Dollar strengthens
A stronger dollar lowers what US companies pay for goods made abroad. When supplier contracts priced in foreign currencies reset, the cost of imported inventory and components falls in dollar terms, and a business that keeps its selling prices steady sees that difference land in gross margin. The effect builds over quarters rather than days, because hedges roll off and purchase agreements renew on their own schedules, which is why sustained dollar strength matters more than a single move. Portfolios under this thesis select US-listed companies that source a large share of what they sell from overseas and sell it mostly at home: apparel and footwear brands, general and specialty retailers, consumer electronics and home furnishings sellers, toy makers, and auto parts and industrial distributors. Exporters, companies with substantial foreign earnings translated back into dollars, and businesses whose suppliers hold the pricing power to capture the currency benefit themselves are excluded.
O'Reilly is a US auto-parts retailer and distributor (~6,400 stores, 98% in the US, 87 in Mexico and 26 in Canada; sales split roughly half DIY, half professional). revenue is almost entirely domestic, so translation drag is negligible. merchandise is bought from over 645 suppliers with no long-term purchase commitments, which is the contract-reset channel the thesis needs; management put China alone at mid-20s percent of purchases, so total foreign sourcing plausibly clears the 40% bar but the company does not disclose an import share. two dilutions keep it off pure play: a large part of the assortment is branded (Bosch, Denso, Gates, Wix) where the supplier sets the dollar price and keeps the currency gain, and recent gross-margin moves are tariff-driven (a $39m tariff refund added 76 bp in q3 2026), which can swamp the currency signal. material exposure to leg 3 → 0.6.
Fastenal is a US-centric industrial mro distributor: fasteners were 30.7% of 2024 sales, the rest safety, tooling, janitorial and other supplies, sold through branches and onsite locations with contract customers around three quarters of sales. the fy2024 10-K says it sources a significant amount of product from outside North America, primarily Asia, both directly through its FASTCO Trading subsidiary and via importing suppliers — the leg 3 landed-cost channel. North American locations are roughly 97% of sales and the US alone about 84%, so translation drag is limited to Canada and Mexico. the import share of cogs is not quantified in filings, a sizable non-fastener mix has more domestic sourcing, and management has shown it passes tariff-driven cost moves through to price, which also means it would be under pressure to share currency savings with large contract accounts. material, not direct exposure → 0.6.
W.W. Grainger is the largest US industrial MRO distributor — high-touch solutions (branches, keepstock, grainger.com) plus the endless assortment segment (Zoro US and majority-owned MonotaRO in Japan). it is the archetype of the leg 3 distributor, and it clears the screens: about 81% of 2025 net sales from US operations, and management put roughly half of US COGS as import product on a country-of-origin basis. but the currency channel is diluted three ways. only about 19% of US stocked sales are private label that Grainger imports itself; the rest is national-brand product where the supplier sets the dollar price and keeps most of any fx gain. about 19% of net sales are non-dollar (mostly yen), so dollar strength produces translation losses on MonotaRO. and Grainger's stated posture is price/cost neutrality with fast repricing, which caps spread capture. material but partial → 0.5.
Carter's designs and sells baby and young-children's apparel (Carter's, OshKosh B'gosh, Skip Hop) through 804 US stores, ecommerce and US wholesale, including exclusive brands for Walmart, Target and Amazon. it owns no factories: all product is bought from third-party contract manufacturers, mostly in Vietnam, Bangladesh, Cambodia and India, on dollar-denominated purchase orders with no long-term supplier contracts, so a stronger dollar reaches cogs through vendor renegotiation. fiscal 2025 net sales were $2,898m with the international segment (Canada, Mexico, licensees) at $431m, about 15%, so roughly 85% of revenue is US. that is the leg 1 profile almost exactly — imported merchandise is essentially all of cogs and sales are US-centric. held below 1.0 because the 15% foreign revenue gives a translation offset and because 2025–26 gross margin is currently dominated by tariff costs (about $60m gross in 2025, $200–250m annualized gross) that can swamp the currency signal.
Dollar Tree is a single-banner fixed/multi-price discount variety chain (~9,000 stores, >$19b sales) after selling Family Dollar in july 2025; stores are in the US and Canada with Canada a small minority, so revenue is effectively domestic. the fiscal 2026 10-K says directly imported merchandise is about 40% of retail value purchases, the vast majority from China, and that a significant portion of domestic-vendor goods is also imported — so total imported COGS is at or above the 40% screen and dollar-priced supplier contracts renew annually against a buyer with substantial scale. the price-point format means shelf prices are held while landed cost moves, which is the margin-capture channel the thesis wants. offsets: consumables are 49% of sales and largely domestic, the discount format faces pass-through pressure from Walmart and Dollar General, and the name is the sector's most tariff-sensitive importer. material exposure, 0.6.
