Chinese exporters are reassessing investment in offshore factories. A wave of new US tariffs against alternative hubs such as Southeast Asia and restrictions on the trans shshipment of goods through the region has reoriented its commercial landscape. Manufacturers have poured billions of dollars into Southeast Asia in recent years as part of a China plus one strategy to minimize their exposure to US tariffs in the wake of Trump's first trade war with Beijing.But the US has slashed additional duties on Chine ...

Trade Policy - President Trump promised to clampdown on "transhipment", potentially limiting companies' ability to avoid tariffs [1] - This clampdown may negatively impact the "China plus one" strategy [1]

Financial Data and Key Metrics Changes - FGI reported total revenue of $31 million in Q2 2025, representing a year-over-year increase of 5.5% [6][13] - Gross profit was $8.7 million, a decrease of 2.9% compared to the prior year [6][13] - Gross margin declined to 28.1% from 30.5% in 2024, primarily due to the ongoing tariff environment [7][14] - Operating expenses increased by 1.3% to $9.5 million from $9.4 million in the prior year [14] - GAAP operating loss was $800,000, compared to a loss of $500,000 in the prior year [14] Business Line Data and Key Metrics Changes - Revenue from sanitary ware increased by 4.3% year-over-year [9] - Bath furniture revenue increased by 2.7% year-over-year due to market-aligned pricing and design [8] - Shower systems revenue declined by 11.2%, despite positive demand trends [9] - Other revenue, primarily from covered bridge cabinetry, increased by 67.7% driven by order momentum and expanded geographies [9] Market Data and Key Metrics Changes - Revenue in the U.S. declined by 0.4%, while revenue grew by 236.7% in Canada and Europe [8] - The company is focusing on a "China plus one" strategy to diversify sourcing [7][24] Company Strategy and Development Direction - FGI is investing in organic growth initiatives across brands, products, and channels, referred to as the BPC strategy [6] - The company is actively diversifying its global sourcing base, with significant changes expected in the sourcing footprint by next year [24] - Strategic investments are aimed at driving above-market organic growth in the future [9] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in navigating the tariff environment, citing strong relationships with suppliers and customers [11][34] - The order pipeline is recovering, although some customers remain cautious due to tariff uncertainties [12][22] - Management anticipates that new business programs will contribute positively to margins in the second half of the year [27][40] Other Important Information - FGI maintains its 2025 revenue guidance of $135 million to $145 million, with adjusted operating income guidance ranging from negative $2 million to positive $1.5 million [15] - Total liquidity at the end of Q2 was $16.4 million, deemed sufficient to fund growth initiatives [15] Q&A Session Summary Question: Concerns about demand degradation due to tariffs - Management indicated that the pause in orders was primarily due to uncertainty surrounding tariffs, which led customers to hesitate in purchasing inventory [20][21] Question: Impact of the "China plus one" strategy on all business segments - Management confirmed that the strategy will impact all business segments, including sanitary ware, and significant changes in the global sourcing footprint are expected [23][24] Question: Trends in operating expenses and gross margins for the second half - Management noted that they are closely monitoring expenses and expect gross margins to remain in the upper 20s, driven by new business programs [25][27] Question: Improvement in the order pipeline since the beginning of Q2 - Management reported a positive trajectory in the order pipeline, recovering momentum prior to the tariff impact [36][39] Question: Clarification on gross margins and guidance for the back half of the year - Management indicated that they expect to rebound in gross margins based on original plans, despite delays caused by tariffs [40]