Tariffs could hit North Bay firms
A Solano County startup that's fixing to build relocatable classrooms and housing out of heavy steel isn't sweating the steep tariffs the U.S. wants to put on certain materials when sourced from China, but a large Marin County retailer said such trade war could change its sourcing of furnishings.
Intermodal Structures in Vallejo's Mare Island industrial district has the 6-ton frames for its shipping container–sized building modules welded in China and shipped to the San Francisco Bay Area, according to co-founder Craig Severence.
'Amazingly, the cost of the steel frames is a relatively minor component of our overall costs, so even if we have to pick up the tariffs and pass them on to our customers — aka increased taxes for 'normal' Americans — the impact will be quite small,' he said in an email.
Among the $200 billion more in tariffs the U.S. government put on imports from China on July 10 were not only raw materials for steel but also welded steel. It's part of a 10 percent ad valorem duty announced by the Office of the U.S. Trade Representative announced on certain Chinese products. That proposal comes after the U.S. put into place $34 billion in tariffs on Chinese raw materials such as steel and aluminum.
The new duties include furniture and lighting products, and upscale home décor chain RH, publicly traded on the New York Stock Exchange under 'RH,' expects those levies to affect its sourcing choices.
'(A) significant subset of the Company's furniture and lighting sourced from China would be impacted by the proposed tariff,' RH said in a clarification to investors July 12.
The Corte Madera-based company said it would trim imports from China by 10 to 15 percentage points as of next fiscal year, which begins in February. Reuters reported that RH was one of the first U.S. companies to react to the new tariff proposal.
RH said it expects to import about 35 percent of its products from China this fiscal year, that's down from 40 percent in fiscal 2017. In fiscal 2019, that sourcing is projected to fall to 25 percent to 30 percent.
But any shift in sourcing is expected to be 'immaterial' to the retailer's bottom line, the company said.
'RH is a significant source of volume for its vendor partners and believes that its vendor partners would work collaboratively with the Company in an attempt to neutralize the potential tariff as well as potentially evaluate sourcing alternatives,' the company said. 'In addition, due to the Company's differentiated product offering and scale in the luxury home furnishing market, RH is well positioned to make pricing adjustments if necessary.'
A news report had said that RH had sourced 77 percent from China last fiscal year, bringing RH's clarification. That word plus a Goldman Sachs report on the gross-margin impact of home furnishings retailers sent RH's stock price down.
In June, RH reported first-quarter earnings totaled $28.1 million, up from a net loss of $3.4 million a year before. Adjusted for one-time items, RH's earnings soared to $33.5 million from $1.8 million a year ago. Sales were $557 million, a decrease of 0.8 percent from $562 million a year earlier.
The company said it projects second-quarter revenue will be between $655 million and $662 million, and adjusted earnings per share between $1.70 and $1.77.
RH operates about 100 retail 'galleries,' or stores, in the U.S. and United Kingdom, under the names RH, RH Modern Gallery, RH Baby & Child and Waterworks.
Intermodal Structures recently moved into the Mare Island factory and is working to outfit a six-module, two-story office building to ship to Southern California this fall.
Contact Jeff Quackenbush at jquackenbush@busjrnl.com or 707-521-4256.
