Spin Master Acquires Cardinal Industries
Spin Master announced that it has entered into an agreement to purchase 100 percent of Cardinal Industries, Inc. The acquisition enables Spin Master to expand its selection of games, puzzles, and licensed products. Spin Master says that Cardinal will continue to operate as an independent entity, while benefiting from Spin Master’s global scale and infrastructure. Terms of the deal were not disclosed. The transaction is expected to be completed in early October.
“Cardinal has been a recognized leader in games and puzzles for more than 60 years and Spin Master looks forward to building on that legacy in the years to come,” said Ben Gadbois, Spin Master’s global president, in a statement.
Based in Long Island City, N.Y., Cardinal offers a wide range of classic games, innovative puzzles, and contemporary and evergreen licensed products for game and puzzle lovers of all ages. Cardinal’s team will remained headquartered in Long Island City. Though the company will operate independently, Cardinal will now benefit from additional support provided by Spin Master team members from across the globe. President Joel Berger will remain at Cardinal’s helm for many years, continuing to guide the company founded by his father, Les Berger, in 1948, says Spin Master.
“The Cardinal legacy in the game and puzzle business dates back over 60 years and we now look forward to joining the Spin Master family,” said Joel Berger, Cardinal’s president, in a statement. “There is no one I would trust more than Spin Master to carry on the traditions and year-on-year growth that Cardinal has experienced.”
Toys “R” Us Reports First Quarter 2015
Toys “R” Us, Inc., (TRU) reported financial results for the first quarter ended May 2, 2015.
“The results for the first quarter of fiscal 2015 demonstrate the steady progress we are making in executing our ‘TRU Transformation’ strategy,” said Antonio Urcelay, CEO of Toys “R” Us in a statement. “During the quarter, we delivered a strong increase in adjusted EBITDA, which benefited from significant SG&A savings. While the U.S. experienced softness in comparable store net sales, our U.S. operating performance improved significantly, almost tripling the prior year’s operating earnings. Internationally we continued our positive comparable store net sales trend, where we experienced particular strength in China and Southeast Asia.”
Urcelay continued. “We are proud of the success of our ‘Fit for Growth’ initiative and we would like to thank our employees for their incredible effort on this project. While we will continue to benefit from the savings contributed in future quarters, the heavy lifting around organizational change is largely complete.”
First Quarter Highlights
• Net sales were $2.325 billion, a decrease of $154 million compared to the prior-year period. Excluding the $131 million negative impact of foreign currency translation, net sales declined $23 million or 0.9 percent. The decline was predominantly due to a decrease in Domestic comparable store net sales, partially offset by International segment increases in net sales from new locations and comparable store net sales.
• International comparable store net sales were up 1.2 percent primarily driven by increases in the learning and core toy categories, partially offset by a decrease in the entertainment category (which includes electronics, video game hardware, and software). Domestic comparable store net sales were down 2.3 percent primarily due to a planned decrease in promotional activity. While core toy category sales increased, TRU experienced declines in the baby, entertainment, and seasonal categories.
• Gross margin dollars were $862 million, compared to $918 million for the prior-year period, a decrease of $56 million. Foreign currency translation accounted for $50 million of the decline. Gross margin, as a percentage of net sales, was 37.1 percent versus 37 percent in the prior-year period, an increase of 0.1 percentage points. The margin improvement was primarily attributable to the Domestic segment, which increased by 0.2 percentage points, to 35.9 percent, as a result of continued promotional discipline, with the most significant improvements in the baby and core toy categories. International segment gross margin, as a percentage of net sales, remained relatively consistent compared to the prior-year period.
• Selling, general, and administrative expenses (SG&A) decreased by $90 million to $827 million, compared to $917 million in the prior-year period. Excluding the $49 million favorable impact from foreign currency translation, SG&A decreased by $41 million, primarily due to a $21 million decrease in payroll expenses, of which $14 million was store payroll, a $13 million reduction in advertising and promotional expenses and a $3 million decrease in occupancy costs.
• Operating loss was $30 million, compared to $91 million in the prior-year period. Domestic segment operating earnings improved by $40 million, primarily as a result of SG&A savings compared to the prior-year period. Excluding the impact of foreign currency translation, the International segment operating performance improved by $13 million primarily as a result of an increase in gross margin dollars due to higher net sales compared to the prior year period. Corporate overhead decreased by $5 million compared to the prior-year period.
