Tariffs Impact Retail Stocks: Nike Weathers Storm, Others Struggle
As tariffs loom, the retail industry faces challenges and opportunities. While sentiment centers around their impact, experts advise discretion in stock selection.
Tariff Considerations
Simeon Siegel, BMO Capital Markets retail analyst, emphasizes the significance of tariffs as a "cost input going up." During the previous Trump administration, tariffs affected industries such as medical, solar, and steel. This time, proposed tariffs include 25% on Mexico and Canada and 10% on China.
Retail Impact
Tariffs have prompted retailers like Gap (GAP), Ralph Lauren (RL), and Williams Sonoma (WSM) to shift sourcing out of China to mitigate costs. However, Ralph Lauren CEO Patrice Louvet acknowledges the need for price increases to compensate for supply chain costs and tariffs.
Nike's Resilience
Amidst these challenges, Siegel views Nike (NKE) as relatively resilient due to its scale and global presence. Nike's long-standing presence in China as both a manufacturer and consumer market has enabled it to navigate past tariff storms.
Nike's Internal Challenges
While tariffs are a concern, Siegel believes Nike's primary issue lies in internal innovation. He notes that the company has lost mindshare due to an overreliance on classic offerings, such as the Michael Jordan brand.
Market Performance
Nike's stock has underperformed in recent years, declining 30% over the past five years. Conversely, competitors like Skechers (SKX) and Decker's Outdoor (DECK) have seen significant gains.
Outlook
Siegel remains optimistic about Nike's prospects. He expects the company to regain momentum with improved running styles and better execution under new CEO Elliott Hill. He has raised his price target on Nike to $95 and maintains an Outperform rating.
Conclusion
While tariffs pose challenges for the retail sector, selective investment strategies are crucial. Nike's resilience and ongoing innovation position it as a potential outperformer, despite tariffs and internal issues.