Spin Master Reports Q4 and Full Year 2018 Financial Results

Spin Master Corp. (“Spin Master” or the “Company”) (TSX: TOY; www.spinmaster.com), a leading global children’s entertainment company, today announced its financial results for the fourth quarter and year ended December 31, 2018. The Company’s full Management Discussion and Analysis (“MD&A”) for the three month period and the year ended December 31, 2018 is available on SEDAR (www.sedar.com) and posted on the Company’s web site at www.spinmaster.com/financial-info.php.

“We are pleased with our performance in 2018.  Despite the disruptive impact that the Toys R Us liquidation had on the toy industry in 2018, we delivered an increase in our full year Gross Product Sales2 and grew Adjusted EBITDA2 to record levels for Spin Master,” said Ronnen Harary, Spin Master’s Chairman and Co-CEO. “Our 2019 product and entertainment offering displays the innovation and creativity that our customers have come to expect from Spin Master. We expect growth in 2019 to be based on a mix of proven licenses such as Monster Jam and How to Train your Dragon, a range of our own intellectual property including the global relaunch of Bakugan, fresh content for PAW Patrol and the roll-out of our new show Abby Hatcher as well as highly innovative new products. We’re excited by the initial response to our 2019 line and pleased that our PAW Patrol and Abby Hatcher shows occupy the number one and two positions in the Pre-School space respectively.”

Q4 2018 Financial Highlights as compared to the same period in 20171

  • Revenue of US$414.3 million decreased 6.0% from US$440.9 million. In Constant Currency2terms, revenue decreased by 4.6%.
  • Gross Product Sales2 decreased 3.8% to US$465.5 million, compared to US$483.9 million.
  • Gross Product Sales2 decreased 9.3% in North America and increased by 7.2% and 2.6% in Rest of World and Europe, respectively. International Gross Product Sales2 on a combined basis were 44.2% of total Gross Product Sales2, increasing from 40.8%.
  • Other revenue increased 10.4% to US$33.1 million, driven by increased television distribution income.
  • Sales Allowances2 increased by US$11.3 million to US$84.3 million, primarily driven by markdowns and promotional spending. As a percentage of Gross Product Sales2, Sales Allowances2 increased to 18.1% from 15.1%.
  • Gross profit was US$199.0 million, representing 48.0% of revenue, compared to US$228.9 million, or 51.9% of revenue. The decrease in gross margin was driven primarily by increased amortization attributed to entertainment properties and higher Sales Allowances2, offset by higher other revenue.
  • Selling, General and Administrative expenses (“SG&A”) decreased 1.9%. SG&A as a percentage of revenue was 47.3%, compared with 45.3% in Q4 2017, which was driven by higher distribution and administrative expenses, partially offset by lower selling expenses. SG&A adjusted for share-based compensation expenses, represented 46.2% of revenue compared to 44.9%.
  • Net income was US$11.4 million, or diluted earnings per share of US$0.11, compared with US$20.0 million, or US$0.21 per share. The decline was primarily due to lower gross profit, offset by improvements in SG&A and favourable foreign exchange.
  • Adjusted Net Income2 was US$6.1 million, or diluted earnings per share of US$0.06, compared to US$25.5 million, or US$0.25 per share. The decline was primarily due to lower gross profit, offset by improvements in SG&A.
  • Adjusted EBITDA2 was US$35.1 million compared with US$47.3 million. Adjusted EBITDA Margin2 decreased to 8.5% compared to 10.7%.
  • Free Cash Flow2 was negative US$11.5 million compared to US$18.4 million.

______________________

1 The financial highlights in this release are presented in US$ millions, whereas the financial information in the MD&A is presented in US$ thousands. This may result in immaterial rounding differences and differences in the calculated percentages reflected between the two documents.

