Market Overview

Fitbit Pulls Out Of China To Escape Tariffs

Fitbit Pulls Out Of China To Escape Tariffs

The Trump administration’s trade policies have finally gotten to Fitbit Inc (NYSE: FIT).

The company announced Wednesday that it would shift certain product manufacturing from China to another market in order to evade the cost of Section 301 tariffs.

What Happened

Beginning in January 2020, “effectively” none of Fitbit’s trackers and smartwatches will be made in China, according to the company. 

"In 2018, in response to the ongoing threat of tariffs, we began exploring potential alternatives to China,” CFO Ron Kisling said in a statement. “As a result of these explorations, we have made changes to our supply chain and manufacturing operations and have additional changes underway.”

Why It’s Important

Fitbit joined Lovesac Co (NASDAQ: LOVE) and other companies moving supply chains to attenuate trade-related risks. At least one analyst appreciates the strategy.

“We are encouraged by the move given the: 1) prolonged U.S./China trade war and 2) it seems to position Fitbit to have greater control of its future pricing and, therefore, its margins,” D.A. Davidson analyst Tom Forte said in a note.

“We expect more of our covered companies to mirror Fitbit's efforts and, at the minimum, move some of their supply-chain efforts out of China and, at the maximum, move all of them.”

In particular, Forte foresees such moves by Logitech International SA (NASDAQ: LOGI), Roku Inc (NASDAQ: ROKU), Sonos Inc (NASDAQ: SONO), Turtle Beach Corp (NASDAQ: HEAR) and Zagg Inc (NASDAQ: ZAGG).

What’s Next

How Fitbit and peers strategize around trade policy may trigger a federal reaction.

“To the extent more companies exit China, we do expect government to respond, though it is not clear to us yet as to how,” Forte said. 

Fitbit will comment on the financial implications of its move in its third-quarter earnings call. The company’s stock was trading down 0.68% at $3.66 at the time of publication. 

Related Links:

Fitbit Launches New Smartwatch, Subscription Service

Analysts: If You Want To Get Fit, Don't Buy Fitbit Stock

Photo courtesy of Fitbit. 

Latest Ratings for FIT

Nov 2019DA DavidsonDowngradesBuyNeutral
Nov 2019CitigroupUpgradesSellNeutral
Aug 2019WedbushMaintainsNeutral

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