• Adjusted EBITDA was $70 million, compared to $27 million in the prior-year period, an improvement of $43 million. Net loss was $140 million, compared to $196 million in the prior-year period, an improvement of $56 million.
Liquidity and Capital Spending
TRU ended the first quarter with total liquidity of $1.1 billion, comprised of cash and cash equivalents of $453 million and availability under committed lines of credit of $672 million. Toys “R” Us-Delaware, Inc., ended the first quarter with $638 million of liquidity, which included cash and cash equivalents of $148 million.
For the first quarter of fiscal 2015, TRU invested $43 million primarily for enhancements to information technology, store maintenance, and improvements to distribution centers, compared to $39 million in the prior-year period.
In closing Urcelay said, “I am particularly pleased to be transitioning my CEO responsibilities to Dave Brandon. Toys “R” Us is fortunate to have attracted an executive of Dave’s caliber. I am confident that he is the right individual to lead the company through its next stage of transformation.”
Toys “R” Us recently announced that David Brandon will lead the company as of July 1 as Urcelay retires from TRU.
LeapFrog Reports Fiscal Q4 and 2015 Results
LeapFrog Enterprises, Inc., announced financial results for the fiscal fourth quarter and full year 2015. The company’s fiscal year covers the 12-month period ending March 31, 2015. Here’s a summary of financial results for the fiscal year ended March 31, 2015, compared to the full year ended March 31, 2014:
• Consolidated net sales were $339.1 million, down 36 percent. U.S. segment net sales were down 37 percent, and international segment net sales were down 33 percent.
• Net loss per basic and diluted share was $3.12 and included a net non-cash charge of $0.22 per share for goodwill impairment, $0.52 per share for impairment of long-lived assets and $1.30 per share for additional deferred tax asset valuation allowance. In the prior-year period, net income per diluted share was $1.07 and included $0.89 per share non-cash benefit from the reduction of deferred tax asset valuation allowance.
• Adjusted net loss per basic and diluted share, which excludes goodwill impairment, impairment of long-lived assets, and the deferred tax asset valuation allowance adjustment, was $1.08, compared to adjusted net income per diluted share of $0.18 a year ago.
• Cash and cash equivalents were $127.2 million as of March 31, 2015, down 45 percent compared to $232 million as of March 31, 2014.
“Sales and net income declined year over year and fell below expectations primarily due to high carry-forward retail inventories from the holidays, lower demand for our tablets and associated content, and the later-than-planned shipment and promotion of LeapTV,” said John Barbour, CEO, in a statement. “While we are disappointed with our fiscal 2015 results, we believe that by responding effectively to the changing needs of parents and leveraging our unique assets we can transform our business and deliver enduring growth.”
Here the Financial Overview for the Fourth Fiscal Quarter Ended March 31, 2015, Compared to the Quarter Ended March 31, 2014:
• Fourth fiscal quarter net sales were $33.9 million, down 40 percent compared to $56.9 million last year, and included a 1 percent negative impact from changes in currency exchange rates. In the U.S. segment, net sales were $25.3 million, down 35 percent compared to $39.1 million last year. In the International segment, net sales were $8.6 million, down 51 percent compared to $17.7 million last year, and included a 5 percent negative impact from changes in currency exchange rates.
• Operating expenses for the fourth fiscal quarter were $78.8 million, up 98 percent compared to $39.8 million last year. The increase in operating expenses is due primarily to a non-cash $36.5 million permanent impairment of long-lived assets following a FASB ASC 360 review. The long-lived assets, which includes property and equipment, such as the new ERP system, which will be put in service next quarter, and website development costs, were deemed impaired as the carrying value exceeded the fair value of the assets.
• Net loss for the fourth fiscal quarter was $76.2 million, or $1.08 per basic and diluted share, compared to net loss of $11.8 million, or $0.17 per basic and diluted share, in the prior-year period.
• Non-GAAP adjusted net loss for the fourth fiscal quarter was $39.7 million, or $0.56 per basic and diluted share, compared to non-GAAP adjusted net loss of $11.8 million, or $0.17 per basic and diluted share a year ago. Non-GAAP adjusted EBITDA for the quarter was negative $28.6 million compared to negative EBITDA of $10.4 million a year ago.
