Kohl’s, JCPenney, Home Depot Blame Trump For Trade War Squeeze

Tariffs will remain
Chinese container ship (Photo: Reuters)

Three of the United States' largest retail chains -- Kohl's, J. C. Penney Company, Inc. and The Home Depot -- are speaking as one to denounce president Donald Trump's trade war against China that's forcing them to raise their prices and endangering their growth.

The trio was united in their messaging against Trump's additional tariffs on imports from China during post-earnings conference call with analysts on Tuesday.

Kohl's is one the largest department store chain in the U.S. and is ahead of JCPenney. On the other hand, Home Depot is the largest home improvement retailer in the U.S.

On Tuesday, Kohl's shares plunged more than 11 percent, keeping it on track for its worst day since Jan. 5, 2017 when the stock shed 19.02 percent. JCPenney shares fell 9 percent while Home Depot's stock lost less than 1%.

Kohl's blamed Trump and his tariffs as part of the reason for its lower growth forecast for the year. It saw its stock plummet to a 52-week low in the first quarter after cutting its earnings estimates on account of the tariffs.

"Right now these tariffs primarily affect our China-sourced merchandise in our home and accessories business," said CFO Bruce Besanko. "China is not our largest source of merchandise but it is a big one. It's a little over 20% of our goods."

Besanko also said that in the company's guidance to analysts, Kohl's assumed there will be an impact to its gross margin, "which is in part why we've reduced the outlook for margin from what we previously had. There are two components to that. One is this tariff increase."

Kohl's CEO Michelle Gass said the situation they face is a "very fluid situation right now." She pointed out that Kohl's is "working very closely with our vendors to make sure that collectively we've got a strong plan."

Rival Penney echoed Kohl's sentiments. It said net losses during its fiscal first quarter nearly doubled, adding that new Trump tariffs will hurt its in-house brands.

To cope with Trump's step tariffs, retailers have turned to private-label brands to boost profitability. Tariffs, however, will cancel out the benefits of this strategy since retailers will be forced to absorb the additional costs.

"In looking ahead, we do anticipate a more meaningful impact on both our private and national brands if the potential fourth tranche of tariffs does go into effect on all Chinese imports," said JCPenney CEO Jill Soltau.

Soltau said Trump's tariffs have so far had a "minimal impact" on Penney's business in the three rounds that have already gone into effect. That will change with the fourth round with its 25 percent tariff hike due in the next few months.

Home Depot said the 20 percent tariffs on $200 billion worth of Chinese goods will have "roughly a billion dollar impact" on its business.

The fourth round of tariffs isn't included in Home Depot's recent forecast, said CFO Carol Tome. "We are working through the impact of these tariffs and, as a result, have not included them in today's guidance."

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