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August 2020 | Vol. XIX - No. 8




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Spin Master Reports Q2 2020 Financial Results


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TORONTO, Aug. 5, 2020 /CNW/ - 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 second quarter ended June 30, 2020. The Company's full Management's Discussion and Analysis ("MD&A") for the three and six month ended June 30, 2020 is available on SEDAR (www.sedar.com) and posted on the Company's web site at www.spinmaster.com/financial-info.php.

"This quarter we demonstrated meaningful progress towards resolving the operational challenges we experienced in 2019" said Ronnen Harary, Spin Master's Co-Chief Executive Officer.  "We are incredibly proud of the global Spin Master team, who remained focused on driving improvements across the company, while also managing through the complexity of COVID-19 for the full quarter.  Our performance in the second quarter, which showed strong POS across most of our key brands, highlights the resilience of the toy industry, the strength of our diversified portfolio of brands, entertainment franchises and digital toys and our global platform.  This is underpinned by our strong financial base, which positions us well for long term success. Looking forward, global economies are reopening but risk remains elevated and we are taking a cautiously optimistic approach to the second half. New opportunities continue to emerge, and we are prepared to take advantage as they arise."

"Our overall performance in the second quarter was stronger than expected, despite the disruption from COVID-19" said Mark Segal, Spin Master's Chief Financial Officer. "Our global supply chain team responded well to the evolving environment and we made significant progress from an operational efficiency, profitability and cash flow perspective relative to Q1. Our financial position remains solid and we continue to have substantial liquidity available. As the year progresses, we will continue to focus on strengthening our core in order to build and maintain an efficient, high margin and sustainable global platform positioned for long term growth."

Q2 2020 Financial Highlights as compared to the same period in 20191 

  • Total Revenue of US$281.1 million decreased by 12.4% from US$321.0 million. In Constant Currency1 terms, revenue decreased by 13.4%.
  • Gross Product Sales1 decreased by 10.9% to US$282.2 million from US$316.8 million. In Constant Currency1 terms, Gross Product Sales1 decreased by 12.0%. Decreases in Pre-School & Girls, Boys Action & Construction and Remote Control & Interactive Characters were offset by increases in Activities, Games, Puzzles & Plush, as well as Outdoor.
  • Gross Product Sales1 increased slightly in North America and declined by 21.6% in Europe and 42.4% in Rest of World. International Gross Product Sales1 were 27.7% of total Gross Product Sales1, compared with 35.6%.
  • Other revenue decreased by 6.3% to US$28.5 million, driven by lower royalty income from products marketed by third parties using Spin Master's owned intellectual property and television distribution revenue, offset in part by higher app revenue from Toca Boca and Sago Mini.
  • Sales Allowances1 increased by US$3.4 million to US$29.6 million, primarily driven by an increase in non-compliance charges resulting from the operational challenges which arose in the second half of 2019, partially offset by a change in geographic mix due to higher sales in North America relative to Europe. As a percentage of Gross Product Sales1, Sales Allowances1 increased 2.2% to 10.5% from 8.3%.
  • Gross profit was US$118.2 million, representing 42.0% of revenue, compared to US$164.3 million or 51.2% of revenue. The decline in gross margin was primarily due to unfavourable changes in product mix, higher Sales Allowances and inbound in freight-related expenses and costs incurred as a result of the Company's ongoing operational improvement initiatives.
  • Selling, general and administrative expenses (SG&A)2 declined 16.6%. As a percentage of revenue SG&A2 expenses were 40.8%, compared to 42.9%. The improvement was primarily driven by lower marketing costs, partially offset by higher warehouse and outbound freight costs.
  • Net loss was US$14.9 million or loss per share of US$0.15, compared to net income of US$10.2 million or earnings per share of US$0.10 (diluted).
  • Adjusted Net Loss1 was US$9.5 million or loss per share of US$0.09, compared to Adjusted Net Income1 of US$19.8 million or earnings per share of US$0.19 (diluted).
  • Adjusted EBITDA1 was US$21.5 million compared to US$55.1 million. Adjusted EBITDA Margin1 was 7.6% compared to 17.2%.
  • Free Cash Flow1 was negative US$9.8 million compared to positive US$18.6 million. Including changes in working capital, Free Cash Flow was US$40.2 million compared to negative US$34.7 million.
  • During the quarter, Spin Master repaid US$50.0 million of its Credit Facility and as at June 30, 2020, the outstanding balance of the Credit Facility was US$300.0 million. The Company had cash on hand of US$410.8 million at the end of the quarter.

