Updated from Dec. 20 with new details on tax plan

Donald Trump may make good on his promise to tax imports when he enters the White House, and that will likely create clear winners and losers from the retail sector. 

A news report that President-elect Trump's team is mulling a 5% tariff on imports is premature, a Trump spokesman told reporters on a conference call Thursday. The administration is discussing numerous trade deals and and tax reform packages, but it's "too early" to share specifics, said the spokesman.  

According to a new 30 page report from Wells Fargo, if Trump pushes through his promised major overhaul of U.S. corporate taxes and implements lofty taxes on goods imported from overseas, off-price retailers such as Ross Stores (ROST) , TJX Cos.  (TJX) and Burlington Stores (BURL)  will be a few of the biggest beneficiaries.

All three have a high proportion of their business concentrated in the U.S. and a high tax rate, which shields them from changes to cross border trade policies such as a punitive tax on imported merchandise from China and Mexico, the report notes. In turn, the discount chains stand to get an out-sized benefit to their bottom lines from a possible cut in the corporate tax rate to 20% from 35%, as proposed by House Speaker Paul Ryan this past summer.

"Though we acknowledge it is possible that vendors and apparel and footwear manufacturers will try to pass along these excess costs [taxes, etc.), off-price retailers tend to have purchasing power given the vast quantity of vendors in the marketplace, and at the very least are a layer removed from the [tax] issue," says Ike Boruchow, one of the report's authors. 

Another winner, according to Wells Fargo, could be beauty supply retailer Ulta Salon (ULTA) . Similar to the off-price chains, Ulta has a high percentage of sales derived from the U.S., a low number of imported products and a high current tax rate. Boruchow estimates that Ulta could see a 16% lift to its earnings from changes in tax policy under Trump. 

Ulta Salon could be a big winner under the Trump Administration

Boruchow readily admits that the sweeping report isn't gospel but rather a strategic framework for investors to consider ahead of any potential overhaul by the Trump Administration. "While we admit that we do not know with any real certainty if these tax changes will occur and what potential offsets/variables/timing would be associated with any policy change, we warn investors not to become overly focused on the details in this report," he cautioned. 

A large group of retailers are likely hoping that Boruchow's analysis proves nothing more than conjecture. Given their high degree of imported products and low gross profit margins, apparel, footwear and watch manufacturers are most at risk from Trump hitting the reset button on trade and tax policies. Boruchow is particularly cautious on companies such as Carter's (CRI) , Urban Outfitters (URBN) , Under Armour (UA) , Fossil Group (FOSL) and Gap (GPS) . 

TJX Companies is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells TJX? Learn more now.

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