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The border tax is a major retail wild card, analyst says

Lauren Thomas

Oppenheimer analyst Brian Nagel doesn't believe the House Republican's proposed border adjustment tax, or BAT, will happen, because of the power of the consumer.

"If [BAT] passed, retailers would have to pass on higher prices to consumers," Nagel said Friday in an interview with CNBC's " Power Lunch ." He's labeled the border adjustment tax as the biggest "wild card" for retail this year.

A consumer goods price hike wouldn't play out as smoothly as House Republicans might expect, Nagel said, as consumers are going to have a difficult time making up the difference.

If people would "try to understand the math" involved with BAT, Nagel said, it makes more sense why "it just won't happen."

Nagel used J.C. Penney (NYSE: JCP) as an example of a company that would have a hard time making sales with more expensive items. Home Depot (NYSE: HD), though, wouldn't struggle as much because those shoppers are likely less price sensitive, he said.

Penney's, which reported a disappointing same-store sales drop on Friday, also announced plans to shutter up to 140 stores over the next few months, as well as two distribution centers, according to its earnings release. The company's stock was down nearly 4 percent in midafternoon trading Friday.

Other retail names rallied Friday, including Foot Locker, (NYSE: FL) Nordstrom (NYSE: JWN), Kohl's and Gap, amid reports that President Donald Trump 's administration might not be so quick to adopt BAT.

Border tax still on the table

Jan Rogers Kniffen, a retail analyst and a CNBC contributor, said he thinks a border tax will be passed, one way or another.

"I think we're going to have some form of a revenue raiser," Kniffen said on "Power Lunch." "Where are [Republicans] going to get it? A cross-border tax."

The CEO of J. Rogers Kniffen Worldwide Enterprises said his odds on there being a tax reform bill passed in 2017 are up to 80 percent, based on conversations he's had with accounting firms. And when the taxes are adjusted, the retail rally in the market will reverse, he said.

"The vampire will rise from the grave," Kniffen said. The border adjustment tax being the vampire.



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