Retailers depend on China and don't 'have anywhere else to go': Analyst

Sarah Smith
Segment Producer/Booker

Best Buy (BBY) and L Brands (LB), reported first quarter earnings and same-store sales that beat the Street’s estimates. The two retailers were trading at opposite ends of the spectrum most of the day, with L Brands climbing while Best Buy stayed in the red, despite strong earnings from both. So why the trading discrepancy?

“If you think like a retailer, in six months it’s going to be Black Friday and then Christmas,” said Mary Epner, of Mary Epner Retail Analysis, speaking on The Ticker this afternoon. “Think of the price wars plus tariff, that’s scary — that’s why people are a little bit nervous.”

Earnings and sales aside, the ongoing trade war between the U.S. and China is no small concern to retailers.

Epner said the effect of Trump’s tariffs on retail will be, “in a word, tremendous.”

“Made in China” is no exaggeration. The U.S. sneaker market is valued at $21.2 billion, according to Cowen Equity Research, and, with sneaker brands manufacturing roughly 90% of their goods in China, Epner said the industry simply “doesn’t have anywhere else to go.”

A mixed bag of success and failure

Department stores JCPenny (JCP), Kohl’s (KSS), and Nordstrom (JWN) reported weak earnings results, but Mary Epner says she “wouldn’t put them all in the same category.” Pointing to the fact that first quarter is one of the smallest of the year, pushing investors to focus more on spring sales and early selling. Epner says she has little confidence in JCPenny, citing weak digital presence and weak customer base. But, she remains positive on Kohl’s and Nordstrom.

So which retailers are getting it right? Epner said discount stores TJ Maxx (TJX) and Ross Stores (RST) are strong contenders.

“They know how to run businesses, and they have, very well,” Epner said.

Major retailers, Target (TGT) and Walmart (WMT), are also top picks within the home business sector. Foot Locker (FL), which reports tomorrow, is a toss-up for Mary Epner who, despite tariffs, says, “I’m very bullish on sneakers.”

Sarah Smith is a Segment Producer/Booker at Yahoo Finance. Follow her on Twitter: @sarahasmith

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