Commencing the Quarter – Q3’25

Mitigation Efforts Continue, but Inflation Pressures Mount; Companies Confront Rising Costs and Brace for Greater Headwinds

• Costco ($410.3B, Consumer Staples Distribution & Retail):”We have the benefit of being a global retailer. We’ve taken a multi-pronged approach to it. Part of it is that we have absorbed cost ourselves and charged ourselves to offset those costs to protect the member. We’ve also worked with suppliers to find offsets and efficiencies, and that includes buying more globally. There are examples where we’ve been able to save 30% to 40% on the cost of items by consolidating to a smaller number of suppliers. We feel like we’ve worked through the strategies needed to mitigate what we see in front of us The caveat is that there may be changes still to come, and we’ll have to be agile.”
• AutoZone ($71.5B, Specialty Retail): “You’ve seen our ticket growth accelerate in both DIY and commercial. A portion of that ticket growth is very clearly driven by the cost increases that we’re seeing associated with tariffs. While we’ve been running the playbook of having healthy negotiations with our vendors, moving sources in some cases, the reality is that some of that inflation is finding its way into product costs and same-SKU inflation, and the entire industry has moved retail prices up We believe the industry will continue to be rational in how we price, and we don’t expect a notable drop-off in terms of units.”
• FedEx ($55.6B, Air Freight & Logistics): “We’re facing a $1B headwind due to the trade environment. In our Q1, we experienced $150M of that to adjusted operating income, primarily driven by reduced demand out of China on the U.S. lane. So, for the full year, we’re assuming a material revenue headwind from the global trade environment. I’m not going to speculate on the future trade environment. But from a customer perspective, it has been a very stressful period. It has been particularly challenging for small exporters because they do not have the expertise and staffing, and that’s where our teams have come in and really partnered with them to help.”
• Lululemon Athletica ($21.1B, Textiles, Apparel & Luxury Goods): “We are navigating increased costs related to tariffs and the removal of the de minimis exemption. We are taking actions in both the near term and long term to mitigate the increased tariff costs, including strategic pricing actions, supply chain initiatives, vendor negotiations, and enterprise-wide expense savings initiatives.”
• Dollar Tree ($19.2B, Consumer Staples Distribution & Retail): “Tariffs remain a source of ongoing volatility, and operating in an environment where rates change frequently remains one of our largest challenges. A quarter ago, we were forecasting that China tariffs would be 30% and the rest of the world would be closer to 10%. Today, tariff guidelines for China have yet to be finalized, but countries like Vietnam, India, and Bangladesh are meaningfully higher than they were in June when we provided our last outlook. Our price initiatives started in late Q2 and will continue rolling out across the balance of the year. Following the selective pricing actions that we’ve taken, we’re pleased with the understanding and resilience of our customers, and the effect on unit volume has been less than we initially expected.”
• The Campbell’s Company ($9.4B, Food Products): “In fiscal 2026, we expect a more significant impact from tariffs. Gross tariffs are projected at approximately 4% of cost of products sold, approximately 60% related to Section 232 steel and aluminum tariffs, and the remainder largely from global IEEPA tariffs. Despite the ongoing uncertainties around the IEEPA tariffs, we are still assuming that they remain in place for the year. We expect to mitigate ~60% of this impact in fiscal 2026 through a number of actions, including continued inventory management, supplier collaboration, alternative sourcing opportunities, productivity and cost savings, and where absolutely necessary, surgical and responsible pricing actions.”
• Toro ($7.5B, Machinery): “At our Q2 call, it was mostly about China. Today, the largest portion is steel and aluminum based on the general tariffs there. Even though the vast majority of our steel comes from the U.S., we are affected because of the very high rates, even on a small percentage. Thankfully, our products have been USMCA-compliant from the start in Mexico and are currently not subject to significant tariffs At this point, we see a potential path by year-end to be able to maintain our margins through a combination of productivity measures plus careful pricing that we did in this environment.”
• RH ($3.8B, Specialty Retail): “Current manufacturing for high quality wood or metal furniture does not exist at scale in America. It would require years of investments in building the facilities and work force that most in this industry cannot afford to make. Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026. I listen to everybody’s conference calls in our industry, and I don’t think anybody has really addressed the tariffs with transparency. They’re all dancing around it. I think everybody’s got to take price in the second half. I think there’s going to be big furniture inflation in the second half.”
• G-III Apparel Group Ltd ($1.1B, Textiles, Apparel & Luxury Goods): “Gross margins in the quarter were impacted by higher-than-expected tariff costs, driven primarily by a greater volume of tariff inventory shipments than initially forecasted. We’re actively mitigating these pressures through a combination of vendor participation, selective sourcing shifts, and targeted price increases. In the near term, we’re absorbing a portion of these costs to remain competitive and capture market share. As we look to the second half of the year, our retail partners are increasingly cautious on their inventory buys in anticipation of tariff increases becoming more pronounced.”