Retailer Costco Wholesale Corporation COST is the latest company to warn about the impact tariffs imposed by President-elect Donald Trump could have on higher prices for consumers.
What Happened: Costco beat analyst estimates for revenue and earnings per share in the first-quarter financial results last week.
While many investors and analysts were focused on higher membership fee revenue thanks to a price increase earlier this year and new milestones across items like deliveries, pharmacy, pizzas and Thanksgiving pies, company executives provided an early look at the tariff concern.
"There's a lot of uncertainty around the timing and scope of changes, so it makes it difficult for anyone to predict what the impact will be with confidence," Costco Chief Financial Officer Gary Millerchip said on the earnings call.
"In general, of course, tariffs raise costs. That's not something that we see as a positive in general."
The Costco CFO said the company faced tariffs in the past and its buyers and merchants are equipped to work through and "navigate and manage that situation." The tariffs could impact the company, suppliers and ultimately consumers.
"When it rains, it rains on everybody."
Millerchip said the company is already considering plans ahead of the January inauguration.
"We have a plan over time where we have done this in the past and typically we'll look where we can to pull forward inventory buying."
Costco will also consider additional sourcing locations and work with vendors to lower costs, Millerchip said. Another option would be to eliminate some items where "the value just wasn't there."
"We're about a quarter of our business is non-foods and then a subset of that is imported. So remember, it's a minority of our overall business and then it's a smaller part of that as well."
Trump's presidential transition team took exception to the comments from Costco.
"President Trump has promised tariff policies that protect the American manufacturers and working men and women from the unfair practices of foreign companies and foreign markets," Trump transition spokesperson Brian Hughes told the New York Post Monday.
Tariffs could be conducted via executive orders from Trump and not need Congressional approval. The tariffs could hit China, Canada and Mexico initially.
"As he did in his first term, he will implement economic and trade policies to make life affordable and more prosperous for our nation," Hughes added.
Read Also: Costco’s Unique Retail Model And Solid Growth Stand Out In Challenging Market: Analysts
Why It's Important: The comments from Costco come after discount retailer Dollar Tree Inc DLTR shared a similar sentiment of being proactive in taking steps to offset tariffs, while expressing concern that prices could go higher for consumers.
“While the situation remains fluid and the exact nature, scope, and eventual timing of any new tariffs is not yet clear, we are prepared to act on multiple fronts,” Dollar Tree Chief Operating Officer and Interim CEO Mike Creedon said on Dollar Tree’s recent conference call.
Creedon said Dollar Tree was able to negotiate lower costs with suppliers back in 2018 and 2019 when last dealing with tariff concerns. The company also changed product specs and pack sizes along with stopping the sale of several items altogether.
“All three of those options are still at our disposal.”
Creedon said the company’s multi-price strategy, which includes items past the $1 and $1.25 price points, could also be a solution for the tariff plans when asked to share what the downside case to the company’s earnings is due to tariffs.
“Multi-price gives us the ability to flex where we need to if a certain product becomes something that we’ve got to move in the market to be competitive.”
While it remains to be seen if Trump follows through with his tariff threats, retailers are already embracing the potential for higher costs and warning consumers that changes to item selection and higher prices could be coming.
COST Price Action: Costco stock trades at $985.87 Tuesday versus a 52-week trading range of $640.56 to $1,008.25. Costco stock is up 52% year-to-date in 2024.
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