MW Toy-maker stocks drop, but here's why tariffs aren't really much of a threat to them

By Tomi Kilgore

Hasbro and Mattel have seen tariffs before and have prepared to the point that less than half of their sourcing now is from China

Shares of the big toy makers fell Monday, amid fears that extra tariffs President Donald Trump placed on imports from China will lead to higher prices and lower demand. But those fears may be misplaced.

The Wall Street assumption that most toys sold in the U.S. come from China is correct. As D.A. Davidson analyst Linda Bolton Weiser said, the toy-industry average is for 80% to 85% of revenue to be sourced from China.

Read: Trump launches trade war on Canada, Mexico and China, provoking retaliation.

Also read: Trump says tariffs against Mexico are paused for a month.

But for the big toy makers, like Barbie and Hot Wheels parent Mattel Inc. $(MAT)$ and Play-Doh and Transformers action figures parent Hasbro Inc. $(HAS)$, that's just not the case. And yet their stocks were underperforming the broader market by a wide margin.

Mattel's stock dropped 4.6% and Hasbro shares shed 2.1% on Monday, while the S&P 500 index SPX slipped 0.8%.

The potential for slightly higher prices, with Trump calling for an additional 10% tariff on imports from China, is not quite as big a threat for toy makers as some might think.

D.A. Davidson's Weiser said that since about 80% of toy products offered each year are new products, the toy industry has "a high degree of pricing flexibility."

Besides, "kids don't decide what toys they want based on price," Weiser said.

Also, tariffs on goods from China are not new, and the latest move by Trump was not a surprise.

"Mattel has had teams of people engaged in analyzing and planning for tariffs," Weiser wrote in a note to clients. "The company has successfully executed a strategy to diversify and optimize its manufacturing footprint and has achieved significant and sustainable cost savings."

Only 40% of Mattel's revenue is sourced from China, or about half the industry average, Weiser said. And since about half of Mattel's sales come from outside the U.S., she said Mattel's exposure in the U.S. to China sourcing is only about 20%.

For Hasbro, the exposure is about the same, as 40% of the company's revenue is sourced form China.

"They have been working for a few years to diversify away from China; tariffs alone were not the only catalyst for change," Weiser wrote. "Management believes there is a pathway to get the exposure down to about 20% in 2-to-4 years."

-Tomi Kilgore

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February 03, 2025 16:03 ET (21:03 GMT)

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