BofA Securities Warns Tariffs Could Still Weigh On Retail Stocks Such As Gap, Ralph Lauren

As tariff concerns mount, BofA Securities highlights rising caution across specialty retail and department store stocks despite solid first quarter earnings.

BofA Securities notes that most specialty retail and department store stocks appear to have priced in the current 10% universal and 30% China tariffs.

The firm cautions that any further increases — particularly involving Vietnam, a key player in apparel and footwear production — could drive estimated cuts across much of the group.

Analysts note that while first-quarter earnings were largely solid and the consumer has remained resilient, management teams are increasingly uneasy about the second half due to uncertainty over the potential consumer impact of tariffs.

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This caution is reflected in more conservative sales outlooks across the sector.

With earnings season wrapped, the focus has shifted toward tariff policy. Apparel and footwear brands have moved much of their production out of China, making Southeast Asia the next key concern.

Recent conversations with executives suggest that a 10% tariff is manageable, with garment OEMs like Makalot and Eclat expecting the cost to be split roughly 2.5% each between themselves and fabric mills, and 5% absorbed by brands, BofA Securities notes.

Some unexpected takeaways emerged this earnings season, including Ross Stores, Inc.’s (NASDAQ:ROST) decision to withdraw guidance and Gap, Inc.’s (NYSE:GAP) significant margin exposure to tariffs.

Analysts see Ross's move as overly cautious rather than a red flag. Meanwhile, Gap's projected 150 basis-point margin hit in the second half implies minimal room for price hikes — a sensible strategy given Old Navy's budget-conscious customer base.

For Levi Strauss & Co (NYSE:LEVI), the analyst writes that tariffs will begin impacting gross margins in the third quarter, and Ralph Lauren Corp (NYSE:RL) sees tariffs to be more impactful to gross margin in the second half.

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