In the latest crop of US earnings calls, one topic dominated: tariffs. Staggering, fast-changing duties on global trade has caused fashion companies to reset expectations and abandon other projects to focus on weathering the storm. At the midway point of the year, all eyes are now on planning for the crucial end-of-year sales period, for what are ultimately still-unknown tax amounts.
Countries had until yesterday, 4 June, to put forth a ‘best offer’ for proposals about tariffs and US trade commitments, according to Reuters. This comes ahead of the 8 July deadline, when the President’s 90-day delay runs out and ‘liberation day’ tariffs may well take effect (subject to negotiations). These tariffs dealt a particularly tough blow to manufacturing countries including Cambodia, Vietnam and Bangladesh. But nowhere has the trade war escalated as far as it has in China, where tariffs of 140 per cent were cut down to 10 per cent for 90 days on 14 May. That deadline is up on 14 August (again, subject to negotiations). And last week, legality of the tariffs was contested in court, and ruled illegal by a federal trade court. A federal appeals court then halted the decision.
Consumers are dealing with the same uncertainty brands are. Per Bain’s latest flash update, the most likely scenario for the luxury market’s full-year 2025 progression is a continued slip of 2.5 per cent. The consultancy firm places the likelihood of this outcome at 60 per cent. Other possibles are a larger demand dip (30 per cent likelihood) or, the least likely, an in-year rebound (10 per cent).
Some companies, like Capri, lowered their full-year forecasts due to tariff uncertainty. Others, despite beating expectations, kept their guidance the same (like Macy’s and Gap, which said it anticipates a net impact of $100 million to $150 million from tariff fallout, driving shares down despite a strong quarter). And others, still, didn’t give any guidance at all — American Eagle, for instance, withheld full-year guidance due to ongoing market uncertainty. All, though, shed light on how they’re approaching this current uncertainty.
American Eagle is implementing various mitigation strategies, CFO Mike Mathias told investors on 29 May. The brand is partnering with sourcing vendors to reduce costs and diversify its supply chain. Mathias said that it’s on track to reduce sourcing exposure to China to under 10 per cent this year, with autumn and holiday season down to low-single-digits.
Warby Parker has also begun shifting production out of China, co-founder and co-CEO Neil Blumenthal said on the brand’s earnings call earlier this month. “Last quarter, approximately 20 per cent of our COGS [cost of goods sold] originated from China, down meaningfully in the past five years,” he said. “More recently, we’ve accelerated this work, which we estimate will reduce our China sourcing by over half to less than 10 per cent of COGS by year-end.” The brand is also increasing prices on a subset of products, co-founder and co-CEO Dave Gilboa added.
Macy’s has already renegotiated orders with suppliers, as well as cancelled or delayed orders where “the value proposition is just not where it needs to be”, CEO Tony Spring said on the company’s 28 May earnings call. He plans to continue to diversify countries of origin for both our private and national brands. It’s also closely monitoring Southeast Asia and Europe.
Now that it’s June, it’s time for brands to begin planning in earnest their holiday and Q4 strategies – the most important time of the year for retailers. That puts additional pressure and anxieties on what will come from ongoing negotiations as deadlines close in.
“The impact of recent US tariffs on fashion and luxury company earnings is becoming increasingly clear,” says Jeff Lindquist, managing director and partner at BCG, who notes that brands and retailers are reporting both immediate and expected effects on financial performance. “Some companies are already seeing pressure on earnings, pointing to global tariff uncertainty as a key driver of softer consumer demand. However, the majority are still communicating anticipated impacts and have taken the step of withdrawing full-year earnings guidance.”
End-of-year planning
Brands are anticipating the biggest tariff hit to be in the second half of the year. In a note last month, Oliver Chen, managing director of retail and luxury at TD Cowen, said that tariffs will primarily impact back-to-school and holiday inventory, given spring and summer inventory has already been received. This leaves retailers to plan for this back half impact, with limited knowledge of what exactly they’re bracing for.
