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MarketScreener Homepage  >  Equities  >  Nyse  >  The TJX Companies    TJX

THE TJX COMPANIES

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Retailers Navigate Increases In Tariffs -- WSJ

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05/22/2019 | 02:49am EDT

By Suzanne Kapner and Sarah Nassauer

Sales at several major chains slowed during the latest quarter, clouding the outlook for the retail sector as it braces for the impact of higher tariffs on merchandise imported from China.

Kohl's Corp., J.C. Penney Co., and Nordstrom Inc. reported declines on Tuesday, while Home Depot Inc. posted a weaker-than-expected 2.5% rise in comparable-store sales.

Earlier this month, the Trump administration imposed a 25% tariff on $200 billion in Chinese goods, up from a 10% duty put in place in October. The U.S.-China trade fight has left American shoppers largely unscathed, as major consumer categories, including apparel and toys, have eluded tariffs so far.

Currency fluctuations also have made imports cheaper, and U.S. retailers have worked to reduce costs elsewhere to avoid raising prices. But prices have risen on some items, including bicycles, auto parts and furniture; and retailers say they are formulating plans to manage the 25% tariff.

Kohl's, which imports about a fifth of its goods from China, said Tuesday that additional costs related to rising import tariffs prompted it to lower its guidance for the year.

Home Depot finance chief Carol Tomé said the home-improvement chain estimates it will spend about $1 billion more to buy goods with the 25% tariffs in place, coming on top of the roughly $1 billion in costs added by the 10% tariff.

The company said it plans to manage the cost increases by buying more volume at lower prices from some vendors and by spreading price increases across a wider swath of items to limit the impact on sales. "There is a lot of work that has to go into this before we can actually determine the impact," Ms. Tomé said.

Last week Walmart executives said they will likely raise some prices in the face of tariffs, but are managing cost increases product by product.

Generally, large retailers are better positioned to extract price cuts from suppliers or spread increases strategically across all the items they sell to mitigate the impact on sales, say analysts. And purchases of products like auto parts that are needs, not wants, are less likely to decline because of tariff-induced price increases.

AutoZone Inc. Chief Executive Bill Rhodes said it is too early to know how the 25% tariff will affect costs and prices. "If we do in fact experience higher costs it will be our intention to pass those higher costs on to our customers," he said Tuesday on a conference call to discuss earnings.

Around 30% to 45% of auto-parts sales originate from China, Wells Fargo said in a report.

Retailers won't have to absorb cost increases until early June when many products subject to the 25% tariff come off container ships in U.S. ports, said Brad Loftus, senior partner in the retail practice at Boston Consulting Group.

Retailers are using short-term tactics like asking shipping companies to speed vessels to arrive ahead of any more tariff increases, Mr. Loftus said. Longer term, retailers are working to diversify sourcing options and creating more responsive pricing practices, he said.

Late last year Home Depot opened a new sourcing office in Vietnam and is considering moving production of some goods outside of China, Ms. Tomé said.

Kohl's shares fell more than 12% on Tuesday, and Penney's fell about 7%. Shares of Home Depot and TJX Cos, which also posted results, rose slightly. In after-hours trading, shares of Nordstrom, which reported results after the market closed, fell more than 8%.

The retail chains pointed to a range of factors for their weak showing in the latest quarter, but consumer spending wasn't cited as an area of concern.

"All the indications continue to be really strong in terms of unemployment [and] customer confidence," said Kohl's CEO Michelle Gass.

Also, Tuesday's results contrast with strong reports from other major chains, including Walmart Inc. and Macy's Inc. last week and TJX. The parent of T.J. Maxx and Marshalls said its comparable-store sales rose 5% in the latest quarter. Comparable sales exclude the impact from newly opened or closed stores.

Home Depot isn't seeing any signs of consumer weakness, Ms. Tomé said. "I expect it's because of the nature of our consumer, generally homeowners," able to rely on their home's equity to make fixes if needed, she said.

The retailer said it was hit by lumber price deflation and rainy February weather that hampered some seasonal buying. It said sales are picking up with warming weather, and the retailer maintained its guidance for the year.

Home Depot has reported strong quarterly sales in recent years and invested to drive its online business, especially through allowing shoppers to buy online and pick up in stores.

Kohl's, whose comparable-store sales fell 3.4% in the latest period, blamed cool spring weather as well as more competitive pricing and promotions by competitors.

It expects sales growth to resume in the second half of the year, though profit will likely fall as it plans to increase promotions.

Kohl's total revenue fell 2.9% to $4.09 billion in the quarter ended May 4. Net income tumbled 17% to $62 million.

Nordstrom said its 3.5% decline in net sales was self-inflicted and that it is working to improve its relaunched loyalty program, invest more in digital marketing and tweak its merchandise to better align with customer demand.

Penney, whose comparable-store sales fell 5.5%, has been struggling to turn itself around under its new chief, Jill Soltau. She said the company is focused on getting the basics right, such as buying the right products, marketing them appropriately and reducing inventory. Ms. Soltau said she plans to outline a broader strategic plan in coming months.

Penney was also hurt by its decision in February to stop selling major appliances, and sell furniture only on its website and in some Puerto Rico stores, a reversal of the prior CEO's strategy. Total revenue at Penney fell 4.3% to $2.56 billion in its May-ended quarter. Its net loss widened to $154 million from a loss of $78 million a year earlier.

Penney, based in Plano, Texas, has been hiring executives to carry out its turnaround plan, and on Tuesday it said it brought in a chief customer officer, who will join the firm from grocery chain Sprouts Farmers Market.

--Aisha Al-Muslim and Micah Maidenberg contributed to this article.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AUTOZONE 1.64% 1104.44 Delayed Quote.31.74%
J. C. PENNEY COMPANY, INC. 1.82% 1.01 Delayed Quote.-2.88%
KOHL'S CORPORATION 1.42% 51.45 Delayed Quote.-22.45%
NORDSTROM 2.31% 35.48 Delayed Quote.-23.88%
THE HOME DEPOT, INC. 0.61% 235.62 Delayed Quote.36.29%
THE TJX COMPANIES 0.62% 58.48 Delayed Quote.29.91%
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Financials (USD)
Sales 2020 41 143 M
EBIT 2020 4 317 M
Net income 2020 3 191 M
Finance 2020 662 M
Yield 2020 1,52%
P/E ratio 2020 22,4x
P/E ratio 2021 20,7x
EV / Sales2020 1,70x
EV / Sales2021 1,68x
Capitalization 70 698 M
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Mean consensus BUY
Number of Analysts 26
Average target price 59,68  $
Last Close Price 58,48  $
Spread / Highest target 19,7%
Spread / Average Target 2,05%
Spread / Lowest Target -16,2%
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NameTitle
Ernie L. Herrman President, Chief Executive Officer & Director
Carol M. Meyrowitz Executive Chairman
Scott Goldenberg CFO, Principal Accounting Officer & SEVP
John F. O'Brien Lead Independent Director
Willow B. Shire Independent Director
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