Q2 2020 Gross Product Sales1 by Business Segment (US$ millions)


Q2 2020


Q2 2019


$ Change


% Change

Activities, Games & Puzzles and Plush

$95.5


$80.1


15.4


19.2

%

Remote Control & Interactive Characters

$33.2


$44.5


(11.3)


(25.4)

%

Boys Action & Construction

$44.5


$64.0


(19.5)


(30.5)

%

Pre-School & Girls

$74.3


$96.4


(22.1)


(22.9)

%

Outdoor

$34.7


$31.8


2.9


9.1

%

Gross Product Sales1

$282.2


$316.8


(34.6)


(10.9)

%

Sales Allowances1

$(29.6)


$(26.2)


(3.4)


13.0

%

Total Net Sales1

$252.6


$290.6


(38.0)


(13.1)

%

Other Revenue

$28.5


$30.4


(1.9)


(6.3)

%

Revenue

$281.1


$321.0


(39.9)


(12.4)

%

Q2 2020 Business Segment Gross Product Sales1 as compared to the same period in 20191



Gross Product Sales1 were US$282.2 million, a decrease of US$34.6 million or 10.9%, with a favourable foreign exchange impact of US$3.4 million or 1.1%.  Excluding the impact of foreign exchange, Gross Product Sales decreased by US$38.0 million or 12.0%. The decrease was primarily driven by Pre-School & Girls, Boys Action & Construction and Remote Control & Interactive Characters, offset by growth in Activities, Games & Puzzles and Plush, as well as Outdoor.

Gross Product Sales1 in Activities, Games & Puzzles and Plush increased by US$15.4 million or 19.2% to US$95.5 million, driven primarily by increases in Kinetic Sand and the Games & Puzzles portfolio, partially offset by declines in Gund.

Gross Product Sales1 in Remote Control & Interactive Characters decreased by US$11.3 million or 25.4% to US$33.2 million, primarily due to lower sales of Hatchimals, Juno and Luvabella, partially offset by increases in Monster Jam RC and PAW Patrol RC.

Gross Product Sales1 in Boys Action & Construction decreased by US$19.5 million or 30.5% to US$44.5 million. The decrease was primarily driven by declines in DreamWorks Dragons and Bakugan, partially offset by f DC licensed products and Tech Deck.

Gross Product Sales1 in Pre–School & Girls decreased by US$22.1 million or 22.9% to US$74.3 million. The decrease was driven primarily by declines in PAW Patrol, Twisty Petz, Candylocks and Pre Cool.

Gross Product Sales1 in Outdoor increased by US$2.9 million or 9.1% to US$34.7 million.

Financial Highlights for Six Months Ended June 30, 2020 as compared to the same period in 2019

  • Revenue of US$508.4 million decreased 9.2% from US$560.0 million. In Constant Currency1 terms, revenue decreased by 8.3%.
  • Gross Product Sales1 decreased by US$32.8 million or 5.9% to US$524.5 million. In Constant Currency1 terms, Gross Product Sales1 decreased by 5.1%.
  • Gross Product Sales1 increased by 0.9% in North America, decreased by 3.8% in Europe and 37.1% in Rest of World. International Gross Product Sales1 represented 33.5% of total Gross Product Sales1, compared with 38.0%.
  • Other Revenue decreased by US$8.9 million or 15.0% to US$50.4 million, driven by decreased royalty income from products marketed by third parties using Spin Master's owned intellectual property and lower television distribution revenue, partially offset by increased app revenue from Toca Boca and Sago Mini.
  • Sales Allowances1 increased by US$9.9 million to US$66.5 million, primarily driven by an increase in non-compliance charges and growth in Europe, which has higher Sales Allowance rates and higher markdowns. As a percentage of Gross Product Sales1, Sales Allowances increased to 12.7% compared to 10.2%.
  • Gross profit decreased to US$209.0 million, representing 41.1% of revenue compared to US$272.0 million or 48.6% of revenue. The decline was primarily due to higher inbound freight-related expenses, Sales Allowances and reconfiguration costs and costs incurred as a result of the Company's ongoing operational improvement initiatives and lower other revenue.
  • Selling, general and administrative expenses ("SG&A") increased US$3.4 million or 1.3%. The increase in SG&A was driven by higher warehouse and outbound freight costs and product development expenses, offset by lower marketing expenses.
  • Net loss was US$41.6 million, or loss per share of US$0.41, compared to net loss of US$10.7 million or loss per share of US$0.10.
  • Adjusted Net Loss1 was US$56.3 million, or loss per share of US$0.55, compared to Adjusted Net Income of US$7.4 million, or earnings per share of US$0.07 (diluted).
  • Adjusted EBITDA1 was negative US$10.8 million, compared to US$62.1 million. Adjusted EBITDA Margin1 was negative 2.1% compared to 11.1%.
  • Free Cash Flow1 decreased to negative US$84.7 million compared to negative US$21.3 million. Including changes in working capital Free Cash Flow was US$12.4 million compared to negative US$62.5 million.

 




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Writer's Bio: Since 2012, Laura has spent much of her time around children conducting research in development and growth of children. Her diverse experience around children has enabled her to see firsthand how playing with toys can be one of the richest sources of learning and communication for kids. Read more articles by this author

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