Despite the baggage that it brings in recent weeks, Target (TGT) management was not shy about facing the tariff issue head on.
The market appears pleased with the results from the retailer and its ability to mitigate the macro pressures pressing on the industry, with the shares having shot up nearly 10% shortly after the open Wednesday after a beat on earnings and affirmed guidance amidst the trade noise.
Target has previously signaled its concern with tariffs, even penning a letter to the Trump administration late in 2018 noting its protests.
"We are disappointed that despite broadly expressed concerns from companies and groups across a variety of industries, the administration has continued to escalate the threat of tariffs that would penalize American families," Target's chief merchandising officer, Mark Tritton, wrote in the September 2018 letter.
The company added that its own supply chain could be affected in a 10-K filing released in March.
"A large portion of our merchandise is sourced, directly or indirectly, from outside the U.S., with China as our single largest source, so any major changes in tax or trade policy, such as the imposition of additional tariffs or duties on imported products, could require us to take certain actions, such as raising prices on products we sell, which could adversely affect our results of operations," the filling states.
As such, many analysts and investors were eager to hear how the company might be able to avoid the impact of recently intensified trade tensions and restrictions.
CEO Brian Cornell sought to calm concerns regarding the potential pressure on the company's low-cost business model.
"As you know the trade situation has been fluid for some time and we've been carefully monitoring negotiations to assess potential implications and our point of view has been consistent for some time," he said. "As a guest focus retailer we're concerned about tariffs because they lead to higher prices on everyday products for American families. Our team continues to monitor trade negotiations and develop contingency plans to help mitigate the impact of tariffs on our guests and on our business."
Cornell added that the diverse portfolio of products should help the company contend with the newfound pressures on pricing.
Maybe most importantly, Cornell noted that the most recent increases in tariff headwinds are factored into the company's reaffirmed guidance. That breaks with the negative reaction to Kohl's (KSS) , which noted the impact would cause it to cut guidance.
"It's important to note that Target's multicategory portfolio remains a competitive advantage," he explained. "When there are external impacts to one business area or category we're able to balance the impact across our business in ways not available to a single category retailer and as you see in our recent results the teams been able to manage through last year's tariffs with minimal impact and we have plans in place to mitigate the impact of additional tariffs already scheduled for next month."
He added that vendors in Asia have also been open to helping mitigate the impact of tariffs moving forward.
"[COO] John [Mulligan] and I were in Asia last week meeting with our global vendors not just China our Asia-based vendors and clearly tariffs was a point of discussion," Tritton told analysts. "Our current actions are not reactive. They're responsive."
"We think planning these for some time looking at the level of potential change and working with our deep vendor base we have trusted partnership and leveraging our current strength of performance to build opportunities to diversify to work through price changes," he added. "[We have] a very sophisticated and elevated team who have been anticipating changed and I think when you look at our Q1 results where we're able to effectively mitigate those risks from prior announcements I think it bodes well for how we look to manage these moving forward."
Given the breakout in the shares on Wednesday, the market appears to be very accepting of management's ability to handle the headwind in 2019.