TORONTO 鈥� Canadian toy manufacturer Spin Master Corp. is pleading to "save Santa's supply chain" in the wake of U.S. President Donald Trump's tariffs.
The company announced Wednesday it was withdrawing its guidance for the remainder of the year due to "meaningful uncertainty" caused by Trump's global trade war. It said that tariffs on countries where it produces toys, especially China, have made forward-looking projections "very challenging."
"The timing, extent, and enforcement of the potential tariffs on goods entering the U.S. remains very fluid, and we continue to monitor trade policy developments closely," Spin Master president and CEO Max Rangel told analysts on a conference call Thursday, as the company reported it incurred a loss of US$24.5 million in its first quarter.
Earlier this year, Spin Master had said it expects revenue to increase four to six per cent in 2025.
But Trump's 145 per cent levy on imports from China have thrown those projections for a loop.
Chief financial officer Mark Segal noted that when Spin Master held its most recent earnings call in February, the company was preparing to be impacted by just a 10 per cent tariff that Trump had levied on goods entering his country from China.
That figure has steadily risen since then, and Segal said Spin Master is "not comfortable" making forecasts at this point.
"In the 10 to 20 per cent range of tariffs, I would say to you it would be relatively comfortable for Max and I to give you forward-looking guidance and to be relatively specific about how we would handle that," Segal said.
"We're comfortable in that range. In the 54 per cent range, it starts getting a little trickier to do that because there are more unknowns. In the 125 to 145 (per cent) range ... it becomes very difficult."
To mitigate the hit to its bottom line, Spin Master is aiming to drastically reduce its reliance on China for production over the next two years.
Segal said roughly 42.5 per cent of Spin Master's total revenue is represented by the U.S. market and therefore subject to tariffs on other countries. Of that revenue pool, he said around 55 per cent of toy production is sourced from China and 45 per cent from elsewhere 鈥� such as Vietnam, India, Mexico, Indonesia and the European Union.
That means 27.5 per cent of the company's overall toy production costs are subject to the 145 per cent levy on China. Meanwhile, 22.5 per cent of its toy costs face a 10 per cent tariff.
By the end of this year, Segal said the company plans to produce around 70 per cent of toys for the U.S. market from outside of China, and 75 to 80 per cent by the end of 2026.
Production for U.S. customers will increase primarily in Vietnam, India, Mexico and Indonesia, while China-sourced production will be focused on non-U.S. markets, said Rangel.
He added the company is looking at potentially moving inventory from Canada, Mexico and Europe to meet U.S. demand and exploring different shipping methods to minimize the tariff impact on retailers.
"Despite these mitigation efforts, there will still be a negative impact to profitability. Neither we nor our retail partners will be able to fully absorb the higher tariff costs," said Rangel.
"Cost increases that cannot be offset will result in higher prices to our customers and will likely be passed on to the end-consumers in the U.S. We are currently in discussions with retailers regarding price increases and we remain focused on maintaining price competitiveness."
Spin Master's first-quarter results compared with a loss of US$54.8 million a year earlier. Revenues for the toy and entertainment company totalled US$359.3 million, up from US$316.2 million during the first quarter of 2024.
The company's loss in diluted earnings per share totalled 24 cents US, compared with a loss of 53 cents US in diluted earnings per share last year.
Stifel managing director Martin Landry said the results were better than expected as revenues for the quarter exceeded forecasts.
But he said expectations for future quarters are uncertain now that Spin Master has withdrawn its guidance.
"It looks like management wants to pass on all incremental costs to customers through price increases or internal cost reduction," Landry said in a note.
"A scenario where management succeeds at passing costs with a limited transition period would be welcomed and better than feared."
This report by The Canadian Press was first published May 1, 2025.
Companies in this story: (TSX:TOY)
Sammy Hudes, The Canadian Press
