The only negatives Urban Outfitters Inc., CEO Richard Hayne said he sees in front of the company are political ones.
“Trade wars and Brexit,” he told analysts on an earnings conference call Tuesday.
Philadelphia-based Urban Outfitters, the parent company of Urban Outfitters, Anthropologie, Free People, BHLDN, Terrain, and the new clothing subscription service Nuuly, has about 628 stores selling clothing, shoes, accessories, furniture, home decor, health, and wellness items.
President Trump announced, in a Twitter thread on Aug. 1, that his administration would levy a 10% tax on $300 billion of Chinese goods starting Sept. 1. While the United States plans to delay imposing the tariff on some items until December to reduce the impact on holiday shopping, it could eventually include items such as clothes, shoes, and electronics such as iPhones and toys.
If the 10% tariffs are implemented “as they are threatened to,” Hayne said, “we could see anywhere from $2.5 million to $3 million charge in the back half of the year.”
But, he said the company remains “reasonably confident” that it will not have a great impact on profits. He said he also believes that the retailer has pricing power, meaning it could raise the cost of goods without losing business.
“In any assortment I think that our teams could go in and probably cherry-pick 10% of the items and say that, if it were a few dollars more, probably no one would notice,” Hayne said. “And so we may do that. We haven’t decided yet.”
Analysts at financial services firm Jefferies wrote earlier this month that Urban would have a medium level of exposure, compared with greater risk for the the footwear industry such as Steven Madden, or more protected retailers such as Lululemon.
Urban sources about 30 percent of its products from China, while aiming to reduce that to 20 percent by the end of the year, according to the Aug. 1 Jefferies note.
The National Retail Federation warned last week that these tariffs would end up hurting American families and slow the economy. While retail sales increased 0.9% in July, the federation pointed out that the data reflect "what was happening a month ago. The impact of volatile financial markets and increased trade tensions in recent weeks may put a wind of caution in consumer spending as we move forward in 2019.”
Wedbush analysts lowered their price target for URBN to $20 from $26, citing “uncertainty as it relates to increasing U.S.-China trade tension,” according to a note following Urban’s earnings report Tuesday.
Urban Outfitters’ second quarter this year saw a 3% decrease in net sales to $962 million, for the three months ended July 31. Comparable retail sales increased 6% at Free People and decreased 3% at the Anthropologie Group and 5% at Urban Outfitters, the company reported.
Net income this quarter decreased 35% to $60.3 million, compared with $92.8 million for the same period last year.
Urban Outfitters employed about 24,000 people as of Jan. 31, according to its annual report.