What happened

Shares of several American retailers fell hard on Tuesday. Apparel chains J. Jill (JILL 0.68%) and Chico's FAS (CHS) dropped as much as 19.5% each, while arts-and-crafts specialist The Michaels Companies (MIK) moved as much as 10% lower.

A young woman leaning against the wall with an open wallet in her hand and an empty shopping cart by her side.

Image source: Getty Images.

So what

J. Jill posted its second-quarter earnings before the opening bell, but the other two companies shared no news at all. As for J. Jill's report, it was a beat-and-raise performance of the type that normally could have been expected to move share prices higher. Revenues rose 0.5% to $181 million, ahead of Wall Street analysts' $179 million consensus estimate. On the bottom line, a net loss of $0.05 per share was better than the loss of $0.09 per share that analysts had expected. The company also lifted its full-year earnings guidance by 15%.

Neither of the other two retailers can pin their steep share price drops Tuesday on J. Jill, the way one bad apple sometimes spoils an entire sector in the short term. Instead, all three of these stocks appear to have crashed due to the continued saber-rattling in the trade war between the U.S. and China.

On the heels of a turbulent G7 conference over the weekend, Chinese officials described the "extreme pressure" Trump is applying to China through trade tariffs as "not constructive at all." Both countries are planning to escalate their tariff schedules again, which will add further stress to retailers that source large fractions of their goods from China -- just ahead of the crucial holiday shopping season.

J. Jill, Michaels, and Chico's all fall in that category, which explains why their shares plunged Tuesday.

Now what

In a recent earnings call, Chico's CEO Bonnie Brooks said that Chinese tariffs hadn't hurt the company so far, but cautioned that the upcoming fourth round of 25% import taxes would make a real difference.

"We are working on mitigating strategies, including engaging with our vendors, on cost-sharing agreements and managing and adjusting our forward buys and product pricing," Brooks said. "Over the last year, we have reduced our product manufactured in China by approximately 20% as we continue to diversify our countries of origin, and continue to further reduce our penetration there."

Michaels CFO Denise Paulonis sang a similar tune in June.

"We are aggressively working on our tariff mitigation plan that includes sourcing actions, vendor negotiation, product reengineering, and selective price increases," Paulonis said. "Of note, we are pleased that we've been successful in shifting some of our purchases out of China. Clearly, the situation remains fluid and if List 4 China tariffs are implemented, we will continue to use all available resources to reduce the dollar impact."

And J. Jill is working to reduce its reliance on Chinese manufacturers to less than 20% of the total cost of goods sourced. A harsher list of tariffs could really hurt these companies, and market makers are taking that threat seriously.

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