Retail stocks were battered for the third week in a row, amidst a sea of red in the equities markets today, due to rising trade tensions with China, and fears that tariffs will have a significant and deleterious impact on the overall retail industry and economy. The S&P 500, Dow Jones Industrial Average, and Nasdaq were all off by more than 1.5% and closed lower again, with the Nasdaq closing below 1.5%.
One retail stock that was hit especially hard was Best Buy, down more than 5%. Best Buy CEO Hubert Joly blamed the decline at least partly on the tariff increases, stating, “The impact of tariffs at 25% will result in price increases and will be felt by consumers.”
Oliver Chen, Cowen Senior Analyst on CNBC commented, “Tariffs are a big concern. I would say of the pricing in tariffs, as we look across the sector, earnings may have to be cut by 10-25%. So that’s a fear, a general sector fear on peoples’ minds.”
Cowen was also concerned about specific retail enterprises such as L Brands, which includes Victoria Secret.
“At LB and Victoria Secret, we’re actually more worried about the long term here. We are worried about the store count. We are also worried about the new customer, and what Victoria Secret should do, in terms of changing their product to add fit and add sizes. There’s a lot happening in retail. Weakness in department store, strength in broad lines. A real customer bifurcation as well”, Chen explained.
The Cowen analyst aded, “It will be very difficult for companies to absorb all of the price increases from suppliers, so that will have to come in the form of earnings…The big concern is passing on prices to consumers. And not all prices will be able to be passed along, and that will take hits in terms of earnings and gross margins.“
However, Cowen did have some recommendations for stocks that will be more resistant to the tariff hikes, stating, “In terms of the names we like with tariffs, we love Walmart. Walmart is a great name because 66% of the goods are sourced in the United States. We also like CostCo, we like Ulta, and we like Planet Fitness.”
For more investing ideas, visit our Core ETF Channel.