Imposing tariffs on toys imported from China would have a “challenging and damaging impact” on Hasbro’s business and U.S. consumers and force the company to impose wholesale price increases, CEO Brian Goldner said as the company released earnings for Q2 ended June 30.

The U.S. and China agreed last month to restart trade talks as the Trump administration held off imposing tariffs on $300 billion in Chinese imports. If those tariffs were imposed, The National Retail Federation predicts that consumer prices for toys would increase 16.9%, and that toy purchases would decline 32.2% because of the higher prices.

Goldner said Hasbro would have to pass increased costs on to retailers. CFO Deborah Hancock added that major retailers would stop directly importing Hasbro’s products on their own; that currently accounts for about 35% of Hasbro’s business. As a threatened deadline for imposing tariffs approached in Q2, retailers “briefly paused” direct imports and are watching developments “cautiously,” Hancock said.

Hasbro currently imports 67% of its products for the U.S. market from China, but will cut that to 50% by late 2020 due partly to new production that has been added in India and Vietnam, Goldner said. About 20% of its products are manufactured in the U.S.

Revenue in the quarter rose 9% to $984.5 million, beating analyst estimates for $958 million.Net income narrowed to $13.4 million from $60.2 million a year earlier as the company took an $85.9 million non-cash charge tied to settling a pension plan liability.

Hasbro posted a 3% sales gain with its partner brands (Disney, Sesame Street, etc.) to $213 million – short of analyst forecasts for $228 million – amid strong sales of toys tied to Sony’s Spider-Man: Far From Home and Marvel’s Avengers: End Game. Revenue from Hasbro-owned brands rose 14% to $576 million, while those from gaming (Magic the Gathering, Monopoly, etc.) fell 8% to $123.4 million.

Royalty costs rose 8% in Q2 to $71 million due partly to products tied to the coming release of Star Wars: The Rise of Skywalker (Dec. 20) and Frozen 2 (Nov. 22). Disney is readying a “Triple Force Friday” promotion for Oct. 4, highlighting the release of both Star Wars and Frozen 2 merchandise, the latter as part of a “Frozen Fan Fest.” Hasbro expects revenue from those properties to provide a “major lift” to its business in Q4 and 2020, Goldner said.

Operating profit from entertainment, licensing and digital gaming business fell 62.3% to $7.9 million, due largely to higher program production expenses ($22 million vs. $7 million a year earlier) and costs tied to the “Magic: The Gathering Arena” digital title. Revenue rose 28% to $96.5 million.

Contact:

Hasbro, Deborah Hancock, CFO, 401-431-8697, deborah.hancock@hasbro.com