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A declining loonie may hurt the sales and profits of U.S. retailers with Canadian operations in 2015, according to a Bloomberg report.
Retailers raking in Canadian dollars in sales but report financial statements in U.S. dollars will be hardest hit, as the loonie has dropped almost 16 percent against the greenback since the start of 2014.
The loonie fell to 79.05 U.S. cents Tuesday morning as speculation of an interest rate hike drove the U.S. dollar to multi-year highs against the euro and the yen.
Lululemon (LULU.O) has the highest exposure to Canada, with 29 percent of its sales coming from north of the border. The yogawear chain cited the low loonie as one of the factors for cutting its fourth-quarter revenue forecast to $1.77 billion-$1.78 billion from $1.78 billion-$1.80 billion.
Costco (COST.O) is the next most vulnerable, with 16 percent of its sales coming from Canada. A weakening loonie shaved 200 basis points from Costco’s first quarter sales, wrote analyst Poonam Goyal in the report.
Other U.S. retailers with significant Canadian exposure:
The surging dollar is also affecting U.S. retailers with a presence in Europe and Japan, according to Bloomberg.
Abercrombie and Fitch (ANF.N) gets 27 percent of its sales from Europe. And because of this exposure, the clothing company's first quarter sales were cut by 270 basis points.
The U.S. dollar is up about 27 percent against the euro year-over-year.
According to the report, Gap (GPS.N) is most exposed to Asia, primarily Japan. The U.S. dollar has appreciated 19 percent versus the weakening yen year-over-year.
But retailers are not the only ones who will have to stomach the effects of a high U.S. dollar.
Canadian consumers may face increasing prices as retailers feel the pinch of a sagging loonie in their pockets, according to a recent survey by the Retail Council of Canada.
70 percent of the respondents said they would have to hike prices by 1 to 5 percent, while 18 percent said they would need to increase by more than 5 percent.
One retail consultant says he isn't too worried, believing the industry will be able to roll with the punches.
"Retailers have a way of figuring out a way to make sense of the economics and not be offside with customers, in most cases," Joe Jackman, Chief Executive Officer, Jackman Reinvents said in an interview with BNN.