Tariff uncertainty is weighing on end-of-year (EOY) planning, Lindquist says. “Many fashion and luxury companies are planning later and with more flexibility than in prior years,” he says, pointing to key drivers: a lack of clarity on cost baselines; ongoing product and pricing volatility; and challenges in managing inventory planning. “As a result, scenario-based forecasting has become standard practice.” Companies building multiple financial models depending on how tariffs evolve is spreading forecasting resources thin, Lindquist adds, and pushing final decision-making further out.
After the 2 April ‘liberation day’ tariff announcement, American Eagle had to reset its inventory plans for the rest of the year, especially in the back half, Mathias said. It also re-cadenced “some capital projects”, including its remodeling programme, to preserve capital in light of the tariffs.
The company is not yet providing full-year guidance due to the uncertainty. “With the first quarter results, there’s definitely some uncertainty still on the impact of tariffs for the rest of the year. We’re focusing on getting ourselves right set into this back-to-school season,” Mathias said. “I’d imagine as we get to the second quarter call, we’ll be providing third quarter colour, and if we have a better sense of narrowing down that impact from tariffs to our gross margin, we’ll get back to a full-year number to include a fourth quarter expectation, too.” The company currently anticipates a $40 million annual impact.
Warby Parker is bracing for a similar impact. Based on current tariff expectations (145 per cent for China; 10 per cent for the rest of the world), the brand is anticipating a $45 to $50 million exposure. The company lowered its expectations by 1 per cent, from last quarter’s expected 14-16 per cent growth for full-year 2025, to 13-15 per cent. “Our updated range reflects a moderately more conservative outlook for the second half of the year,” CFO Steve Miller told investors. This updated range assumes a modest reduction to store productivity, he said.
Revolve also expects to see the worst of the tariff impact in the back half of the year. “We expect the magnitude of tariff impacts to increase in the third quarter and particularly in the fourth quarter of 2025,” CFO Jesse Timmermans said.
Macy’s expects a combined tariff impact to the annual gross margin of roughly 20 basis points to 40 basis points, which includes inventory previously bought under the 145 per cent China tariffs, those bought more recently, shared cost negotiations, vendor discounts and selectively raising tickets. It doesn’t include a potential increase in tariffs from the EU or any other country. “As of today, we have a good handle on the tariff-related costs, but we’re cognisant that the environment is fluid,” Spring said. “The impact on demand is less clear,” he added, noting that Macy’s is incorporating a “more choiceful consumer” into its yearly outlook of net sales of $21 billion to $21.4 billion.
Though it anticipates tariff impact in the back half of the year, Macy’s isn’t changing its inventory strategy aside from re-thinking source destinations. “I’m not going to buy six months or a year worth of product just to avoid tariffs that may or may not materialise in different parts of the world,” Spring said last week.
Capri is taking a similar approach; CEO John Idol assured investors that the company won’t be making any major pricing strategy shifts at this stage. Given the ongoing uncertainty, Capri is holding off for now. “We need to determine where the tariffs are, because none of us actually know,” he said. “We’ve given you a range in our guidance, we’re all sitting here — as everyone is — waiting to find out what is happening. I think we’ll know more of that towards the tail end of the summer, so we can have a better understanding of what we are going to need to mitigate.”
Revolve’s Timmermans echoed this caution, noting that, though the company’s current guidance takes into account its tariff mitigation efforts, there’s always a chance these are peddled back. “We need to be careful in the case that tariffs are reduced and everything opens up again,” he told investors. “So we have to be very nimble there,” he added, referring to both inventory and pricing approaches.
Though some companies have initiated EOY planning, a significant portion are adopting a “wait and see” approach and holding off on finalising strategies until there’s more policy clarity, Lindquist says. “This cautiousness is becoming a defining feature of how the industry is operating through mid-year.”
Brands are also operating with consumer confidence in mind. Though Macy’s believes its gross margin will be impacted, it’s not looking to raise prices across the board in anticipation of consumers seeking value even more than they already are, COO and CFO Adrian Mitchell told investors. “We’re investing in getting market share because we really do believe as we get into the back-half of the year, that price value dimension is going to be very critical.”
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