A US-China tariff reprieve has averted a crisis for retailers, but they won’t emerge from the trade war unscathed.
“Companies haven’t known what problem they were trying to solve for, and that’s a lot harder than even addressing the actual problem,” Simeon Siegel of BMO Capital Markets told Yahoo Finance. “What Monday is doing is it’s moving us closer and closer to at least knowing the problem.”
On Wednesday, American Eagle (AEO) joined a slew of retailers pulling their 2025 guidance due to macro uncertainty.
And companies still have to contend with enacting price hikes on inflation-weary consumers. In April’s Consumer Price Index print, inflation for apparel and footwear fell 0.2% and 0.5% month over month, respectively.
Yet so far, most stores have been selling inventory that was already in the US. The higher tariffs announced in April will hit imports that will be sold later. BNP Paribas senior US economist Andy Schneider said typically retailers hold “about a month and a half” worth of inventory in the US.
“As we look further into … summer and maybe mostly fall, you’re going to start seeing the impact of tariffs,” KPMG US sector leader Duleep Rodrigo told Yahoo Finance.
Read more: What Trump’s tariffs mean for the economy and your wallet
Though the 90-day pause that takes the tariffs on China to 30% from 145% has made the situation more manageable, it’s unclear when a permanent deal will be reached and whether a higher rate will be reenacted in the future.
Schneider said if those higher duties had remained in place, it could’ve led to “pandemic-style disruptions to supply chains.”
Higher prices will be a tough pill to swallow for shoppers, as consumer sentiment tanked during the trade war. Siegel said with so many unknowns, it’s hard to know which retail stock will emerge as a winner.
“You have to decide, as an investor, what you’re looking for in a risk-reward framework,” Siegel said. “I think that on the extremes, a company like TJX or Planet Fitness are compounding … because people are looking to them as share-takers, and they can operate well in a tariff environment and in a recessionary environment.”
CFRA analyst Zachary Warring said he likes Ross Stores (ROST) over TJX (TJX) given the valuations of the companies. Off-price as a category should benefit as consumers seek value, Rodrigo noted.
Jimmy Choo and Michael Kors owner Capri (CPRI) has been highlighted as a potential performer. Siegel said he likes the company, especially after it agreed to sell Versace to Prada for $1.375 billion last month. The move “will generate a meaningful amount of cash and pivot the company from a net debt business to a net cash business.”
David Swartz of Morningstar also said Capri is “undervalued.” But he cautioned that all retailers are “still kind of worse off than they were a few months ago,” even if the tariff situation is improving.
Speciality retailers that have limited their exposure to China, including brands like Abercrombie & Fitch (ANF), could fare better in this environment.
“We really like Abercrombie,” Warring said, adding that it “moved a lot of their manufacturing out of China in recent years” and the brand is “resonating with younger consumers.”
Crocs (CROX) is another Warring pick, despite its exposure to Chinese sourcing. Their main material, rubber, is much cheaper than other shoe materials. There’s also limited manufacturing and assembling compared to running shoes.
“Their margins are just better, so they have a little bit more room for tariffs,” Warring explained.
Another one is Nike (NKE), given its position as the largest public apparel and footwear company in the world, despite its latest struggles.
“We think they’ll get things going in the right direction,” Warring said, noting that the company has diversified its supply chain in recent years. Nike sources 11% of its products from China, 44% from Vietnam, and 21% from Indonesia.
The multinational brand also sells a lot of its products in China and other foreign markets, helping it mitigate tariff risks in the US.
Companies that are in “bigger danger” are retailers like Macy’s (M) and Kohl’s (KSS) “because almost everything they sell is imported,” Swartz said.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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