Dorman designs aftermarket replacement auto parts and has them made largely by contract suppliers abroad, then sells them under its own brands and private label to US parts retailers and warehouse distributors. fy2025 10-K: about 77% of purchase volume came from non-US suppliers (38% China), net sales of $2.13b are mostly US with small Canada and Mexico exports, and foreign purchase orders are priced in US dollars so supplier prices re-price only on new orders — exactly the renewal-cycle channel in leg 3. leverage is modest (interest expense about 1.3% of sales, debt being repaid). this is a near-complete expression of the private-label component importer angle, held below pure because a few large retail customers have strong buyer power to claw back cost savings, part of specialty vehicle is made in owned US plants, and 2025 margins were driven by tariff pricing timing rather than currency. tier 0.7.
Five Below is a US-only discount variety retailer — 1,921 stores in 46 states, no foreign revenue — selling toys, tech, candy, home and seasonal goods at fixed price points mostly $5 and below. its 10-K says a significant majority of merchandise is manufactured outside the united states with China the largest source, and the cfo has put China-origin goods at about 60% of cost of goods. that fits leg 2 squarely: imported product is the bulk of cogs, the fixed-price-point format keeps shelf price steady so a lower landed cost lands in gross margin. two things keep it short of pure: roughly 60% of purchases run through domestic vendors on dollar-priced contracts that reprice only on renegotiation, slowing the pass-through, and the margin story has been dominated by tariffs rather than currency. net cash balance sheet, so no funding-cost drag. tier 0.75 — direct importer, dollar-vendor lag and tariff noise discount it from 1.0.
Oxford Industries owns Tommy Bahama, Lilly Pulitzer, Johnny Was and smaller brands, selling 81% direct to consumer through its own US stores and websites. fy2024 10-K: substantially all apparel is bought from foreign third-party producers — 39% China, 24% Vietnam, Johnny Was ~90% China — and 95% of Tommy Bahama sales are in the US with the remainder in Australia and Canada, so the leg 1 profile (asian-sourced merchandise, us-centric sales, small translation offset) is the whole business. two things keep it short of pure: purchases are denominated in dollars, so the benefit arrives only through supplier renegotiation rather than contract reset, and at a ~63% gross margin product cost is a smaller share of sales than for a mass retailer, so a given dollar move shifts margin less. the tommy bahama food-and-beverage line (~13% of that brand) is domestically supplied. tariffs, not currency, have driven the recent gross-margin swings. material-to-strong exposure → 0.7.
Hillman distributes fasteners, builders hardware, keys, gloves and related small hardware to US retailers — Home Depot and Lowe's alone were about 43% of 2025 net sales of $1.55b. revenue is roughly 91% US (Canada segment $138m, 8.9%). the fy2025 10-K says it imports a majority of its products, primarily from China and Taiwan, with sourcing split roughly 33% China · 33% North America · 33% other, so imported product is well over the 40% cogs threshold and customer pricing with big-box retailers resets on negotiation cycles — the leg 3 private-label importer profile. three things keep it at material rather than direct: supplier contracts are negotiated in dollars, so the gain arrives only on renegotiation; 2025-2026 margins are dominated by roughly $250m annualized tariff exposure and dollar-for-dollar price pass-through, which swamps the currency signal; and $693m of variable-rate debt plus a cad-denominated Canada segment take back part of any gain. 0.6.
Havertys is a single-segment specialty retailer of residential furniture, 129 stores in 17 southern and midwestern states, no foreign revenue and no funded debt. its 10-K states that roughly 61% of furniture purchases in 2023 (63% in 2025 per a filing summary) were goods not produced domestically — case goods and leather from Asia and Mexico — while fabric upholstery is largely domestic. that clears the brief's 40% imported-COGS and 75% US-revenue screens, and the business is exactly the leg 1 home-furnishings specialty-retail profile. two things keep it short of a full pure play: all purchases are denominated in US dollars, so the benefit arrives only through vendor renegotiation rather than automatic contract reset, and gross margin near 60% means imported product is only about a quarter of sales, so a mid-single-digit dollar move is worth roughly 100 bp of margin if fully captured. 0.8.
Urban Outfitters is a specialty apparel and home retailer (Anthropologie 42%, Free People/FP Movement 26%, Urban Outfitters 22% of fiscal 2026 sales; apparel 66%, home 16%, accessories 13%). retail is 86% of revenue, Nuuly rental 9%, wholesale 5%. about 87% of sales are US; European retail is roughly 13% of the retail segment, concentrated in the UO brand. the 10-K says a substantial portion of merchandise comes from foreign sources, mostly settled in dollars, with no currency hedging, ~4,000 vendors and none above 10% — so the gain arrives via renegotiation of dollar-priced private-label and exclusive contracts rather than immediate reset. trade press puts production largely in Asia with India, Vietnam and Turkey the largest origins and China under 5%. leg 1 fit is direct: imported merchandise is the bulk of COGS, US-centric sales, no debt, p/e near 15.
