The Chinese Tariff Fallout On U.S. Retailers

Exhibit 4: Q3 2019 Guidance

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Source: I/B/E/S data from Refinitiv

Better Positioned

In response to China’s retaliation, the U.S. government has posted several tweets asking U.S. companies to start looking for an alternative to China. Some retailers are better positioned to move their supply chain out of China.

Walmart and Target smashed Q2 earnings expectations and are showing strong defensive qualities. They are less vulnerable to the trade war given their wide range of brand categories, and robust supply/vendor relationship. These discounters have the resources and flexibility to make the necessary adjustments to their supply chain more rapidly than their peers. For the full report on which retailers are better positioned, see our previous report here.

Exhibit 5: Q2 2019 Same-Store Sales Actuals and Estimates for Tariff Proof Retailers

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Source: I/B/E/S data from Refinitiv

Earnings on Deck

Here are the Same Store Sales and Earnings estimates for retailers reporting earnings next week:

Exhibit 6: Same-Store Sales and Earnings Expectations/Results – Week Of August 26, 2019

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Source: I/B/E/S data from Refinitiv

Q2 2019 Earnings Dashboard

Eighty percent of companies in our Retail/Restaurant Index have reported Q2 2019 EPS. Of the 167 companies in the index that have reported earnings to date, 69% have reported earnings above analyst expectations, 10% reported earnings in line with analyst expectations and 21% reported earnings below analyst expectations. The Q2 2019 blended earnings growth estimate is 3.2%.

Exhibit 7: Refinitiv Earnings Dashboard – Q2 2019

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More Repercussions – Chinese Tariffs

Recent trade policies are impacting both China and the U.S. In Q2, China’s economic growth rate fell to 6.2%, its lowest reading since the early 1990s. Fathom Consulting’s indicator of China’s economic growth – the CMI – has now fallen for three consecutive months, to 4.8% in May, suggesting that growth has been worse than that.

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