TJX May Face Bigger-Than-Anticipated Near-Term China Tariff Headwinds, UBS Says

TJX could face "bigger" near-term headwinds from tariffs on China than previously expected, though the discount retailer eventually stands to benefit from macro headwinds, UBS Securities said Wednesday. Last month, US President Donald Trump declared a 90-day pause on certain tariffs for non-retaliating countries. Washington and China have been in a deadlock over tariffs, though officials from both sides are due to meet in Switzerland this weekend to discuss economic and trade matters. An analysis of more than more than 600 home category items at HomeGoods, TJ Maxx and Marshalls stores showed that almost 63% were made in China, while only 3.2% were produced in the US, UBS said in a note to clients. "Given home category sales in the US likely represented around 27% of TJX revenue in (2024), the company could be facing a meaningful near-term headwind on margins from China tariffs," UBS analysts Jay Sole and Mauricio Serna said. "Since the tariffs were announced abruptly without giving companies time to adapt and TJX turns inventory so quickly, the company may experience a negative impact on gross margin in (the second quarter)."Despite the tariff risk, the brokerage continues to rate the TJX stock at buy, with a $154 price target. The company will likely see an incremental share gain amid a projected slowdown in consumer spending that is expected to impact department stores more than discount retailers, according to the note. "While tariffs could prove problematic for TJX, we believe they will be worse for department stores, ultimately driving even more share to TJX," the analysts wrote. "We believe tariffs will create significant industry supply chain disruption, creating excellent inventory buying opportunities for TJX over the next six (to) 18 months."The company can "meaningfully reduce" its exposure to China over the next 12 to 18 months, UBS said. "If TJX can communicate to this point to the market, we believe investors will 'look through' near-term margin headwinds."TJX said Wednesday it plans to report its fiscal first-quarter results May 21. UBS projects earnings of $0.91 a share, while Wall Street is looking for $0.90, according to the note.