Wells Fargo dug through the dizzying mix of tariff developments on Friday to call out Dollar Tree (DLTR) and Five Below (FIVE) as likely beneficiaries.
Analyst Edward Kelly and his team think the Supreme Court ruling is likely to bring less volatility moving forward because any tariff decisions in the future are likely to come over a longer time frame. “Under IEEPA, Trump levied tariffs on countries w/little public vetting or notice period. Separately, today’s decision could also delay/eliminate future price increases related to tariffs that haven’t already been pushed through,”
Kelly noted that China tariffs are a big wild card. “Given prior effective tariff rates above 10% for China, it remains to be seen how additional Section 301 tariffs affect the calculus. We’ll likely get additional color at next week’s State of the Union,” he wrote. However, the firm’s initial analysis is that more specific Section 301 tariffs could have some exclusions similar to Trump’s 2018-2019 tariffs. The takeaway is that it seems possible that the rates paid on China imports by retailers could be somewhat lower than the tariff in place before the SCOTUS ruling.
“Given low fixed price points and high China exposure, DLTR and FIVE could see the biggest earnings benefits. The companies could use any upside to enhance value/quality or support margins,” reasoned Kelly.
While the giants of retail such as Target (TGT), Walmart (WMT), and Costco (COST) are also seen benefiting from a net lower tariff on Chinese imports, the near-term impact on the bottom line for Dollar Tree (DLTR) and Five Below (FIVE) is expected to be more significant.