Retailers are rushing to import goods during a 90-day trade truce that slashed US tariffs on Chinese goods. According to the White House, these tariffs will be cut from 145% to 30%.

Yahoo Finance Senior Reporter Brooke DiPalma joins Catalysts to explain how companies are reacting, and what it means for retailers like American Eagle Outfitters (AEO).

Bernstein senior analyst Aneesha Sherman explained to Yahoo Finance why retailers may now be on course to deal with an inventory glut as shipments from China resume.

To watch more expert insights and analysis on the latest market action, check out more Catalysts here.

Video Transcript

00:00 Seana Smith

Temporary US-China trade truce now in effect, with the US lowering its tariff rate on China to 30% from 145%, China reducing its US rate to 10% from 125%. This agreement stands for 90 days while the two nations work to finalize their trade deal. So, what are retailers doing during this 90-day pause? They're shipping hand-over-fist! Here with more, Yahoo Finance senior reporter, Brooke DiPalma.

00:22 Brooke DiPalma

They're doing exactly that. They're jumping on this opportunity to ship at this lower tariff rate of 30%. And what experts are telling me is that this went from being an impossible situation to a much more manageable one as retailers can now take action. I want you to take a listen to what Bernstein analyst, Anisha Sherman, told us yesterday afternoon.

00:49 Anisha Sherman

What we have seen leading up unto this announcement was that retailers and brands were stockpiling product in China and not loading it onto ships to come into the US. Because the effective data is the tariff, is the date in which the product boards the inbound vessel. So, there were stockpiles of containers in China not boarding ships. With this announcement, we're now going to see the reverse, where we're going to see a surge of imports coming into the US over the next month, month and a half, and probably even a pull forward of some of the holiday merchandise before that 90-day mark expires, for fear of tariffs going back up.

01:34 Seana Smith

So, does that mean that companies now, everything, the coast is clear? Everything's great? No. Absolutely not, especially for the specialty retailers who have these larger exposure to China. What we're hearing today from a brand like American Eagle is that this is certainly already impacting their first quarter results. They actually were supposed to report on May 29th, this morning we got preliminary results from the specialty retailer. They withdrew their fiscal year 2025 guidance. They said that this macro uncertainty is, is, is hard for them to evaluate exactly how this upcoming year could play out. We also saw those preliminary results show that Q1 sales are expected to decline, revenue down $1.1 billion. They also said that comparable sales are expected to be down in the first quarter, down 3%. And they also had to do more promotions during the quarter. They had to do more, uh, you know, sales because of this excess inventory that they now have in stock because consumers pulled back, they were nervous about how this would all play out, this impact of tariffs.

02:03 Absolutely.

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02:05 Absolutely not.

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03:33 Jared Blikre

Yeah. And if we're going to get more inventory, there's going to be more markdowns, which is disinflationary along with gas, which means it could be true that Powell is too late. He's 150 basis points too restrictive, he's got to go in June.

03:56 Brooke DiPalma

Maybe.

03:57 Jared Blikre

Maybe, maybe. Lots of unknowns.

04:01 Brooke DiPalma

Yeah. I like how you made this about Powell.

04:03 Jared Blikre

Look, you got to look through one and two quarters. This is a short-term bottleneck, AEO is a random anecdote. Uh, I think, I think,

04:12 Brooke DiPalma

Well, but it's not the only anecdote, there are a lot of other retailers where we're seeing similar.

04:18 Jared Blikre

We're seeing a huge divergence between hard data and soft data, okay. So on balance when you look at retail sales, consumers are saying the world is ending, they're depressed, okay. But they're out spending like there's no tomorrow. If you look at the, if you look at the actual data. So you have an AEO, could it be their mix was off, you know, I, I'm saying on balance I agree with what you're saying.

04:46 Brooke DiPalma

Could their merchandise not have been exactly what consumers want? And they even admitted that they got a little bit wrong in this quarter.

04:53 Jared Blikre

Yeah, Lulu had the wrong color a couple of quarters ago, and everyone said I can't wear yoga pants that are off green. I mean, I only wear purple yoga pants personally, but uh, but I, you know, you look, the markets are discounting mechanisms. So it's, it's, a lot of these consumer discretionary stocks, when you look at the positioning relative to defensive, it's at record lows. People, this is known, right? So this is looking in the rearview mirror. When we look through the front window and we look at a better tariff climate, when we look at consumer confidence coming back, soft data to start to meet the hard data, I think you're going to see a boom, especially the wealth effect with the stock market back up, is a very, very constructive thing for the consumer.

05:28 Brooke DiPalma

Something to look out for. Yeah, so you'll be buying plenty of purple yoga pants. Thank you.

05:38 Jared Blikre

That's right, that's right.  Related Videos

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