Tariffs Impact Footwear and Apparel Industry

Summary:

President Trump's tariffs on China, Mexico, and Canada may significantly impact the footwear and apparel industry. Companies sourcing a significant portion of their products from these regions face potential earnings declines due to increased import duties.

Key Points:

* Nearly all footwear and apparel sold in the US is sourced internationally, with China being a major supplier.
* Kontoor Brands, Warby Parker, Skechers, and Crocs have a high dependence on materials and products from China and Mexico.
* Passing tariff costs onto consumers is not expected to be a primary strategy due to consumer resistance.
* Companies may raise prices or diversify production to mitigate tariff effects.
* Artificial intelligence can potentially be used to reduce costs and protect margins.

Companies Impacted:

Kontoor Brands (KTB):

* Sources 30% of materials from Mexico and Canada
* Potential earnings decline of 23% if tariffs not mitigated

Warby Parker (WRBY):

* Sources 20% of products from China
* Potential earnings decline of 14%

Skechers (SKX):

* Sources 40% of products from China
* Potential EPS impact of 9%

Crocs (CROX):

* Sources 28% of products from China
* Potential EPS hit of 4%

Industry Outlook:

* Footwear makers face challenges due to high import reliance.
* Companies are exploring price increases and production diversification to reduce tariff impacts.
* Cross-functional collaboration and scenario planning are key in developing mitigation strategies.
* Artificial intelligence can assist companies in cost optimization and margin protection.