Encounter tariffs that deal a heavy blow to retail stocks, is it a good opportunity to layout? Goldman Sachs dissects the US retail industry under the tariff storm in a lengthy article.

"Wall Street financial giant Goldman Sachs Group, Inc. systematically sorted out the core discussion points of Goldman Sachs Group, Inc. and management meetings of 12 American retail companies in a recent research report on the US retail industry. Combined with on-the-ground channel research data, the report attempted to comprehensively evaluate the impact of the Trump administration's global aggressive tariff policy, consumer resilience, and retailers' inventory strategies on the US retail industry. For investors, the supply chain strategies of these American retailers under the heavy pressure of Trump's tariffs that have seen a "crazy transformation in just a few weeks," as well as their strategies for future growth potential in a somewhat pessimistic macroeconomic environment, are crucial for selecting potential outperformers in the US stock market and retail stocks that have resilience to performance growth under the tariff storm. In the US stock market, most retail stocks have significantly underperformed the S&P 500 index since April, and the market has seen a rare "three-kill" in stocks, bonds, and the dollar, with the main logic being the global funds' confidence in holding US dollar assets due to the huge economic growth uncertainty brought by Trump's tariff policy, as well as the threat to the independence of the Federal Reserve by the Trump administration wanting to dismiss Powell. In addition, many investors are betting on the resurgence of inflation due to Trump's aggressive tariff policy, which may lead American consumers who have been struggling due to high inflation in recent years to further reduce their spending. Consumer confidence index data from the University of Michigan shows that consumer confidence has reached its lowest level since June 2022, and consumers' inflation expectations for a year later have reached the highest level since 1981. Goldman Sachs Group, Inc.'s in-depth research report on the retail industry shows the following dynamic trends in the overall US retail industry: 1) Differentiated responses to tariffs, with Best Buy Co., Inc. controlling tariff exposure to just over 20% through supply chain diversification, and Ollie's Bargain Outlet (OLLI.US) attempting to mitigate tariff risks through a flexible procurement mix; 2) Significant consumption stratification trends, with American Deloitte capturing the downward dividend of the high-income consumer group, and Target Corporation strengthening the layout of essential goods; 3) Automation and efficient inventory management seem to be key winning strategies, with Walmart Inc. having an automation penetration rate of 60%, and Dick's Sporting Goods creating unexpected tariff potential benefits from high inventory reserves. In this in-depth research report, Wall Street's Goldman Sachs Group, Inc. emphasizes that although the tariff policy has caused some pressure on the performance expectations and valuations of retail stocks, some fundamentally sound retail companies still have "buy on dips" value. The firm maintains a "buy" rating for seven US retail companies, including Bath & Body Works (BBWI.US), Best Buy Co., Inc. (BBY.US), American Deloitte (DG.US), Dick's Sporting Goods (DKS.US), and Walmart Inc. (WMT.US); and gives a "sell" rating to Foot Locker (FL.US), with a focus on BJ Wholesale Club (BJ.US) selected SKU strategy and RH (RH.US) high-end home recovery opportunities. Under the tariff storm, a comprehensive overview of US stock retail stock ratings and outlooks is released! Goldman Sachs Group, Inc. provides a detailed analysis of the US retail industry. Goldman Sachs Group, Inc.'s lengthy in-depth research report, combined with the performance outlook of senior executives of American retail companies and the industry development views of management, analyzes in detail the response strategies and potential stock performance of retail companies that occupy a significant position in the US consumer market in terms of the impact of tariff policies, consumer resilience, macroeconomic environment, inventory management, supply chain strategies, and future performance growth potential. Goldman Sachs Group, Inc. provides clear ratings and future outlooks for each retail stock, offering deep insights into the current dynamics of the US retail market. BBY (Best Buy Co., Inc.): In terms of tariff exposure and impacts, given that the Trump administration recently exempted electronic products from retaliatory tariff policies, management pointed out that their tariff risk exposure may be lower than the remaining 20% of China tariffs. Best Buy Co., Inc. is still clarifying the tariff situation through communication with suppliers, but most of their COGS from Mexico are also exempted, reducing their exposure to Mexico. Management emphasized that the relationship between tariff exposure and comparable sales headwinds is not linear because suppliers have multiple manufacturing bases and mainly depend on supplier trade-offs. Compared to 2018/2019, they pointed out that the last time tariffs mainly affected major appliances, while this time, most categories of consumer electronics were less affected due to exemptions. Currently, management believes there are no signs of price increases (tariff impact expected to show in the second to fourth quarters), and they have not stockpiled inventory ahead of tariffs as of the last earnings call. Regarding consumer resilience and macroeconomic environment responses, Best Buy Co., Inc. management stated that their performance guidance has considered potential estimates of consumer resilience, including factors such as pricing at the product level, supplier price increases, and potential decreases in purchase volume. Given the macroeconomic environment, the company participates in weekly planning and prepares with suppliers to quickly respond to possible changes in tariff policy. In the event of an economic downturn, management pointed out that they could maintain strong profitability through measures such as adjusting labor demand