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Dollar General's CFO: Shoppers will face higher prices due to tariffs

Dollar General Corp. expects to increase prices due to U.S. tariffs on Chinese imports, the discount retailer's executive vice president and CFO, John Garratt, said May 30.

"We will continue to do everything we can to minimize the impact of tariffs on our customers but even with these efforts, we believe our shoppers will be facing higher prices as 2019 progress," Garratt said.

The U.S. raised tariffs on $200 billion worth of Chinese imports to 25% from 10%, which became effective May 10 and has proposed a 25% tariff on an additional $300 billion of Chinese imports.

Although Dollar General expects tariffs in addition to increased fuel costs to pressure gross margin throughout 2019, the discount retailer is optimistic gross margin will continue to grow compared to the year-ago period.

In its fiscal first-quarter earnings report, Dollar General reaffirmed its outlook for fiscal 2019, which does not include the impact of any additional tariffs beyond those already in effect.

On the May 30 call with analysts, Garratt said 6% of the retailer's sales are from direct imports primarily from China. He added that in recent years the retailer has worked to diversify its product sourcing.

"Our exposure is relatively lower compared to many [retailers]," Garratt said. "The team is working on continual negotiations with vendors, product substitutions, product reengineering and continuing to change the origin of countries where [products are] coming from," he said.

Dollar General also sees its position as a limited SKU retailer as an added benefit because it allows for flexibility in its product offering.

"We're a limited SKU assorted retailer, and we can make decisions based on a lot of different factors to include price, meaning [the] cost of goods. And we'll continue to do that as we move through these tariffs," Garratt said.