Walmart, Factoring In List 4 Tariff Impact, Slightly Lowers 2019 Net Sales Target
Though Walmart expects to finish 2019 toward the “upper end” of its previous guidance of between 2.5 percent and 3 percent same-store sales growth, it’s slightly scaling back full-year expectations on consolidated net sales growth, it said in a fiscal Q2 report Thursday. It was the first bellwether of possible retail impact from the 10 percent List 4 Section 301 tariffs taking effect Sept. 1, and again Dec. 15, on Chinese goods (see 1908130028).
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Walmart’s updated guidance “reflects our current understanding of the timing of tariff implementation on various categories as List 4 affects a larger part of our assortment than the prior tariffs,” said CEO Doug McMillon. Walmart previously projected 2019 consolidated net sales growth of “at least” 3 percent but now thinks growth will top out at 3 percent, it said. It left unchanged its 3 percent same-store sales growth forecast at Sam’s Club and still projects 35 percent growth in U.S. e-commerce sales.
“We’re continuing to monitor the ongoing tariff discussions and are hopeful that an overarching long-term agreement can be reached” with the Chinese, said McMillon. “Our merchants continue to execute appropriate mitigation strategies as our goal is to be the low-price leader. Over the past several months, the team has been able to thoughtfully manage pricing and margins with both our customers and shareholders in mind.”
Walmart is reviewing the List 4 “tariff information” that the Office of the U.S. Trade Representative released Tuesday, said McMillon. The retailer's possible role in helping shape Trump administration tariff policy came into focus in May when Treasury Secretary Steven Mnuchin told a House hearing he speaks “on a regular basis” with Walmart Chief Financial Officer Brett Biggs about how the then-proposed List 4 duties might affect customers (see 1905240033).
List 4A, for goods on which duties take effect Sept. 1, includes tariff subheadings where China’s share of U.S. imports from the world is less than 75 percent for each subheading, said a USTR notice Wednesday soon to be published in the Federal Register. List 4B includes products where China’s share of U.S. imports from the world is 75 percent or greater for each subheading, said the notice.
Tariffs on goods in List 4B were deferred to Dec. 15 "to provide a longer adjustment period for U.S. interested persons," said USTR, without reference to how the holiday selling season may have factored into the decision, as President Donald Trump said it had factored in. “Just in case” some of the tariffs “might have an impact” on U.S. consumers, “what we’ve done is we’ve delayed it so that they won’t be relevant for the Christmas shopping season,” Trump told reporters Tuesday.
The heads of CTA and the National Retail Federation went on Fox Business News in separate segments Wednesday to seize upon Trump’s statement as his admission that it’s not the Chinese who pay the tariffs, but U.S. businesses and consumers. “The president listened,” said CTA President Gary Shapiro. “He realized that he was wrong about the fact that tariffs are actually taxes on consumers, and he’s acknowledged that it’s going to affect the holiday season.”
The Dec. 15 deferral was “not a great big gift to anybody,” said Shapiro. The administration’s tariff’s policy “is sowing the seeds of consumer confusion,” he said. “It’s creating business uncertainty. It’s going to keep consumers out of retail. There is great concern in our industry and in other industries about where this is heading.”
NRF is “certainly very pleased to see the administration recognize that there is an impact on consumers, and so they’ve backed off on some of these tariffs that were due to go into effect,” said CEO Matthew Shay. “We remain concerned that there’s plenty of tariffs that remain in effect, and more going into effect on September 1.”
The List 4 tariffs involve “all consumer goods,” said Shay. “The administration avoided those goods from the beginning for a reason, because they know it’s going to drive costs up for consumers. That’s why they made them fourth. If they go there now, they know what’s going to happen and they admitted as much.”
In putting on the Dec. 15 deferral list those products where China controls 75 percent or more of U.S. imports, the administration is "recognizing that it may take U.S. companies longer to shift sources of supply" for those goods, blogged customs expert Ted Murphy with Baker & McKenzie Thursday. Smartphones, plus laptops and tablets, are products in which China's share clearly exceeds the 75 percent threshold, and so they made it onto the Dec. 15 deferral list, while TVs are well under the threshold and face Sept. 1 tariff exposure. USTR didn't respond to queries on the methodology used in setting the 75 percent benchmark.
China's share of U.S. smartphone imports last year was 79.3 percent in dollars, 79.5 percent in units, said Census Bureau 2018 statistics accessed Thursday through the International Trade Commission's DataWeb tool. China had 94.3 percent share of the laptop and tablet dollar imports last year, 91.4 percent of the units. TVs were a different story. Only 35.1 percent of the TV dollar imports to the U.S. were from China, which accounted for 55.6 percent of the TV units.