Williams-Sonoma is a us home-furnishings specialty retailer (Pottery Barn, West Elm, Williams Sonoma, Rejuvenation) selling mainly through us e-commerce and stores. the fy2025 10-K reports 81% of merchandise purchases sourced from foreign suppliers (19% China, 16% Vietnam, 15% India, 31% rest of world) against 19% produced in the us; international operations were roughly $336m of $7.7b revenue in fiscal 2024, about 4%, so translation offset is negligible. supplier base is fragmented (largest vendor about 3% of purchases) and the company has already extracted tariff-related vendor concessions, consistent with buyer bargaining power on renewal. purchases are substantially all negotiated in us dollars, so the landed-cost gain arrives through renegotiation rather than instant fx reset, and about a fifth of product is made in domestic plants. net cash, no funded debt.
American Eagle Outfitters is a specialty apparel retailer (American Eagle, Aerie, OFFLINE, Todd Snyder) that designs private-label merchandise and has it made by third-party factories abroad — the fy2024 10-K says substantially all merchandise came from non-North American suppliers, primarily Asia, with no vendor above 10%, and press reports put the concentration in Vietnam, India and a shrinking China share. imported finished goods are therefore the bulk of cost of goods sold, and the many-vendor private-label model gives AEO the leverage to renegotiate dollar-priced contracts as supplier local-currency costs fall. revenue is ~84% United States (fy2024 us $4.49b vs foreign $0.84b from Canada, Mexico and licensing), inside the 75% floor but a non-trivial translation offset. market cap ~$3.3b, modest debt. this is leg 1 direct exposure across essentially the whole business; the ~16% foreign revenue and a tariff-dominated near-term margin narrative keep it just short of 1.0.
YETI designs and markets premium coolers, drinkware and bags (drinkware 58%, coolers and equipment 40% of 2025 sales) and owns no factories — core products are made by contract manufacturers in China, Thailand, Malaysia, Vietnam, the Philippines, Mexico and Poland, so effectively all product cost is imported. that is the leg 2 sporting-goods maker profile, and as a premium brand it holds shelf price rather than passing savings through. two dilutions keep it off pure: international sales were 21% of 2025 revenue (79% US), close to the 25% exclusion line and targeted to grow, and the company itself books foreign-exchange effects in gross margin through local-currency sales translation, which runs against a stronger dollar. gross margin in 2025-2026 is also dominated by tariff swings (hundreds of bps per quarter, plus IEEPA refunds), which the brief flags as a signal-swamping factor. material exposure → 0.6.
Arhaus is a premium home-furnishings retailer selling only in the United States — 103 showrooms in 30 states plus e-commerce, no foreign revenue — so there is no translation offset to the sourcing gain. the 10-K puts roughly 60% of net revenue on product from vendors outside North America (Italy, Mexico, Southeast Asia; import records show India, Vietnam and Indonesia as the main origins), with us receipts running about 36% of total in mid-2025. that is squarely the leg 1 home-furnishings specialty-retail profile: imported merchandise is the majority of cogs, shelf prices are set domestically and a premium clientele gives room to hold price. the discount from pure play reflects the ~40% domestic share, including its own North Carolina upholstery plant (about 70% of upholstery made in the us), where the cost base is domestic labor and materials and the dollar channel does not apply. market cap ~$1.8b and essentially no funded debt clear the scope screens.
capped at 0.6 — net benefit mixed (researched 0.75). Abercrombie & Fitch is a specialty apparel retailer (Abercrombie and Hollister brands) with fiscal 2025 net sales of about $5.3b, of which roughly $4.1b (about 78%) came from the US; EMEA and APAC together are about 18% and Canada and Latin America make up the rest. merchandise is almost entirely contract-made abroad — Vietnam 37%, Cambodia 26%, India 11% of fiscal 2025 merchandise receipts — so imported goods are effectively all of cogs, the leg 1 profile this portfolio targets. two dilutions keep it below pure play: the company buys substantially all inventory in US dollars, so any landed-cost gain arrives only through supplier renegotiation rather than automatic contract reset, and about 22% of sales sit outside the US where a stronger dollar shrinks translated revenue and gross profit. valuation is low-multiple and leverage modest, so rate-driven multiple compression is a small offset. material-to-direct exposure → 0.75.