and reducing various selling, general, and administrative expenses (SG&A). Target stock price and rating"Goldman Sachs Group, Inc. research team has given Best Buy Co., Inc. a "buy" rating, with a 12-month target stock price of up to $101. The main downside risks faced are continued weak demand for consumer electronics and intensifying online competition. As of Monday's closing of the U.S. stock market, Best Buy Co., Inc.'s stock price was at $62.11. Goldman Sachs Group, Inc.Foot Locker6012Foot Locker43.35"Regarding the overall macroeconomic environment."ion also noted that they are currently purchasing more domestic products and not sourcing certain product categories from China, the only risky category being seasonal goods. However, they are not concerned about their product mix as their consumers have already adapted to the environment of treasure hunting. Since Ollie's Bargain Outlet does not have a fixed merchandise display model, consumers do not expect to see the same products every time, allowing OLLI buyers to flexibly chase different products. Regarding target stock price and rating, the Goldman Sachs Group, Inc. research team gave Ollie's Bargain Outlet a "buy" rating and a 12-month target stock price of up to $127, facing major downside risks due to macroeconomic headwinds or less attractive product mix leading to demand slowdown, additional negative demand impact from trade wars, trade loss from lowest income customers, and potential profit margin resistance driven by higher wages/other inflation costs and a shift towards lower margin products. As of Monday's U.S. stock market close, Ollie's Bargain Outlet's stock price closed at $106.500. RH (Restoration Hardware): Inventory management, RH management plans to address its high inventory, which will help with free cash flow. RH has as much as $2-3 billion of excess inventory, with the company pointing out that it has purchased a large amount of trending new collections early. RH plans to deal with this inventory this year, but has not provided a completion timetable. The company will not make large purchases unless it is a new collection (i.e., new items in its catalog) or new orders customized by customers. Leverage in a difficult environment: RH management pointed out that it can monetize assets through sale-leaseback, which has been done in past cases. The company also stated that its marketing spending exceeds $1 billion and can be significantly reduced, as well as reducing staff salary packages, company headcount, or ongoing projects/investments. Regarding target stock price and rating, the Goldman Sachs Group, Inc. research team gave RH a "neutral" rating and a 12-month target stock price of up to $276, with major downside risks being a further softening of the U.S. housing environment, profit margin pressure from RH's product transformation and incremental markdowns, and a high leverage ratio on the balance sheet. As of Monday's U.S. stock market close, RH's stock price closed at $155.790. TGT (Target Corporation): Prices may rise, but elasticity is difficult to predict: In terms of direct exposure to China, Target Corporation's private brands account for 30% of sales, with 30% of private brands coming from China. Direct imports are more in home goods and apparel, while indirect imports are more in electronics and toys. Target Corporation management pointed out that unit demand will become challenging, and elasticity will be difficult to predict over time based on changes in the macroeconomic background. Management stated that pricing of individual products that cover everyone is expected to have to be raised. However, Target Corporation emphasized its strong balance sheet and satisfaction with its management's ability to handle the challenges related to tariffs. Inventory positioning maintains flexibility: Target Corporation noted that they did not stock up to a large extent in the current environment, as storage space is not infinite, while also stating that their positioning is about staying prepared and agile. Management noted that Target Corporation's inventory growth at year-end was about 7% year-on-year, with management in March pointing out that this was the result of strategic decisions stemming from spring merchandise frontloading, rather than holding onto non-productive inventory. Given the high interest of Target Corporation's customers in new and trendy products, the company is trying to act early in the year and has already received a large batch of goods (e.g. spring sets for hardware and clothing). Target Corporation's efforts to manage its inventory and adapt to changing consumer demands are in line with its strategic goals.ION emphasizes that direct imports focus on household apparel, while indirect imports involve electronic toys. It is expected that prices may increase across the board, but predicting elasticity is relatively difficult.Target Corporation In terms of target stock price and ratings, the research team at Goldman Sachs Group, Inc. has given Target Corporation a "neutral" rating with a 12-month target stock price of $101. The main downside risks facing the company include 1) slowing foot traffic and sales trends due to weak consumer spending; 2) inflationary pressures related to product costs, shipping/transportation, and/or wages; 3) a competitive environment forcing Target Corporation to be more aggressive on pricing, potentially harming customer demand; 4) pressures on profit margins from investments in omnichannel, supply chain, and hybrid transformations. As of Monday's stock market close, Target Corporation's stock price closed at $93.780. ULTA (Ulta Beauty) Ulta Beauty to pause opening Ulta Beauty shops in Target Corporation stores: During a recent meeting, Ulta mentioned that they will not be opening additional Ulta Beauty shops in Target Corporation locations this year and will focus on their existing 610 stores. Ulta Beauty stated that this decision will allow the company to incorporate lessons learned before expanding further and strengthen existing stores. The new Chief Merchandise Officer, Lauren Brindley, brings over 20 years of experience in the beauty industry and has previously led the development of the Boots