MW Clothing stocks got a lift from the U.S.-Vietnam trade deal. But an analyst sees these difficulties ahead.

By Bill Peters

'We think this news increases the probability more tariff increases for other countries are coming,' UBS analyst says

Shares of some big brands that make a lot of shoes and clothes in Vietnam - like Nike Inc. $(NKE)$ and Lululemon Athletica Inc. (LULU) - got a lift on Wednesday after President Donald Trump said the nation had reached a trade deal with the U.S.

But afterward, a UBS analyst predicted a decrease in profit estimates and more complications ahead.

"We think this news increases the probability more tariff increases for other countries are coming," UBS analyst Jay Sole said in a research note.

He added: "We also think this situation is worse for athletic footwear brands since it won't be easy for these companies to diversify sourcing away from Vietnam."

Trump said in a Truth Social post on Wednesday that under the deal, the U.S. would charge a 20% tariff on imports from Vietnam and a 40% tariff on items routed through Vietnam from other nations before hitting the U.S. American imports to Vietnam would be tariff-free.

Prior to the announcement, Vietnam, along with most other U.S. trading partners, faced a tariff of 10% from the United States. A higher duty of 46%, announced in early April, was paused shortly after for 90 days. But that pause had been set to end on July 9.

Sole said that among the clothing makers and retailers he covers, he expected Wall Street's per-share profit estimates to come down between 3% and 5% on average for this year and next year. But among those companies, Victoria's Secret & Co. $(VSCO)$, Under Armour Inc. $(UAA)$ and G-III Apparel Group (GIII) - which owns DKNY and Karl Lagerfeld - were the most vulnerable to the new tariff arrangement with Vietnam.

The UBS note said that profit estimates over that period for those three companies would likely have to come down between 12% and around 20%.

The Trump administration has argued that tariffs will encourage companies to make more goods in the U.S., while forming a trade bulwark against China. But economists have worried that those extra import taxes would ultimately force businesses to raise prices on consumers, as companies try to cover the costs. Analysts have said bringing clothing production back to the U.S. would be difficult.

Retailers and clothing makers over recent years have tried to rely less on China for products, or otherwise move more of their manufacturing out of China and into other nations, including Vietnam. On earnings calls this year, executives have said they've been negotiating with suppliers on ways to absorb the impact from tariffs together.

Raymond James analyst Rick Patel, in a note on Thursday, said Vietnam was a "significant sourcing region" among the clothing retailers and brands he covers. Footwear makers like running-shoe maker On Holding $(ONON)$ got around 90% of its shoes from Vietnam, he estimated, adding that the nation accounted for around 75% of sourcing for Ugg and Hoka maker Deckers Outdoor Corp. (DECK). Nike, he said, got around 42% of its products from Vietnam.

Still, he said the deal with Vietnam might not have been as punitive as the market expected.

"The U.S. announced a trade agreement with Vietnam that includes 20% tariffs," he said. "While this is above the current rate of 10%, we believe it's below the 25-30% rate that the market feared."

Similarly, Sole pointed to that, as well as two other factors, that may have accounted for the initial gains within apparel stocks after Trump announced the deal.

"1) A 25% Vietnam tariff was likely priced in," Sole said. "2) Perhaps the market doesn't think more tariffs increases are coming; and 3) It is possible the market thinks tariff costs will be easy to mitigate and the benefits to the U.S. from trade deals are more important to the market than they are to us."

-Bill Peters

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July 03, 2025 13:43 ET (17:43 GMT)

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