IRobot Anticipates Up to $25M in 2019 Tariff Costs Even if Duties Stay at 10%

Though the Trump administration postponed indefinitely raising the10 percent tariffs on Chinese goods to 25 percent (see 1903010031), iRobot, even “at the 10 percent level,” anticipates incurring $20 million to $25 million in tariff costs for 2019, said Chief Financial Officer Alison Dean on a Q1 earnings call Wednesday. IRobot argued unsuccessfully last summer for removing duties on the finished vacuum cleaners it imports from China under the 8508.11.00 tariff line on grounds that the duties would hurt the company and that robotic vacuums aren't an “industrially significant technology in China.” IRobot raised prices Jan. 1 on its i7 and i7 Plus premium vacuums to offset the higher costs, said Dean. “If tariffs are increased at some point in 2019, we would likely increase our prices again to offset the incremental tariff costs incurred,” she said. “Should the tariffs be lifted altogether, we would expect to lower prices to their pre-tariff levels. Any change in tariffs would take time to implement, as we and our retailers work through channel inventory, and we provide any contractual price change notifications to our partners.” Senate Finance Committee Chairman Chuck Grassley, R-Iowa, told reporters Wednesday that the U.S. will step down the Section 301 tariffs and China the retaliatory duties in phases, with each side lifting the tariff at roughly the same time if they believe the other side is complying with a trade deal in good faith. He said the reductions will probably be done in tranches. "Over how long a period of time, I don't know," he said. "But there won't be a 100 percent reduction of tariffs on the day the agreement's signed." U.S. Trade Representative Robert Lighthizer in recent congressional appearances refused to say publicly whether a deal hinges on lifting the Section 301 tariffs on Chinese imports or keeping them in place to force China's compliance (see 1903130036). To mitigate the impact of the current tariffs, iRobot is "moving some of our production outside of China and starting with some of our more easy-to-build products,” said CEO Colin Angle. “China is where we are doing our most advanced work right now.” The company hopes to have a Malaysian production line “running at the end of this year and have our first products coming off the line,” said Dean. It won’t be “meaningful in terms of how many units are being produced in 2019 and when we’ll actually sell those in market,” she said. Shares plunged 23 percent Wednesday, closing at $100.42, as Q1 revenue fell roughly 5 percent short of Wall Street expectations, though sales were up 7 percent year over year.