Three Retail Stocks to Watch as Tariff Deals Thrown Into the Wild
Despite a trade court ruling, uncertainty around tariffs will remain, so let's look at these three retailers, one of which I'm in right now.
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Premarket futures Thursday got a huge early boost after the U.S. Court of International Trade ruled against the administration’s reciprocal tariffs that were initiated on April 2. Those gains faded some into the market open as investors realized this is not the end of the drama around tariffs. By the close, the major indexes posted only minor gains. The administration has several options open to it to keep tariff pressure on and has already won a stay on the Trade Court’s ruling by an appeals court late Thursday.
Ironically the Trade Court’s decision may increase uncertainty around tariffs and trade agreements. If Europe and other countries think U.S. courts will undermine the administration's trade powers, they may become more reluctant to drop their own tariffs (which somehow are not bad things in the financial media) and other trade barriers to get new trade deals on the table. In short, absolutely nothing has been settled around U.S. tariffs at this point and investors should continue to prepare for months of uncertainty in this arena.
Investors are starting to get some more clarity around what some notable retail companies are now projecting their tariff impacts to be as more first quarter reports continue to hit the wires. Let's look at three of these names:
Apparel retail Abercrombie and Fitch ANF posted better-than-expected first-quarter results on Wednesday. Revenue growth was powered by an over 20% rise in Hollister sales. Management is projecting a $50 million full-year impact from tariffs. This caused guidance to be lowered. Leadership now sees operating margins for fiscal 2025 in a range of 12.5% to 13.5% from a previous range of 14% to 15%. Earnings per share guidance for this fiscal year fell to $9.50 to $10.50 per share vs. $10.40 to $11.40 per share.
I have built up a sizable position in this retailer via covered-call positions in recent months. I was rewarded with a nice rally following quarterly results. More upside could still be ahead as the stock trades a bit over eight times the midpoint of new EPS guidance. Abercrombie also has a rock-solid balance sheet and bought back $200 million worth of its own stock in the most recently completed quarter.
Last week, underwear and sock maker V.F. Corp. VFC posted mixed first quarter results. The company noted it would see significant tariff impacts if it didn’t mitigate these within its asset-lite model. Further, management stated it was well-positioned to offset higher tariffs thanks to a diverse supply chain. The company is still throwing off significant free cash flow. In addition, this week it was disclosed that several insiders including the company’s CEO added more than $2 million collectively to their stake in the firm. A nice vote of confidence. I may take a stake in this name myself via covered-call orders given the recent pullback in the shares.
Finally, we have electronics retailer Best Buy BBY, which reported Q1 numbers yesterday, triggering a 7% decline in the shares on the day. The company has lowered its sourcing exposure to China since its March outlook. However, it is still significant, and leadership had to bump down its revenue guidance again as result. Flat sales are now the baseline scenario for fiscal 2025.
The shares appear cheap at just over 10-times earnings and sporting a near 6% dividend yield. But they could also turn out to be a "value trap." That's not only because of tariff impacts, but because the retailer would be vulnerable should the U.S. economy turn further south, and consumers cut back further on big ticket purchases.
At the time of publication, Jensen was long ANF
