The Trump administration's newly proposed additional tariffs on $300 billion worth of Chinese imports, if enacted, will hit J. C. Penney Co. Inc. harder than previously imposed duties, even as the retailer tries to diversify its supply chain to offset those impacts, executives said on May 21.
Tariffs already imposed on $250 billion worth of imported goods have had "minimal impact" on J.C. Penney's business so far, CEO Jill Soltau said during a call discussing J.C. Penney's fiscal first-quarter earnings. But the Office of the U.S. Trade Representative is threatening to impose an additional 25% tariff on $300 billion worth of Chinese imports, including footwear and apparel. Officials have not announced when those tariffs, which would be the fourth tranche of tariffs on Chinese imports, could take effect.
"In looking ahead, we do anticipate a more meaningful impact on both our private and national brands if the potential [tariffs on $300 billion worth of goods do] go into effect on all Chinese imports," Soltau said during the call.
J.C. Penney continues to work on diversifying the countries of origin for the goods sold in its department stores, Soltau said.
"This has allowed us to significantly reduce our exposure to China, which is already lower than industry averages," Soltau said, though executives did not share specific impacts or expectations should the tariffs become reality.
Macy's Inc. has also warned that the additional tariffs could cause the company to raise consumer prices, while footwear companies voiced their opposition to increased duties in a May 20 letter to President Donald Trump.
A J.C. Penney store in Brooklyn, New York.
Source: J.C. Penney Co. Inc.
Shares in J.C. Penney dropped 9.1% in morning trading on May 21 to $1.04 after the retailer posted fiscal first-quarter losses beyond Wall Street estimates.
Net sales for the quarter dropped 5.6% year over year, while comparable sales declined slightly less at 5.5% versus the same quarter in 2018, according to the company.
Executives during the call continued to withhold specific earnings guidance for fiscal 2019 following a decision earlier in the year not to offer a detailed outlook. Comparable sales for the year, however, should be in line with first-quarter declines following J.C. Penney's decision to shed its appliance business and most of its in-store furniture offerings starting Feb. 28, Senior Vice President of Finance Trent Kruse said during the call.
"I would say for the full year, we do expect comps down. We do expect price pressure from appliances and furniture. And I would say, they're generally going to be fairly consistent throughout the year in terms of the comp sales results," Kruse said.
J.C. Penney expects a drag of 250 to 300 basis points on comparable sales for the year from the move to shed appliances and furniture, Kruse said. The company reported a hit of 20 basis points to comparable sales during the first quarter but expects greater drag the rest of the year, Kruse said.
Meanwhile, hiring for J.C. Penney's quickly growing executive team is "not yet complete, though we have most of the key roles in place," Soltau said.
J.C. Penney on May 21 announced the hiring of Shawn Gensch as the company's new executive vice president and chief customer officer, effective June 3.
Gensch, who currently holds a similar position at Sprouts Farmers Market Inc., joins J.C. Penney following the April 8 addition of Executive Vice President and CFO Bill Wafford and Soltau's appointment in October 2018.
The company is still looking for a senior leader for its e-commerce and omnichannel operations, Soltau said.