Fitbit ‘Navigating’ Ways to Reduce Its Exposure to Chinese Tariffs, Says CFO
Fitbit is “navigating a number of different paths” to reduce or eliminate its exposure to the Trump administration’s latest round of proposed Trade Act Section 301 tariffs on Chinese imports, said Chief Financial Officer Ron Kisling on a Wednesday-evening earnings call. Fitbit uses Chinese contract manufacturers to produce its devices, and tariffs would increase the bill of materials costs of goods it imports to the U.S., said Kisling.
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There’s no certainty whether the tariffs “will ultimately go into effect,” or if wearable devices can qualify for tariff “exemptions,” or “how much, if any, of the potential increase in cost can be mitigated,” said Kisling. The full-year forecast “excludes the potential impact,” he said. “We support open markets and free trade where everyone plays by the rules.”
Kisling spoke Wednesday afternoon at roughly the same hour U.S. Trade Representative Robert Lighthizer was announcing President Donald Trump directed him to “consider” raising the tariffs to 25 percent from 10 percent (see 1808010018 or 1808010078). The 8517.62.00 tariff line on the list of proposed duties “covers a wide variety of wireless products, including fitness trackers and smartwatches, which comprise nearly all of Fitbit's products,” said the company in comments July 27 asking to testify at public hearings against the duties. Tariffs on those goods “will negatively affect not only Fitbit, but American retailers and consumers generally,” it said.
Q2 was an extraordinarily successful quarter for Fitbit’s Versa smartwatch that launched mid-April, said CEO James Park. Versa “outsold all Samsung, Garmin and Fossil smartwatches in North America combined,” he said. Consumer demand for Versa “has outpaced supply, and we have chosen to add an additional production line,” he said.
Fitbit thinks the “channel reduction” of fitness trackers from which the brand originally made its name “has run its course,” and the company has “increased confidence that Q2 will mark the trough in the year-over-year decline in tracker sales,” said Park. There’s no “one-size-fits-all” in health and fitness wearables, “and we have always provided a choice for consumers across form factor, feature and price,” he said. Though smartwatch sales “continue to grow at a rapid pace and present a strong opportunity for future growth, there is still a large community of users who prefer the tracker form factor and who are looking for powerful health and fitness features at a more accessible price,” he said.
Park expects trackers to remain "an important part of our portfolio for many years ahead,” he said. Fitbit will “continue to invest and innovate in trackers, and I'm pretty excited about our product pipeline in that category,” he said. Besides innovating, “we're taking opportunities to increase where trackers can be sold,” including to the “kids’ demographic” and the healthcare “channel,” he said. “For retailers, because we feel pretty strongly that the year-over-year decline in trackers has hit a trough, they're going to continue to carry the tracker lineup along with smartwatches.”