IRobot Preparing for Return of Section 301 Tariffs on Exempted Goods
The $38 million in Section 301 tariff costs iRobot incurred in 2019 inflicted a hit of three percentage points on its gross margin for the year, CEO Colin Angle said. IRobot assumes the List 3 tariff exclusion it landed in April on the robotic vacuum cleaners it sources from China will expire at the end of 2020, he said. The reinstatement of 25% tariffs on Chinese goods will result in a “similar contraction” to 2021 gross margin, he said. U.S. Trade Representative Robert Lighthizer “made it quite explicit” in congressional testimony last month that any granted List 3 exemptions “would expire at the end of the year,” Angle said. Lighthizer’s testimony “is the most explicit guidance that we have been given,” he said July 22 following quarterly results.
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The company’s “cash position” improved when it recently started receiving “cash payments associated with our tariff refunds” from the Trump administration, Chief Financial Officer Julie Zeiler said. “We anticipate receiving the $57 million in tariff-related refunds owed to us over the next 12 months.” IRobot expects more than 40% of the refunds will come in the next two quarters, though “the timing of these refunds is at the discretion” of CBP, she said.
IRobot is “continuing to push with all energy to drive the diversification of our manufacturing base,” Angle said. Delays in shifting production to Malaysia and bringing it to scale “has been one of the impacts of COVID-19,” he said. “There’s travel bans in place” that inhibit “sending people into Malaysia, which has created a delay,” he said. The company is trying to get that work “back on track,” he said. “We do believe that by the end of 2021, we’ll be in a situation where we are effectively geographically diversified and U.S.-China trade policy does not substantially affect our business anymore.”