Global retailer PVH, parent to the Calvin Klein and Tommy Hilfiger brands, will have no choice but to raise prices if the Trump administration places 25-percent tariffs on the products it makes in China, Chairman and CEO Manny Chirico told CNBC on Thursday.
Jim Cramer in an exclusive “Mad Money” interview. “We have to raise prices to make up for a 25-percent tariff.”
U.S. trade authorities have placed tariffs on $ 250 billion worth of Chinese imports. Tariffs on the majority of those goods are set to rise to 25 percent at the end of 2018. The move has set off a backlash from retailers.
While PVH’s apparel products aren’t drastically affected by the initial round of tariffs, additional duties that President Donald Trump has been threatening to place on Chinese imports could hurt the company, Chirico said.
“I’m not going to say to you, ‘If tariffs go in, it won’t be painful for us,'” the CEO told Cramer. “But on a competitive basis, … a little less than 20 percent of our U.S. production comes from China, and given that over half our sales are outside of China, it represents about 7 to 8 percent of our cost of goods sold.”
That would equate to roughly $ 70 million worth of PVH’s business, Chirico said. The retail giant has a market cap of $ 8.4 billion.
“However this plays out, we’re hoping that there’s a little bit of lead time to react,” he added, saying that a 6-month window to try and hedge against the pain would be helpful.
Speaking after PVH reported earnings — the company’s first quarterly revenue miss in two years — Chirico also addressed softness in the Calvin Klein jean business, chalking it up to a fashion-related miss.
“We didn’t get the fashion right in jeans, and we’re making those adjustments as we go forward,” he said, insisting that the issue was not at all structural. “We have some challenges in that business, but we really think that there’s nothing fundamentally wrong with that brand. I mean, just look at the top-line growth [of about 7 percent]. That brand has got great consumer recognition and we see great, significant growth opportunities.”
Shares of PVH dropped nearly 8 percent in after-hours trading.