EsThe phase 1 trade deal between the U.S. and China has averted the prospect of tariffs being extended to cover toys, as discussed in Panjiva’s research of Jan. 16. Yet, the worries about those tariffs had already led companies to accelerate their inventory build in 2019 with a damaging effect on cash flows.
At the industry level, that can be seen in a 16.6% year over year surge U.S. seaborne imports of toys in 3Q followed by a slump of 7.3%, Panjiva data shows. The full year was nonetheless relatively healthy with growth of 4.7%.
Source: Panjiva
Toy manufacturer Spin Master has warned that its 4Q earnings will be below prior guidance in part because “the threat of U.S. tariffs and our increased inventory levels arising from our decision to bring in inventory earlier to avoid U.S. tariffs” according to co-CEO Ronnen Harary. That was exacerbated by the flawed introduction of a new, U.S. east coast distribution center which caused supply chain upheaval at the same time.
Aside from the seasonality effect Spin Master has also seen a marked drop in seaborne imports associated with the firm -18.8% in 4Q after -2.0% in 3Q. That in part may reflect the relative success or otherwise of the Owleez toy line versus Hatchimals from the prior year.
It is at least proceeding with restructuring. Specifically CFO Mark Segal stated the firm is “continuing to diversify production outside of China“
That process has been underway throughout 2019 already Shipments from China and Hong Kong represented 71.3% of imports linked to the firm in 2019 from 85.5% in 2018. That’s been bolstered by imports from Vietnam to 12.5% from 4.9% and Taiwan to 8.3% from 4.2%.
Source: Panjiva
