What to Expect From Retail Earnings Amid Tariff Uncertainty

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00:00who covers tjx raw stores urban outfitters and quite a few other retailers out there retailers

00:04of course that you know adrian have been in sharp focus primarily because of the concerns about

00:09tariffs let's start with tjx because there's sort of two things going on here first on the tariff

00:13side should we be worried i mean are they do they have outsized exposure to imported goods

00:19so they do not um what we call what we like to talk about is separating companies into two

00:25buckets those who have first cost so first costs are vertical retailers like a gap that directly

00:31source or the brand manufacturers like a nike who also directly source so the off-pricers which

00:36comprises tjx raw stores and burlington they get passed through cost not only do they get passed

00:42through cost which is basically the brands sell it you know selling to the the retailers at frontline

00:48who then don't sell their product they actually solve a problem right so they kind of clean up

00:53and liquidate kind of all the excess inventory in u.s retail so they're really tend to be in the

00:58driver's seat when they do go to market and negotiate against either the retailer or the vendor

01:02the other side of their coin too with tjx is the economic factor right the idea that tjx is a

01:08discounter and typically it tends to be a little bit more resilient when times get tough and folks are

01:12looking for bargains but i'm looking at analyst estimates for the year for comp sales as well as

01:16for profitability and those are kind of trending down why yeah you know what i would say is if you

01:23think about the last two years 2023 was a cleanup from that excess inventory glut that we had in

01:282022 and it was mostly at what we call frontline retail the year two was kind of you know the

01:35frontline retailers kind of pulling back on inventory and purchasing from brands like a nike

01:40like a an under armor and so we had two years where we actually had inventory first from the retailers

01:48and then secondly from the brand manufacturers that was kind of you know helping out and kind of like

01:54really really good you know juicy inventory i think that what's happening is people have this notion

02:00that the consumer is going to slow um and that there was this concern that maybe we would have

02:06inventory unit shortages um and so people are kind of baking that in more as conservatism um and

02:12allowing sort of the the off price model to show the strength and the power but you would need to

02:17see trade down right so the underlying trends according to kind of the sell side you know

02:23model would suggest that the supply side of things the inventory that's out there may not be as juicy

02:30now we all know that these uh estimates that are out there are pretty much pre for the most part pre

02:36april 2nd so you know to the extent that it gets juicier that's probably the case you know i look at tjx and

02:44um 22 of the 26 ratings analyst ratings are by so people are very bullish on the stock it's trading at

02:5233 times reported earnings 30 times estimated earnings at what point does this become a little

02:57bit too rich because of all these tailwinds these structural tailwinds and cyclical tailwinds it's

03:01enjoying it's carla you um while all of the other companies in retail have had their multiples contract

03:08you've actually seen a flight to quality um and you've actually seen um tjx hold what's actually

03:15almost five turns higher than their three five and ten year historical p.e so what people are saying

03:21is that any sort of disruption right inventory that doesn't land on time inventory that gets canceled

03:27from china inventory that gets redirected from china to europe per se um all of that is dislocation and

03:34that is textbook fodder for the off price channel and tjx is uniquely positioned with 20 exposure to

03:40europe as well as the u.s to profit from that