Investing.com – Bernstein analysts on Tuesday highlighted potential tariff risks for major U.S. retailers in light of President-elect Trump’s pledge to impose tariffs on imports from Canada, Mexico and China.
Among the retailers are Dollar Tree (NASDAQ:) and Goal (NYSE:) were identified as particularly vulnerable due to their significant dependence on imported goods, which account for a significant portion of their cost of goods sold (COGS).
The company’s analysis found that consumer goods such as computers, mobile phones, toys, games, electrical appliances and clothing and textiles, mainly imported from China and Mexico, would be most affected by the proposed tariffs.
In addition, the report noted possible indirect impacts due to higher commodity prices, such as oil and gas and aluminum, although these could be offset by an increase in domestic production.
According to Bernstein, Target and Dollar Tree have the largest exposure to imports, with estimates suggesting that imports represent 50% or more of their total exposure, both directly and indirectly.
“This is broadly in line with the ranking of our coverage companies based on their number of imported shipping containers per revenue of $100 million in FY23, with DLTR and TGT being the largest importers,” said analysts led by Zhihan Ma.
Target has the highest percentage of COGS tied to imports, at approximately 50%, among mass and club retailers. Walmart (NYSE:) follows suit, with about a third of its COGS coming from imports. Analysts note that categories such as apparel, toys and sporting goods, particularly imports from China, could face greater exposure to tariff risks.
In the home improvement industry Home Depot (NYSE:) and Lowe’s (NYSE:) are similarly dependent on imports, with an estimated 40-50% of their COGS coming from international sources. Bernstein points out that Lowe’s heavier focus on appliances and electrical products could result in greater vulnerability to potential tariffs.
The report also reflected on 2019 rates, in which Target and Dollar Tree experienced gross margin headwinds of approximately 30-40 basis points in the affected quarters due to higher product costs. Lowe’s reported a similar impact of about 25-40 basis points.
The analysis warned that depending on the specifics of any new tariffs, retailers with significant Chinese import exposure could face similar margin pressure.
While tariffs on Canadian and Mexican imports are expected to have a smaller impact on affected retailers, the electronics and appliance sectors could still be affected due to significant imports of computers and electrical appliances from Mexico.
“Companies with meaningful exposure to the electronics and appliances categories could be affected, although the precise impact and tariff level are unclear at this stage,” analysts wrote.