Here’s the Financial Overview for the Fiscal Year Ended March 31, 2015, Compared to the Year Ended March 31, 2014:
• Full-year 2015 net sales were $339.1 million, down 36 percent compared to $527.6 million last year, and included a 1 percent negative impact from changes in currency exchange rates. Net sales declined primarily due to decreased consumer demand for the LeapPad line and associated content, later-than-planned shipment and promotion of LeapTV and higher-than-desired inventory levels at retail stores. Net sales were also impacted by the very challenging retail and promotional environment. In the U.S. segment, net sales were $232.7 million, down 37 percent compared to $368 million last year. In the International segment, net sales were $106.4 million, down 33 percent compared to $159.5 million last year, and included a 2 percent negative impact from changes in currency exchange rates.
• Operating expenses for the full year 2015 were $235.1 million, up 28 percent compared to $183 million in the prior year. The increase in operating expenses is due to the non-cash permanent impairment of $19.5 million of goodwill and $36.5 million of long-lived assets.
• Net loss for the full year 2015 was $218.8 million, or $3.12 per basic and diluted share, compared to net income of $75.2 million, or $1.09 per basic share and $1.07 per diluted share last year. Basic and diluted net loss per share for the year ended March 31, 2015, included a net non-cash charge of $0.22 per share for goodwill impairment, $0.52 per share for impairment of long-lived assets and $1.30 per share for additional deferred tax asset valuation allowance. The full year 2014 net income per share included a non-cash benefit related to a release of valuation allowance previously set against deferred tax assets of $0.91 per basic share and $0.89 per diluted share.
• Non-GAAP adjusted net loss for the full-year 2015 was $75.8 million, or $1.08 per basic and diluted share, compared to non-GAAP adjusted net income of $12.5 million, or $0.18 per basic and diluted share a year ago. Non-GAAP adjusted EBITDA for the full-year 2015 was negative $45.9 million compared to positive EBITDA of $53 million a year ago.
“We are committed to positioning the company for long-term growth,” said Ray Arthur, CFO, in a statement. “We took meaningful steps in the fourth quarter to realign our sales, marketing, and product strategies to regain momentum in our business. While we continue to make good progress on our new product initiatives, most of these will not be impactful until the fiscal 2017 holiday season. We continue to work through the impact of retail space losses, inventory overhang, and significant competitive pressures,” he said. “This will be a year of rebuilding. We will continue to prudently manage expenses and cash as we stabilize the business and position LeapFrog for long-term growth. We expect fiscal year 2016 sales to contract considerably relative to the prior year, and operating losses for fiscal year 2016 to be similar to or greater than fiscal year 2015 losses, excluding goodwill and long-lived asset impairments.”
TIA Says Toy Company Action Needed to Stop NY Toy Ban
The Toy Industry Association (TIA) is calling on New York-based toy companies to take action to help stop a damaging bill that would ban the sale of safe toys and children’s products containing certain chemicals— including naturally occurring elements that can’t be removed from products. The TIA has posted a pre-written letter to legislators on its website. Those interested in taking action, click here for more information and to access the letter.
Teletubbies Heads to Nickelodeon
DHX Media has signed a deal with Nickelodeon for the U.S. broadcast and on-demand rights for Teletubbies’ new series for its Nick Jr. channel. The series has been commissioned by CBeebies in the UK. Nickelodeon has also taken all 365 classic Teletubbies episodes from the original series for Noggin, its new mobile subscription service for preschoolers.
The Passing of “Mr. Playmobil”
Playmobil announced last week that its company leader Horst Brandstätter passed away at the age of 81. Read his life story as well as the story of Playmobil’s figures here.
PercyVites, Imports Dragon Partner for Promotion
Digital party invitation platform, PercyVites has partnered with Imports Dragon for the relaunch of the PercyVites website with a Caillou and Johnny Test promotion. Imports Dragon will supply one 12-pack of either Caillou or Johnny Test collectible figurines for each Caillou or Johnny Test-themed PercyVites purchased on the PercyVites website. The gift-with-purchase promotion will end on July 8, 2015, or while supplies last. Imports Dragon holds the master toy license for DHX Media’s Caillou and Johnny Test.