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 atwww.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" saidMark 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 ofUS$281.1 milliondecreased by 12.4% fromUS$321.0 million. In Constant Currency1terms, revenue decreased by 13.4%.
Gross Product Sales1decreased by 10.9% toUS$282.2 millionfromUS$316.8 million. In Constant Currency1terms, Gross Product Sales1decreased 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 Sales1increased slightly inNorth Americaand declined by 21.6% inEuropeand 42.4% in Rest of World. International Gross Product Sales1were 27.7% of total Gross Product Sales1, compared with 35.6%.
Other revenue decreased by 6.3% toUS$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 fromToca Bocaand Sago Mini.
Sales Allowances1increased byUS$3.4 milliontoUS$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 inNorth Americarelative toEurope. As a percentage of Gross Product Sales1, Sales Allowances1increased 2.2% to 10.5% from 8.3%.
Gross profit wasUS$118.2 million, representing 42.0% of revenue, compared toUS$164.3 millionor 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)2declined 16.6%. As a percentage of revenue SG&A2expenses 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 wasUS$14.9 millionor loss per share ofUS$0.15, compared to net income ofUS$10.2 millionor earnings per share ofUS$0.10(diluted).
Adjusted Net Loss1wasUS$9.5 millionor loss per share ofUS$0.09, compared to Adjusted Net Income1ofUS$19.8 millionor earnings per share ofUS$0.19(diluted).
Free Cash Flow1was negativeUS$9.8 millioncompared to positiveUS$18.6 million. Including changes in working capital, Free Cash Flow wasUS$40.2 millioncompared to negativeUS$34.7 million.
During the quarter, Spin Master repaidUS$50.0 millionof its Credit Facility and as atJune 30, 2020, the outstanding balance of the Credit Facility wasUS$300.0 million. The Company had cash on hand ofUS$410.8 millionat the end of the quarter.
Q2 2020 Gross Product Sales1 by Business Segment (US$ millions)
Activities, Games & Puzzles and Plush
Remote Control & Interactive Characters
Boys Action & Construction
Pre-School & Girls
Gross Product Sales1
Total Net Sales1
Q2 2020 Business Segment Gross Product Sales1as compared to the same period in 20191
Gross Product Sales1wereUS$282.2 million, a decrease ofUS$34.6 millionor 10.9%, with a favourable foreign exchange impact ofUS$3.4 millionor 1.1%. Excluding the impact of foreign exchange, Gross Product Sales decreased byUS$38.0 millionor 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 Sales1in Activities, Games & Puzzles and Plush increased byUS$15.4 millionor 19.2% to US$95.5 million, driven primarily by increases inKinetic Sandand the Games & Puzzles portfolio, partially offset by declines inGund.
Gross Product Sales1in Remote Control & Interactive Characters decreased byUS$11.3 millionor 25.4% toUS$33.2 million, primarily due to lower sales ofHatchimals,JunoandLuvabella, partially offset by increases inMonster Jam RCandPAW Patrol RC.
Gross Product Sales1in Boys Action & Construction decreased byUS$19.5 millionor 30.5% toUS$44.5 million. The decrease was primarily driven by declines inDreamWorks DragonsandBakugan, partially offset by fDClicensed products andTech Deck.
Gross Product Sales1in Pre–School & Girls decreased byUS$22.1 millionor 22.9% toUS$74.3 million. The decrease was driven primarily by declines inPAW Patrol,Twisty Petz,CandylocksandPre Cool.
Financial Highlights for Six Months EndedJune 30, 2020as compared to the same period in 2019
Revenue ofUS$508.4 milliondecreased 9.2% fromUS$560.0 million. In Constant Currency1terms, revenue decreased by 8.3%.
Gross Product Sales1decreased byUS$32.8 millionor 5.9% toUS$524.5 million. In Constant Currency1terms, Gross Product Sales1decreased by 5.1%.
Gross Product Sales1increased by 0.9% inNorth America, decreased by 3.8% inEuropeand 37.1% in Rest of World. International Gross Product Sales1represented 33.5% of total Gross Product Sales1, compared with 38.0%.
Other Revenue decreased byUS$8.9 millionor 15.0% toUS$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 fromToca Bocaand Sago Mini.
Sales Allowances1increased byUS$9.9 milliontoUS$66.5 million, primarily driven by an increase in non-compliance charges and growth inEurope, 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 toUS$209.0 million, representing 41.1% of revenue compared toUS$272.0 millionor 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") increasedUS$3.4 millionor 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 wasUS$41.6 million, or loss per share ofUS$0.41, compared to net loss ofUS$10.7 millionor loss per share ofUS$0.10.
Adjusted Net Loss1wasUS$56.3 million, or loss per share ofUS$0.55, compared to Adjusted Net Income ofUS$7.4 million, or earnings per share ofUS$0.07(diluted).
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