Tariff Exposure, Though ‘Small’ For BJ’s, ‘Creates Uncertainty for All Retailers,’ Says CEO
BJ’s decisions to “diversify” its supply chain give the warehouse-club retailer “significantly reduced” exposure to the 10 percent List 4 Section 301 tariffs on Chinese goods compared with the competition, said CEO Chris Dawson on a fiscal Q2 earnings call Thursday. BJ’s started “several years ago” to “reduce reliance on China by sourcing high-quality products from other markets in both Asia and Africa,” he said.
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Chinese-sourced goods on which tariffs take effect Sept. 1 and again Dec. 15 are 3 percent of BJ's annual cost of sales this year, "which we expect to decline slightly next year," said Dawson. "This gives us a much smaller exposure to tariffs than many other retailers.” Though the tariff risk is “small for us,” it “creates uncertainty for all retailers that we think we can manage,” he said.
BJ’s is “implementing a variety of mitigation measures in order to reduce the risk associated with our direct exposure to tariffs,” said Chief Financial and Administrative Officer Bob Eddy. “We currently believe that this risk is manageable.” He estimates the tariffs could cause a $5 million hit to adjusted EBITDA for 2019's second half, he said.
In giving out those second-half estimates, management is trying to give investors “a sense of the max exposure that we see to the back half of the plan” from the List 4 tariffs, said Dawson in Q&A. “We only know what we know today” about the tariffs threat, he said. “It could change at any moment. This is certainly an evolving and fluid topic out there.”
Slightly more than half of BJ's sales through a newly revamped "buy-online, pickup-in-club" (BOPIC) offering are in general-merchandise categories, "with strong sales in areas like TVs, furniture and air conditioners," said Dawson: "Importantly, more than half of BOPIC shoppers purchase additional items once they're in the club." Shares soared 17.1 percent higher Thursday to close at $26.42.