A through the end of May. 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 7 of the What Retailers Are Saying Series will be posted on June 8. 😉
A big thanks to you all for reading my articles. 🙏🙏🙏
Retailers
American Eagle Outfitter
Q1ending May 3. Reported May 29
As we continue to navigate tariffs, we're implementing various mitigation strategies, including partnering with our sourcing vendors to reduce costs. Additionally, we're further diversifying our supply chain and on track to reduce our sourcing exposure to China to under 10% this year, with fall and holiday season down to low-single-digits. Mike Mathias - Chief Financial Officer
Autozone
Q3ending May 10. Reported May 27
For this past quarter, we saw minimal impact from implementation of tariffs. Going forward, there are several outcomes that may impact our results from tariffs, including vendor absorption, diversifying sourcing, taking pricing actions or some combination of the three. Currently, we expect these actions to offset any Q4 tariff costs and not have a material impact on our gross margins. To be clear, we intend to maintain our margin profile post tariffs, and we expect the entire industry will behave in a rational way as our historical experience has shown. Jamere Jackson – CFO
Bed, Bath & Beyond
Q1 ending May 3. Reported May 29
Our predominantly U.S. based supply chain is a source of competitive advantage, allowing us to respond quickly and remain agile, as the landscape evolves, while our exposure in China is limited to approximately 10% of global spend, we are taking proactive measures to mitigate global trade policy shifts and offset our tariff exposure over time. Eva Boratto - Chief Financial Officer
With respect to inventory, we ended the first quarter with total inventory up 7% to prior year. This was slightly above our initial plan due to tariffs on purchases, as well as strategic pull forwards to help mitigate tariff impacts. Eva Boratto - Chief Financial Officer
Best Buy
Q1 ending May 3. Reported May 29
While China remains the number one source for products we sell, we currently estimate the percentage of product COGS it represents is approximately 30% to 35% compared to the 55% metric we shared in March. This is the result of vendors using production capabilities in multiple countries and leveraging their ability to flex sourcing options as the environment evolves. We estimate that the combination of the United States and Mexico are approximately 25% of product COGS at this point. Corie Barry - Chief Executive Officer
The level of tariff currently varies across our product categories. The consumer electronics products that are coming from Mexico, including televisions and major appliances, are compliant with the USMCA trade agreement and are not subject to tariffs. As it relates to China, there are currently two distinct tariff scenarios. Corie Barry - Chief Executive Officer
First, categories that are subject to the Section 232 semiconductor investigation, including computers, mobile phones, networking, and monitors, are currently subject to the 20% fentanyl tariff. Roughly half of our China COGS falls into this scenario. Corie Barry - Chief Executive Officer
Second, categories like major and small appliances, gaming consoles, furniture, and accessories are subject to the 20% fentanyl tariffs, plus the recently instituted 10% baseline tariff. Corie Barry - Chief Executive Officer
Finally, consumer electronics products coming from countries such as Vietnam, India, South Korea, and Taiwan are currently subject to 10% tariff.
We have been actively employing many tactics in partnership with our vendors as we navigate the dynamic situation and work to mitigate the impacts of tariffs on our customers and business. I would organize them into five main themes. These include:
Leveraging manufacturing flexibility. Since 2018, many vendors, including our own exclusive brands, have created new manufacturing locations that provide optionality.
Negotiating costs, including consolidating volume into fewer partners for leverage in negotiations.
Increasing country diversification. We influence many of our partners to start or continue building resiliency into their supply chains by ensuring there are at least two locations available to manufacture the same or similar products for distribution across the globe.
Adjusting assortments. We review and modify assortments to ensure a wide range of customer needs and budgets are met and rationalize where appropriate to consolidate volume.
