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Home Depot CEO: China tariff impacts could reach $2B

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Home Depot CEO: China tariff impacts could reach $2B

Home Depot Inc. executives said that the total impact of existing and potential U.S. tariffs on Chinese imports could cost the company up to $2 billion but shifts in the supply chain could reduce that amount.

The impact of existing and proposed tariffs could cost Home Depot $2 billion, or 2% of U.S. sales, Chairman, CEO and President Craig Menear said during an Aug. 20 second quarter earnings call with analysts. The home improvement retailer cut its sales guidance for fiscal 2019, citing the tariff impact and other factors such as declining lumber prices.

However, the actual cost of the existing and proposed tariffs could be much less than 2% because of a number of factors including things like supply chain moves, Edward Decker, Home Depot executive vice president of merchandising told analysts on the call. It will be up to the merchant team to see how best, if at all, Home Depot passes on the impact of tariffs to its customers, Decker said.

"I'm not aware of a single supplier who is not moving some form of manufacturing outside of [mainland] China. So we have suppliers moving production to Taiwan, to Vietnam, to Thailand, Indonesia and even back into the United States. So when you net all of that out, we see this 2-ish-percent [of sales] impact being much, much less, call it something like 1%," Decker said.

At the moment, the U.S. has imposed a 25% tariff on $200 billion of Chinese goods and it is planning to impose additional tariffs of 10% on other products. On Aug. 13, the U.S. delayed the imposition of some of the 10% tariffs until Dec. 15. Other products are subject to the new 10% tariff as of Sept. 1.

When releasing first quarter earnings on May 21, Home Depot executives said that the U.S. government's recent decision to raise tariffs on $200 billion of Chinese goods to 25% from 10% would have an impact of about $1 billion for the company.

Tariffs will impact the home improvement industry but Home Depot is better prepared because of its scale and extensive and diverse portfolio of products, Bill Fahy, Moody's vice president and senior credit officer, said in a research note.

"While we expect a stable housing environment and consumer trends to continue, profit growth for the overall sector could be pressured," Fahy said.

Home Depot is well-positioned to manage a downturn, Carol Tomé, Home Depot CFO and executive vice president of corporate services said.

Housing as a percentage of GDP is less than what it was in 2006, Tomé said. The amount of growth in the current economic recovery – the longest in U.S. history – is still under the average growth for other recoveries, Tomé said.

"When that downturn comes, it's not going to be like was before," Tomé, who plans to retire Aug. 31, said.