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Lululemon Is Winning in Race to Avoid China Tariffs

Data from the trade researcher Panjiva show that the apparel retailer has been well ahead of the curve as companies scramble to reduce their exposure to tariffs on imports from China.

Data from the trade researcher Panjiva show that the apparel retailer has been well ahead of the curve as companies scramble to reduce their exposure to tariffs on imports from China.

Apparel retailers have been scrambling to reduce their exposure to China as new tariffs hit the industry—the U.S. placed a levy of 15% on the vast majority of clothing from China at the start of September. Lululemon Athletica has been well ahead of the curve, aggressively shifting production to other locations, new data from the trade researcher Panjiva shows.

The Panjiva data shows that Lululemon (ticker: LULU) sourced 12.7% of its imported goods from China in the 12 months ending in August, down from 21.4% in 2016. In August alone, shipments from China fell 69.1% from the same month in 2018, according to Panjiva.

Vietnam is Lululemon’s “most significant supply center,” accounting for 23.9%, Panjiva notes. The company has also shifted production to Cambodia, it said.

Lululemon’s ability to nimbly handle the higher tariffs is one likely reason its stock is up 64% this year, ahead of competitors like Under Armour (UAA) and Nike (NKE), and far outpacing the overall retail sector.

The company didn’t immediately respond to a request for comment.

One analyst asked Lululemon about its tariff exposure on the company’s latest conference call last week. CFO Patrick Guido called the tariffs “highly manageable,” estimating a 4-cent effect on earnings per share in the second half of the year. That isn’t much, given expectations that Lululemon will earn more than $3 a share in the second half of the year.

“Our direct exposure to China is relatively small, with approximately 6% of our finished goods in scope for U.S. tariffs,” he said. “That percentage is down considerably, given how we have diversified our vendor base. We’ve never had more flexibility than we do today in our supply chain. So going forward, we do not expect it to be a big impact to the business.”

Write to Avi Salzman at avi.salzman@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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