We adjust prices as tariff-related inventory cost changes are implemented. Corie Barry - Chief Executive Officer
Burlington Stores
Q1 ending May 3. Reported May 29
Disruptions in supply for the retail industry often turn out well for off-price. Events like financial crises, disruptive weather, economic downturns, port strikes, and other forms of disruption often lead to excess supply, which off-price retailers can benefit from. That said, we think that the potential impact of tariffs is more complex and carries greater risk than other types of disruption. Michael O’Sullivan - Chief Executive Officer
In dollar terms, reserve was up 31% compared to last year. The increases due to the great deals we were able to make, to get ahead of tariffs. The goods we have in reserve are highly branded and include spring back to school and fall merchandise. And importantly, these goods did not incur a tariff as they were already in the country when we acquired them. So, reserve is a very important lever we have as an off-price retailer, especially in this environment. It allows us to be more flexible, acquire branded, high-quality merchandise that we can pack away and release later when it’s seasonably appropriate. Kristin Wolfe - EVP and Chief Financial Officer
Costco
Q3 ending May 11. Reported May 29
During the third quarter, we rerouted many goods sourced from countries with large tariff exposure to our non-U.S. markets. In the U.S., we pulled forward some items that we had planned for the summer and sourced additional locally produced goods to reduce tariff impacts and ensure that we were in stock. Actions such as these are allowing us to continue to provide great value for our members, while also delivering value to our shareholders. Ron Vachris - President & Chief Executive Officer
We are continuing to move more items to locally-sourced production, which is allowing us to lower prices in those markets. A notable example in the quarter was our Kirkland Signature Ultra Clean Laundry products. These SKUs are now sourced in Asia for our APAC warehouses, allowing us to significantly lower transportation costs and reduce member prices in the region by approximately 40%. Gary Millerchip - Chief Financial Officer
In the U.S., we are sourcing more American-made goods where available, including items such as mattresses, pillows and plastic resin goods. Gary Millerchip - Chief Financial Officer
As we saw things starting to build on this tariff front, our buyers were very proactive, and they pulled a lot forward a lot of our summer goods. Most of our patio program, our sporting goods program got in early this year, got it in ahead of the tariff impacts. And that allowed us to hold prices or come just slightly up on prices when we need it to be. So that has really helped. And then, some key categories that we have had good healthy inventory on such as furniture. Appliances are not so much impacted, which has been a big driver for us in non-foods as well. Ron Vachris - President & Chief Executive Officer
Shoe Carnival
Q1 ending May 3. Reported May 30
We've made a deliberate decision to maintain elevated inventory levels in the current environment, leveraging our strong balance sheet to navigate marketplace uncertainties. With our cash-rich position, we determined the best approach to serve customers during back to school and holiday season was to invest early in key products, maximize our in-stock position and ensure our stores are fully prepared. Media pundits have warned about potential empty shelves across retail this year. Mark Worden - President & CEO
The corporation will maintain these higher inventory levels until we no longer see it as the best risk position for us. At that point, the team will reduce inventory levels, but only once we see limited risk of supply or cost disruption. Mark Worden - President & CEO
We're executing inventory decisions that provide both defensive protection and offensive opportunity. In the current uncertain environment, we've secured key products at favorable cost, ensuring we'll be in stock for our customers while potentially benefiting from margin expansion if cost rise. Importantly, we've managed to increase inventory while simultaneously growing our cash position, a testament to our disciplined financial management. Mark Worden - President & CEO
Ulta Beauty
Q1ending May 3. Reported May 29
I want to provide some additional context on how we are thinking about the potential impact on our business from the evolving tariff and global trade landscape. For context, in fiscal 2024, only about 1% of our merchandise receipts were direct imports. The remaining receipts came from our portfolio of 600 brands, and we intend to continue to work closely with our brand partners to navigate the evolving environment and limit the financial impact on our business. Beyond merchandise, we have some exposure in indirect spend areas like fixtures and store supplies. However, we are confident we can mitigate any cost increases. Paula Oyibo – CFO
Stay tuned for more quotes on tariffs. Part 7 will go out June 8.
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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.