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J.C. Penney braces for impacts from new tariffs on China

J. C. Penney Co. Inc. is preparing to deal with the potential impacts later this year from new tariffs on $300 billion in Chinese imports, executives said Aug. 15.

"We do know that there will be an impact associated with [the fourth quarter] … we're not calling out a number dollar on that yet because we're still working and, to be fair, some of these things are not completely finalized yet," J.C. Penney Executive Vice President and CFO Bill Wafford said during a conference call discussing the retailer's second-quarter earnings.

The 10% tariffs on items including some clothing, footwear and toys will begin Dec. 15 after the Trump administration delayed the start date of many of the duties from Sept. 1. The tariffs are the fourth tranche the U.S. will impose on China as part of an ongoing trade spat with the country.

Retail stocks, including J.C. Penney's, tumbled on Aug. 1 after President Donald Trump announced the tariffs and warned that they could rise to 25% or higher. Analysts expect the tariffs will add extra costs for U.S. apparel and footwear companies, and Macy's Inc. executives said on Aug. 14 that even the delayed duties could ding the company's 2019 earnings.

J.C. Penney excluded the tariffs from its newly offered guidance for fiscal 2019, which includes a 7% to 8% drop in comparable sales and adjusted EBITDA in a range of $440 million to $475 million. The company, however, continues to explore reducing its exposure to China, which is already lower than other clothing retailers, CEO Jill Soltau said during the call.

"Our teams continue to work to de-risking efforts," Soltau said.

Tariffs imposed on Chinese imports so far have had "minimal impact" on J.C. Penney, Soltau said.

Executives also said they plan to boost J.C. Penney's share price back to a 30-day average of at least $1 following a warning that the NYSE could delist the company.

Soltau said the retailer plans to increase its share price through the improvement in its operating performance or "if necessary, via other revenues available." The company said Aug. 8 that a reverse stock split is among options to boost the share price.

J.C. Penney shares rose 6.6%, or about 4 cents, to 61 cents in morning trading on Aug. 15 after the retailer posted a narrower-than-expected loss during its second quarter.

Separately, the company also announced plans to stock secondhand women's clothing and handbags from online retailer thredUP. J.C. Penney will stock the new merchandise in 30 of its stores, the company said.

Macy's on Aug. 14 also announced plans to include thredUP merchandise in 40 of its U.S. stores.

"We'll continue to test and evaluate how this resonates with our customers. We're excited about the prospect of creating a new in-store experience that makes high-end brands attainable, as well as catering to eco-minded consumers who want more sustainable options in their wardrobe," Soltau said during the call.

ThredUP merchandise will occupy some of the space previously devoted to J.C. Penney's former appliance and in-store furniture businesses, Soltau said.

The retailer is also using the extra space for enhanced fitting rooms in women's apparel departments that feature stylists, digital billboards and mannequins displaying new merchandise and additional displays for clothing accessories, Soltau said.