Spin Master posted a 21% gain in net income to $26.9 in Q2 ended June 30 as revenue rose 12.6% to $311.5 million despite a decline in sales of Paw Patrol and Hatchimals products.

The company told analysts it expects the downturn in Paw Patrol-related revenue to be short-lived, given that it was largely tied Toys R Us’ liquidation sales. Paw Patrol represented a ‘significant portion’ of Toys R Us’ business and held the “highest dollar position” at the retailer, Chief Creative Officer Ben Varadisaid. Spin Master’s revenue from pre-school and girls’ products, which includes Paw Patrol, slipped 3.1% to $87.4 million.

The company expects Paw Patrol sales to return to 2017 levels in the fall as Spin Master readies a “Mighty Pup” direct-to-video release. It also continues development of a Paw Patrol film. Spin Master expected to recover 80%-90% of the revenue lost by Toys R Us’ liquidation in the second half by expanding distribution with other retailers. Sales to Toys R Us in Q2 2017 were about $25 million, company executives said.

The decrease in Hatchimals revenue was largely due to a slowdown in sales of the higher priced large egg, a downturn offset by an increase in collectibles, company executives said. Sales of Remote control and interactive characters, which include Hatchimals, fell 18.7% in Q2 to $68.3 million,

Paw Patrol and Hatchimals were a force behind an 88% increase in “other” revenue, which includes outbound licensing, to $33.1 million.

Spin Master wants to expand outbound licensing and is readying programs for “Abby Hatcher: Fuzzly Catcher” (to be released on Nickelodeon late this year) and “Bakugan,” due in early 2019.

Revenue in the activities, games, puzzles and children’s furniture segment rose 49.1% to $86.2 million, due partly to $10 million from recently acquired Gund. The gains offset a decline in Build-A-Bear-licensed products. The boys action and high-tech construction segment posted a 20.5% gain in revenue to $21.2 million, due partly to the sell-off of Hero Droid BB-8 and other Star Wars-related products. Spin Master has no plans for new Star Wars products in 2019, CFO Mark Segal said.

Contact:

Spin Master, Mark Segal, CFO, 416-364-6002 x2333, marks@spinmaster.com