2 Non-IFRS financial measure. See “Non-IFRS Financial Measures” below.

Q4 2018 Gross Product Sales2 by Business Segment (US$ millions)1

Q4 2018

Q4 2017

$ Change

% Change

Activities, Games & Puzzles and Plush

$145.2

$131.5

$13.7

10.5%

Remote Control & Interactive Characters

$107.9

$198.7

($90.8)

(45.7)%

Boys Action & High-Tech Construction

$57.9

$36.7

$21.2

57.8%

Pre-School and Girls

$139.1

$102.4

$36.7

35.8%

Outdoor

$15.4

$14.6

$0.8

5.3%

Gross Product Sales2

$465.5

$483.9

($18.4)

(3.8)%

Sales Allowances2

$84.3

$73.0

$11.3

15.4%

Total Net Sales2

$381.2

$410.9

($29.7)

(7.2)%

Other Revenue

$33.1

$30.0

$3.1

10.4%

Revenue

$414.3

$440.9

($26.6)

(6.0)%

Q4 2018 Business Segment Gross Product Sales2 as compared to the same period in 20171

Gross Product Sales2 in Activities, Games & Puzzles and Plush increased by $13.7 million, or 10.5% to $145.2 million. The increase was driven primarily by sales of Gund plush products and increases in Kumi Creator and Kinetic Sand, partially offset by decreases in Bunchems, Spin Master’s Games & Puzzles portfolio, Mashmallow furniture, Sew Cool and Doctor Dreadful.

Gross Product Sales2 in Remote Control and Interactive Characters decreased by $90.8 million or 45.7% to $107.9 million, due to lower sales of all Hatchimals products, Zoomer and Air Hogs.

Gross Product Sales2 in Boys Action and High‑Tech Construction increased by $21.2 million or 57.8% to $57.9 million. The increase was primarily driven by sales of Boxer and initial shipments of DreamWorks Dragons, Monster Jam and Bakugan products, partially offset by decreases in Star Wars licensed merchandise including BB8 and Meccano.

Gross Product Sales2 in Pre‑School and Girls increased by $36.7 million or 35.8% to $139.1 million. The increase was driven primarily by higher sales of PAW Patrol and Twisty Petz, partially offset by decreases in ZhuZhu Pets.

Gross Product Sales2 in Outdoor, comprised of sales of products under the SwimWays, Kelsyus,Coop and Aerobie brands, increased by $0.8 million or 5.3% to $15.4 million.

Year Ended December 31, 2018 Financial Highlights as compared to the same period in 20171

  • Revenue of US$1,631.5 million increased 5.2% from US$1,551.3 million. In Constant Currencyterms, revenue increased by 5.1%.
  • Gross Product Salesincreased 3.1% to US$1,708.0 million, compared to US$1,657.0 million.
  • Gross Product Sales2 increased 19.5% in Rest of World, 2.2% in Europe, and 0.2% in North America. International Gross Product Sales2 on a combined basis represented 36.5% of total Gross Product Sales2 increasing from 34.7%.
  • Other revenue increased by $36.1 million or 42.1%, to $121.9, driven by increased royalty income from products marketed by third parties using Spin Master’s owned intellectual property, increased television distribution income and increased app revenue from Toca Bocaand Sago Mini.
  • Sales Allowances2 increased by $6.9 million to $198.4 million, driven primarily by higher promotional activity. As a percentage of Gross Product Sales2, Sales Allowances2 remained flat at 11.6%.
  • Gross profit increased 2.3% to US$818.8 million, representing 50.2% of revenue, compared with US$800.5 million, or 51.6% of revenue.
  • SG&A increased 8.8%. SG&A as a percentage of revenue was 38.3%, an increase of 130 basis points compared the same period in 2017. The increase was driven primarily by higher marketing and administrative costs, partially offset by lower selling expenses. SG&A adjusted for share-based compensation expenses, represented 37.6% of revenue compared to 36.4%.
  • Net income was US$154.9 million, or diluted earnings per share US$1.51, a decrease of 3.8% from US$161.1 million, or US$1.58 per share.
  • Adjusted Net Income2 was US$163.5 million, or diluted earnings per share of US$1.60, a decrease of 5.5% from US$173.0 million, or US$1.70 per share.
  • Adjusted EBITDA2 was US$303.6 million, up 3.9% from US$292.2 million. Adjusted EBITDA Margin2 was 18.6% compared to 18.8%.
  • Free Cash Flow2 decreased to US$129.4 million compared to US$193.4 million.

