While the toy industry is “shocked and disappointed” about the time it has taken to recover from the loss of Toys R Us (TRU), the market will stabilize in the second half as the effects of the retailer’s 2018 liquidation wear off, Spin Master Corp. President Ben Gadbois said in releasing Q4 earnings. As a result of the longer-than-expected recovery period, Spin Master is forecasting a low-single-digit sales increase this year.

Toy sales at convenience, dollar, grocery and value (T.J. Maxx, Burlington, Ross) stores were expected to offset the loss of TRU, but those retailers had a “mixed performance” in toys during the holiday season.  The retailers didn’t have a “material impact” on overall toy sales and carried more inventory than expected into Q1, Gadbois said. Toy companies had expected to recover lost TRU sales by year-end 2018.

TRU also typically carried products at higher prices and the new distribution created “negative pressure” that was “stronger than most folks expected,” Gadbois said.

Spin Master’s sales increase this year is expected to be driven by Bakugan, Monster Jam and other brands, offsetting an expected decline in Hatchimals. Indeed, sales of the large Hatchimals egg fell 62% in 2018, a decrease partly offset by gains with smaller collectible versions. Spin Master expects to spread the technology behind Hatchimals – it was added to a How to Train Your Dragon figure (Toothless) — more broadly across licensed and non-licensed toys in 2020, executives said. Sales of Paw Patrol products, which account for about 25% of Spin Master’s annual revenue, also are expected to increase this year, CFO Mark Segal said.

Meanwhile, net income narrowed 76.2% to $6 million in Q4 ended Dec. 31 as restructuring costs jumped to $5 million from $327,000 a year earlier. The increased costs were largely tied to combining the Cardinal and Gund businesses with a Los Angeles-based games group to form Spin Master East at Cardinal’s offices in Long Island City, NY.

Spin Master’s Q4 revenue declined to 6% to $414.3 million. While sales of boys action and construction (Monster Jam, Bakugan) rose 57.8% to $57.9 million, those from remote control and interactive characters (Hatchimals) fell 45.7% to $107.9. million. Sales of activities, games and puzzles jumped 10.5% to $145.2 million. Spinmaster’s “other revenue” which includes TV series production and outbound licensing (Hatchimals, Paw Patrol), jumped 10.4% to $33 million.

Contact:

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