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Home Depot says suppliers are moving production out of China



A customer browses products in a Home Depot Inc. store in Torrance, California.

Patrick T. Fallon | Bloomberg | Getty Images

Home Depot suppliers are trying to stave off some of the increased costs from rising tariffs by moving at least part of production out of China, executives told investors on Tuesday.

"I do not know of a single supplier that did not move some form of production outside of China," said Ted Decker, Executive Vice President of Merchandising. "So we have suppliers that move production to Taiwan, to Vietnam, Thailand, Indonesia and even back to the US."

Chief Executive Craig Menear said Chinese tariff rates are estimated to have a "cost effect" on US sales of around 2%, or $ 2 billion. When suppliers move at least part of their production outside of China, it reduces the impact by about one percentage point, executives said.

Zachary Feldman, an analyst at Wells Fargo, said the cost effect refers to what the company pays for goods it sells. The company must price a roughly 2% increase in sales costs to account for the tariffs without the actions taken by the suppliers to mitigate that damage.

Home Depot had also lowered its sales outlook for the year to be up 2.3% and sales in the same store to increase by about 4%. Previously, it had asked for a total sales growth of 3.3% and sales growth in the same store of 5%. Feldman said the company said the forecast was conservative because of uncertainty about how tariff rates will affect consumers.

Home Depot shares rose more than 4.5% on Tuesday after reporting better-than-expected profits, despite cutting the year-on-year forecast of lumber prices and potentially weaker consumer demand due to tariff rates.

Decker also said that the company can calculate exactly how tariff rates will affect each product in its inventory.

"We have data on countries of origin with potential customs impact literally down to SKU, so we know exactly what is on the various lists when the customs effects will hit." he said.

Traders have tried to avoid passing on customs duties to consumers by diversifying their supply chains to countries outside China. J.P. Morgan estimated the rates going into effect September 1

would cost the average American household about $ 1,000 a year.

CNBC's Courtney Reagan contributed to this report.


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