Year ended December 31, 2018 Gross Product Sales2 by Business Segment (US$ millions)1

2018

2017

$ Change

% Change

Activities, Games & Puzzles and Plush

$455.5

$365.4

$90.1

24.7%

Remote Control & Interactive Characters

$505.4

$593.4

($88.0)

(14.8)%

Boys Action and High-Tech Construction

$133.1

$112.1

$21.0

18.7%

Pre-School and Girls

$517.5

$493.0

$24.5

5.0%

Outdoor

$96.5

$93.1

$3.4

3.6%

Gross Product Sales2

$1,708.0

$1,657.0

$51.0

3.1%

Sales Allowances2

$198.4

$191.5

$6.9

3.6%

Total Net Sales2

$1,509.6

$1,465.5

$44.1

3.0%

Other Revenue

$121.9

$85.8

$36.1

42.1%

Revenue

$1,631.5

$1,551.3

$80.2

5.2%

Year Ended December 31, 2018 Business Segment Gross Product Sales2 as compared to the same period in 20171

Gross Product Sales2 in Activities, Games & Puzzles and Plush increased by $90.1 million or 24.7% to $455.5 million, primarily driven by sales of Gund plush products and increases in Kumi Creator, Kinetic Sand and Spin Master’s Games & Puzzles portfolio, which includes Cardinal and Marbles.  This was partially offset by decreases in Bunchems, Doctor DreadfulBuild a BearSew CoolPottery Cool and Marshmallow furniture.

Gross Product Sales2 in Remote Control and Interactive Characters decreased by $88.0 million or 14.8% to $505.4 million, primarily due to declines in Hatchimals large eggs, Zoomer and Air Hogs,partially offset by increases in Luvabella and Hatchimals Colleggtibles.

Gross Product Sales2 in Boys Action and High‑Tech Construction increased by $21.0 million18.7% to $133.1 million, primarily due to sales of Boxer and Fugglers and initial shipments of DreamWorks Dragons, Bakugan and Monster Jam, partially offset by decreased sales of Meccano, Star Wars licensed products including BB8 and Pirates of the Caribbean licensed products.

Gross Product Sales2 in Pre‑School and Girls increased by $24.5 million or 5.0% to $517.5 million, driven by Twisty Petz and Party Popteenies, partially offset by declines in PAW Patrol and ZhuZhu Pets.

Gross Product Sales2 in Outdoor, comprised of sales of products under the SwimWaysKelsyus,Coop and Aerobie brands, increased by $3.4 million or 3.6% to $96.5 million.

“Our performance in a challenging year has demonstrated that our focus and our strong execution against our four key growth strategies have positioned Spin Master for long term success, ” said Ben Gadbois, Spin Master’s President and Chief Operating Officer. “Although we expect the retail disruption that impacted the toy industry in 2018 to continue through the first half of 2019, we are looking forward to solid growth in the second half of the year, and for 2019 as a whole. We remain focused on achieving sustainable, long-term profitable growth based on our proven formula for idea generation, innovative design and broad distribution. In addition, our global scale and strong balance sheet puts us in an excellent position to capitalize on acquisition opportunities.”

Outlook

Spin Master continues to focus on driving growth, both organically and through acquisitions. The Company’s principal strategies, which remain unchanged for 2019, include:

  • Innovation across the portfolio;
  • Developing evergreen global entertainment properties;
  • Increasing international sales in developed and emerging markets; and
  • Leveraging its global platform through strategic acquisitions.

On a full year comparative basis, the Company expects to:

  • Grow organic Gross Product Sales2 in the low single digit range relative to 2018. Seasonality of Gross Product Sales2 for 2019 is expected to be approximately 30%-33% in H1.  Q1 2019 will be particularly challenged as a result of the absence of Toys R Us in Q1 2019 compared to Q1 2018 and the later timing of Easter; and
  • Deliver Adjusted EBITDA Margin2 for the full year 2019, in line with 2018.

 

SOURCE: Spin Master Press Release 

They even did us a solid and let us know the executives have a phone call scheduled to discuss these results. Praise the stars. Now we know everything.

 

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