No7 brand. Tariff impact: In the 2024 fiscal year, direct imports of Ulta Beauty account for only about 1% of revenues, primarily related to the Ulta Beauty Collection and gift purchase services. Ulta Beauty is discussing with manufacturers and suppliers on how to mitigate the impact of tariff policies. The Ulta Beauty Collection has exposure in China but also involves Canada and Europe. Premium brands are more exposed in North America and Europe, while mass brands are more exposed in China/Asia. Indirectly, due to Ulta Beauty's partnerships with up to 600 brands, including small brands without extensive global supply chains, there are more performance growth challenges. In terms of target stock price and ratings, the research team at Goldman Sachs Group, Inc. has given Ulta Beauty, a company invested in by "stock god" Buffett, a "buy" rating with a 12-month target stock price of $423. The main downside risks facing the company include deteriorating market share, increasing promotions to drive foot traffic, any structural issues in the business including moderate growth levels for loyalty members, supply chain disruptions due to shipping/port issues, and additional pressure from the increase in distribution points for high-end beauty products. As of Monday's stock market close, Ulta Beauty's stock price closed at $363.670. WMT (Walmart Inc.) Underperformance in discretionary categories: Due to the uncertain backdrop, Walmart Inc. management did not stock up in advance to address the heavy tariffs. The company plans to heavily rely on value, noting that the discretionary side of general merchandise has underperformed. However, seasonal events remain effective for Walmart Inc., with plans to focus on grocery promotions for upcoming events and reliance on consumables for back-to-school season. Walmart Inc. management indicates a future focus on essentials (non-durables may show weakness), with Sam's Club actively integrating Walmart Inc.'s U.S. e-commerce supply chain, where fresh foods are the fastest growing category. Significant benefits from automation: Today, approximately 60% of Walmart Inc.'s fulfillment volume is handled through automated movement, with around 55% of stores receiving automated freight. The automation cycle is planned to be fully implemented by 2029, with existing cost savings already in place but not yet significant enough to stand out on financial statements. Inventory efficiency has significantly improved over time due to extensive automation scenarios. In terms of target stock price and ratings, the research team at Goldman Sachs Group, Inc. has given Walmart Inc. a "buy" rating with a 12-month target stock price of $99. The main downside risks facing the company include 1) slowing economic activity; 2) increasingly competitive pricing environment; 3) global macro/forex volatility; 4) inability to leverage cost leverage to offset investments in e-commerce/pricing; 4) pressures from wage or transportation costs; 5) potential huge impact of a global economic recession triggered by tariffs. As of Monday's stock market close, Walmart Inc.'s stock price closed at $92.410. WOOF (Petco) Tariffs and pricing comments: The management pointed out that own brands account for 5% of COGS, with exposures in China, Mexico, and Canada, where China is the largest. The company also mentioned that price hikes and mitigation strategies have been under consideration to reduce potential impacts on national brands. Competition: The company did not provide specific updates on peer activities. Management has been focused on defining Petco's position in the market and identifying points of differentiation. The company focuses on understanding core customers, emphasizing internal brand definition, analyzing broader industry dynamics, and returning to retail basics. In terms of target stock price and ratings, the research team at Goldman Sachs Group, Inc. has given Petco a "buy" rating with a 12-month target stock price of $4.48. The main downside risks facing the company include 1) ongoing headwinds in discretionary demand; 2) lower than expected gross margins due to a mix increase in value-priced consumer goods; 3) a highly competitive and mature industry facing competition from mass, specialty, regional, and e-commerce channels, intensified competition could lead to sales and margin pressure; 4) increased pressure on profit margins due to an increase in the proportion of e-commerce and low-margin services (such as vet care) in the mix; 5) higher than average profit margin pressure for WOOF due to the additional costs incurred.Horizontal leverage and variable rate exposure are issues that investors are concerned about; 6) Veterinary care expansion is in the early stages. As of Monday's closing, Petco's stock price closed at $3.090.BBWI (Bath & Body Works): Observations at the Dallas store show that the Mother's Day themed displays are prominent, with an average discount of 32% for promotional activities, and healthy inventory. Management emphasizes that the high profit margin (cash flow has been maintained during the 2007-09 crisis) and the company's quick response supply chain constitute a strong risk resistance capability. The management of Bath & Body Works stated that if the macroeconomic environment deteriorates beyond expectations, the company would still be in a favorable position due to its high profit margin and significant cash flow generation scale (especially noted during the period 2007-09, the company continued to generate substantial cash), while Bath & Body Works' supply chain offers a faster response rate and agility than market expectations. In addition, Bath & Body Works can benefit from selling complementary products at affordable prices. The research team at Goldman Sachs Group, Inc. rates Bath & Body Works as a "buy" with a target price of $49. Downside risks include a slowdown in the economy leading to sales below expectations, an unexpected increase in promotional activities leading to a decrease in profit margins, and a decline in profit margins due to inflation pressures related to product costs and/or wages. As of Monday's close of the US stock market, Bath & Body Works' stock price closed at $27.71.