- Executives at Dick's Sporting Goods brushed off considerable exposure to the looming proposed fourth tranche of tariffs on $300 billion in Chinese goods. Apparel and footwear are part of the fourth proposed tranche of tariffs.
- On the retailer's first-quarter earnings call Wednesday, CFO Lee Belitsky said the team had not yet determined what the impact of the jump from 10% to 25% on $200 billion in Chinese goods (tranche three) would be. Tranche three covers mostly what the CFO called "hard goods" like supplies and equipment rather than clothing and shoes. Belitsky said existing tariffs have not had a "major impact" on the retailer to date.
- Assuming the implementation of tranche four, Dick's total tariff exposure will go from 5% of inventory to 38%, according to a J.P. Morgan analysis.
To date, Dick's has been able to negotiate prices with suppliers to limit the impact of the 10% tranche three tariffs, said Belitsky. CEO Ed Stack said the team didn't yet know the impact of increasing this to 25%.
"It depends on what the vendors are going to do and how you're going to negotiate with the vendors and how much they would try to get us to eat, how much they would take," Stack said.
The J.P. Morgan analysts ran a "worst case scenario" wherein tranche four takes effect with no mitigation efforts or price hikes on the part of the retailer. In such a scenario, J.P. Morgan estimates Dick's would lose 93% of its operating profit and 101% of its operating margin.
The analysis estimates that in order to offset the pressure tranche four tariffs would place on Dick's margins, the retailer would need to raise prices on affected products by 15% — for the tranche three hike, that figure is an estimated 9%.
Belitsky said the new tariffs are causing Dick's executives to be "a little bit cautious" about sales projections for the back half of the year, though he still expects "positive" results for the balance of 2019.
To analysts on the call who tried five times to get the executives to add more specificity to their comments on the subject, Stack said: "I understand what you're trying to get and you can ask the question in a number of different ways, but it's still going to be the same answer. We really don't know what's going to happen and we've tried to take a more conservative approach to our guidance going forward. So we don't know what the cost will be, we don't know what the price sensitivity will be and we don't know how the consumer will act."