Revisiting 4imprint Group plc (LON:FOUR)

I may have been too sanguine

(3/5/25 edit: I communicated with 4imprint’s investor relations and based on this have (yet again!) revised my view. They confirmed that 4imprint will not be impacted by the de minimis changes and I provide further details here.)

I originally wrote about 4imprint prior to Liberation (Tariff) Day. I concluded that piece with the following three reasons explaining why I intended to add to my 4imprint position at lower prices, despite believing that the company’s results would deteriorate in the near term:

1. Predicting recessions is difficult due to the complexity and changeability of the economy. My forecast has a low level of certainty.

2. 4imprint is one of the best performing UK stocks of the past 15 years and I currently see no reason why it should stop winning market share. Tariffs will hurt 4imprint’s competitors just as hard and I expect it to emerge stronger as in prior recessions.

3. If I sold 4imprint then I would want to buy it back at some point and so would need to get the timing of both my sale and repurchase right for selling to make sense.

I subsequently bought more shares in 4imprint and wrote about that trade here. The timing of my purchase was in part to take advantage of the upcoming capital return of 317 pence per share. The shares went ex dividend yesterday, and so the capital return will be distributed to those on the register at the end of April.

I was researching the early impact of tariffs on the promotional products industry this morning, and came across the following Q1 2025 industry overview from ASI. ASI reported that distributor sales declined 3.6% during the quarter, and remember that this was prior to April’s deluge of White House tariff announcements.

In my original article on 4imprint I noted the following regarding the way the company managed the imposition of Chinese tariffs in the first Trump administration:

“Curiously, there is no mention of tariff impacts in 4imprint’s 2017,2018 or 2019 annual reports so perhaps the company avoided the worst the first time around. Nor was there much impact on gross margin.”

Well, the following passage from ASI might help to clear up this curiosity:

“As promo continues to import heavily, the industry – and importers across sectors – are poised to deal with another tariff-related issue. On May 2, U.S.-based importers will no longer be able to claim the so-called “de minimis exemption” for products imported from China and Hong Kong, per a Trump executive order.

The de minimis exemption had allowed overseas shipments valued at less than $800 per person per day to enter the United States free of tariffs. Now, those shipments coming from China and Hong Kong will reportedly be subject to a 120% rate. Critics of the exemption, which include some U.S. retailers and promo suppliers that tend to always import in bulk, have decried it as an unfair loophole.”

According to their website, 4imprint operates a drop-ship model meaning that in most cases the supplier ships directly to the end customer and 4imprint holds minimal inventory.

In 2024, 4imprint’s total revenue was $1.4 billion across 2.1 million orders giving an average order value of just over $640, well within the de minimis limit of $800.

In theory then, a significant part of 4imprint’s business could have until now been a beneficiary of the de minimis rule. This is just a hunch on my part as I have not verified with management, but it would explain how the company managed to glide through the first Trump presidency untroubled.

Roughly 60% of 4imprint’s existing sales are derived from China with only 14% coming from the US. The Trump administration intends to withdraw the de minimis exemption from other countries over time. Therefore, it is likely that all of 4imprint’s sales that currently benefit from the “loophole” will ultimately be affected regardless of whether or not they are sourced from China or another country.

I am eager to sell my shares in 4imprint right now (edit: I have since revised this view). Even if I am wrong about the de minimis withdrawal impact (edit: I am, see here), a 145% tariff (unknown at the time of my original article) imposed on 60% of sales is a huge burden. A trade deal with China could improve things and I still expect 4imprint to fare better than many of its smaller competitors, but it looks to me like conditions are not going to return to those that gave rise to the following exceptional outcome:

I should have reached this view prior to adding to my position given that the Chinese tariff rates were known by then. I was too keen at the time to take advantage of the low share price and pending capital return and failed to properly take into account the tariff changes and their significant implications.

I will not sell my shares for at least two complete trading days following publishing this piece (ie next Thursday at the earliest), but intend to do so after then (edit: this is no longer my intention). From now on, I will always publish my trade intentions (buys and sells) at least two full trading days prior to execution.