Although President Trump rolled back reciprocal tariffs (excluding China) last week and a temporary exemption for smartphones, computers, chips, and other consumer electronics over the weekend, the uncertainty sparked by the trade war has left corporate America, including major retailers, on edge.

Goldman analysts Kate McShane, Mark Jordan, and others shared key insights with clients on Monday from conversations with the management teams of retail giants Dollar Tree and Home Depot. Both retailers import a significant volume of products from Asia, including China.

McShane noted that one key takeaway from conversations with Dollar Tree executives is that Trump's tariff "bazooka" won't impact store shelves for several months. Once the tariffs take effect, margins could become volatile; however, they expect products to remain competitively priced with peers, including Dollar General and Walmart. 

Tariff commentary

DLTR noted that there is a 3-4 month delay between when tariffs land in the port and when the goods show up in stores thus giving them some run way before showing up in their P&L. Management added that margins could be volatile in the near-term, but between cost and price actions the company expects to remain able to provide compelling products at good value relative to the rest of the industry. DLTR added that they are hearing anecdotes of ships anchored offshore waiting to see if anything changes in the coming days.

In addition to trade war commentary impacting operations, Dollar Tree provided color on U.S. consumers amid these uncertain times:

Trade-in trends

The company has spoken to a belt tightening with their middle and lower income customers that has been consistent for several quarters now. Management noted that they are seeing very strong trends in the upper income cohort. DLTR believes that their robust holiday offering contributed to the strength in Q4 and noted that the strength has continued into Q1. Across seasonal merchandise, 3.0 stores saw a 10% comp lift, including a 30% lift in Thanksgiving and 15% lift in Christmas. Additionally, management noted that they have a very easy Easter comp this year.

The analysts' second conversation was with Home Depot executives, who provided insights on the impact of tariffs, the cost environment, consumer behavior, and the housing market.

Tariff impact on cost environment.

The company noted that the vast majority of their imports are around seasonal goods and that all of their Spring merchandise has landed. Their next imports will be for the holidays in the 2H of the year. Management added that they have an experienced cost finance team and merchants in place that know the potential impacts down to a SKU level, and once they have a better idea of the extent of the tariffs they will take the appropriate mitigation actions. HD will likely take similar action to what they did in 2018. Then, they sized the impact at $2bn and was able to mitigate 2/3rds of that with no price action. They first evaluate if they can source a component part somewhere else, and if not, they then see if there is a substitute for that part. If there is no substitute, they try to find another way to mitigate before turning to price. In 2018, in home improvement industry, including HD, did experience some price increases.

Thoughts on housing in the context of a recession.

When discussing whether the company believes purchasing activity could pick up in an economic slow down, with potentially lower rates, management noted that it is hard to call. Adding that uncertainty in the economy could delay purchases; however, potential buyers have already been on the sidelines for likely an extended period of time. HD noted that historically as mortgage rates approach 6-6.5% they have seen activity pick up.

The key takeaway is that both retailers are in a lag period before tariffs begin impacting supply chains. As noted on Sunday, container freight bookings from China to the U.S. have already plunged — an early signal of disruptions ahead. 

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