The anxiety felt over tariffs outside of market hours on PVH Corp. (PVH) should highlight the importance of preparation for tariffs, both for the companies and investors.
Shares of the Calvin Klein and Tommy Hilfiger parent finished up 0.70% to close at $110.54 on Friday, after tanking post-market on Thursday amid concerns of a cool-off at Calvin Klein and margin pressures that could intensify amidst worsening global trade tensions.
Currently, about 20% of U.S. goods are directly sourced from China which represents roughly 7-8% of the cost of goods sold for PVH. That lends credence to PVH CEO's comments suggesting a $70 million impact from tariffs, potentially passed onto consumers.
"I know everybody quantitatively is thinking about tariffs but I consistently have been talking about that's an issue and that can be managed," PVH CEO Manny Chirico told analysts on Friday.
He noted that as traffic has slowed in China on the demand side as well, preparation for a prolonged trade war is pivotal.
Yet the preparation is not just for companies exposed to China, but for investors as well.
One protection that investors have been utilizing are options, which are being employed as a short term hedge against the potentially combustible situation.
"Some people are going to be hedging positions to protect themselves from the downside if there is no positive conclusion from those talks," Chris Larkin, SVP of Trading at E*Trade told TheStreet. "People are making strategic decisions for a short period of time using the options market."
Despite President Trump's intimation that progress is being made, there remains nothing concrete and the differing outcome scenarios offer some potentially profitable, and lower cost in the short term, options plays.
That strategy applies not only to PVH, but a number of retailers (XRT) relying on China.
Timing is Everything
That said, companies in the sector could easily shift supply chain to other low-cost centers outside of China if need be, something PVH management has touched on.
It merely takes time to relocate the supply chain.
"If provided lead time on the change (i.e. 6 months), management believes they can mitigate a majority of the [tariff] impact with multiple levers in motion including global pricing power, a recent theme across our coverage from management teams," JPMorgan analyst Matthew Boss said.
He noted that the company has already made progress on its inventory problem and has readily identified the issue with Chinese demand, meaning that mitigation is moving forward.
The question will likely remain in the air over the next month as to whether tariffs will tamp down stocks in 2019 amid mixed messages from Trump, Vice President Mike Pence, White House Advisor Peter Navarro, and Economic Advisor Larry Kudlow.
However, even a short-term reprieve could mean a rebound, which becomes even more important amid a more crowded options market.
Much Ado About Nothing?
However, retail experts have told Real Money that the tariff talk seeping into every conversation about retail may be much ado about nothing.
Jan Rogers Kniffen, president of retail investment consultancy J Rogers Kniffen Worldwide Enterprises, told Real Money that the tariff talk is simply an excuse for retailers missing their mark.
"There is definitely not a meaningful impact yet and even if an impact is felt, it will be a pretty small one," he said. "When you see the numbers, these companies will say that a couple hundred products originate in China. These are retailers that have hundreds of thousands of products."
He added that most of these companies have already moved their production bases out of China due to an era of rising wages in the country.
"It's absolutely because of rising wages in China," Kniffen explained. "Wages have been rising for 20 years, which has moved production to countries like Vietnam, Guatemala, and Sri Lanka. This will accelerate the speed at which the companies need to get out of these countries, but this transference was happening anyway."
One retail executive even told Real Money that Chinese suppliers may simply rout their packages through secondary locations where they can be stamped to avoid added taxes.