Getty/Theo Wargo
- Stocks plunged on Monday after China announced it would slap tariffs on US goods in response to higher US duties on Chinese goods.
- Fashion stocks including Victoria’s Secret-owner L Brands, Gap, and Abercrombie & Fitch were among the biggest decliners due to their dependence on Chinese suppliers and consumers.
- Markets Insider looked at the exposure of seven fashion stocks to the US-China trade war.
- Watch L Brands, Tapestry, Abercrombie & Fitch, Guess?, Ralph Lauren, Tiffany’s, and Gap trade live.
US stocks plunged on Monday after China announced it would slap tariffs on $60 billion of US goods starting in June. The move was in retaliation to the Trump administration raising duties to 25% on $200 billion worth of Chinese products last Friday, and threatening to expand tariffs to a further $300 billion of goods within the next month.
Fashion companies including Victoria’s Secret-owner L Brands, Tiffany & Co., Abercrombie & Fitch, Guess, Ralph Lauren, Gap, and Tapestry — which owns Kate Spade and Coach — saw their shares plummet more than 5%.
Here’s why investors are worried about those companies:
L Brands
AP Images
L Brands stock is under pressure because investors fear higher tariffs will increase the costs of shipping merchandise to and from China, forcing the company to raise prices. The trade war could also hurt consumer confidence and damage the American and Chinese economies, reducing demand for lingerie and bath bombs.
The owner of Victoria’s Secret, Pink, and Bath & Body Works has been investing in China and considers it an "extremely important market," according to a company filing in April. It imports a significant proportion of its products from there too; the Asian nation is one of the five countries where almost all of L Brands’ suppliers are based, according to its website.
There were a total of 53 Victoria’s Secret and Victoria’s Secret Beauty and Accessories stores in Greater China as of February 2, and management planned to open up to 15 more in the region this fiscal year, according to its latest earnings presentation.
A combination of more stores and strong demand in Greater China lifted net sales in L Brands’ international business by 20% to $605 million in the year to February. However, the segment only accounted for 6% of the company’s $13.2 billion of revenue, meaning the group isn’t too reliant on sales in the region.
Tapestry
Dario Cantatore / Stringer
Tapestry’s stock has dropped because the owner of Kate Spade and Coach is targeting Chinese shoppers and has warned the trade war is a threat to its business.
The group expects "minimal impact" from the tariff hike last Friday, according to its third-quarter earnings. However, it warned that expanded tariffs — which the Trump administration is already preparing — could have a "more significant impact" on its performance. It added that further escalation could hurt its ability to "grow its business with the Chinese consumer globally" — a key part of its current strategy.
Tapestry earned $672 million or about 15% of its revenue in Greater China — which includes mainland China, Hong Kong, Macau, and Taiwan — in the nine months to March 30. The group also acquired its Stuart Weitzman distributors in Southern and Northern China and took control of its Kate Spade joint venture in mainland China, highlighting its current focus on the region.
3. Abercrombie & Fitch
Hannes Magerstaedt/Getty Images
Abercrombie & Fitch stock is suffering because of the company’s reliance on Chinese suppliers.
The apparel retailer sourced about 36% of its merchandise through China last fiscal year, and imported 25% of all merchandise to the US from China, according to its latest earnings report. Recognizing its vulnerability to tariffs, management plans to reduce that second figure to below 20% this fiscal year. They also believe they can shift up to half of their production out of China if necessary.
A&F sees growth opportunities in Asia and Europe, but has warned the trade war could hinder its international expansion. The group earned about $487 million — around 14% of total net sales — outside of the US and Europe last fiscal year. The majority of that probably stemmed from China, given 29 of the company’s 57 stores outside the US and Europe were located in the Asian nation as of March 27.
See the rest of the story at Business Insider
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SEE ALSO: Trump’s China tariffs could slam American shoppers with an extra $800 in costs a year
Source: Business Insider – tmohamed@businessinsider.com (Theron Mohamed)