aNb Media News, April 21, 2016

Spin Master Acquires Toca Boca, Sago Mini

Spin Master announced today that it is acquiring the Toca Boca and Sago Mini companies from the Bonnier Group of Sweden.

With offices in Stockholm, San Francisco, and New York and over 80 employees, Toca Boca is a play studio that makes digital toys for kids ages 3-9. Since its first product launch in 2011, Toca Boca has released 32 apps that have been downloaded in 215 countries worldwide. With over 140 million total downloads to date and growing, Toca Boca apps do not have in-app purchases or external advertising, says Spin Master. Also, Toca Boca is in the early stages of developing a subscription-based TV channel, Toca TV.

Located in Toronto, Sago Mini creates mobile apps for kids ages 2-5. With a team over 25 employees, Sago Mini has released 16 apps, which have been downloaded over 13 million times. Toca Boca and Sago Mini both emphasize children’s natural sense of curiosity, experimentation, and self-expression and combined have over 15 million monthly active users globally.

“The acquisition of Toca Boca and Sago Mini, with their strong brand presence, allows Spin Master to develop a leadership position in the mobile app space for kids and rounds out our ability to entertain kids in both the physical and digital world,” said Ronnen Harary, co-CEO, Spin Master Ltd., in a statement. “Older kids content consumption patterns have shifted to mobile devices and we want to be where the kids are. The Toca Boca brand, which is trusted by parents together with its network of millions of users, gives us a strong platform to continue to build on. We look forward to linking these mobile apps, which emphasize fun and creativity, with Spin Master’s global capabilities across our toy and TV show businesses.”

The transaction is expected to close on May 2, 2016.

Licensing Expo Moves to May in 2017

Licensing Expo is moving to May 23-25, 2017, from its usual spot in June. UBM, organizers of Licensing Expo, and its sponsor, the International Licensing Industry Merchandisers’ Association (LIMA), jointly announced this week that the Expo is moving a month earlier next year. The organizations say that this strategic shift provides an opportunity for exhibitors and attendees to better leverage the time of year and the proximity of Licensing Expo to Brand Licensing Europe (BLE) in October.

“Following feedback from the industry and partners, Licensing Expo is moving to May 23–25 at the Mandalay Bay Convention Center, Las Vegas,” said Jessica Blue, senior vice-president, licensing, UBM Americas. “The new time slot ensures a consistent date for UBM licensing customers around the world and puts some much-needed distance between Licensing Expo and E3 while providing additional time between our sister shows.”

This year’s Licensing Expo is June 21-23 in Las Vegas. For more information about this year’s show, click here.

Mattel Reports Q1 2016

For the first quarter of 2016, Mattel, Inc., reported worldwide gross sales down 1 percent in constant currency, worldwide net sales down 2 percent in constant currency, adjusted operating loss of $36 million and adjusted net loss per share of $0.13.

“Our results in the quarter reflect very solid progress, particularly in light of significant headwinds we faced at the outset of 2016,” said Christopher Sinclair, chairman and CEO of Mattel. “Retail sales continued to show strength across many of our core brands, and are closely aligned with shipping. We saw sustained growth in key emerging markets, where we continue to make strategic investments. And we drove ongoing cost improvement throughout the quarter, while maintaining the dividend. While we continue to manage the ongoing impact of foreign exchange, our performance is in line with our expectations, and we remain on track to deliver on our outlook for the year.”

Financial Overview

First quarter gross sales in the North American Region, which consists of the United States, Canada, and American Girl, decreased by 1 percent in constant currency, and 2 percent as reported. In the International Region, gross sales decreased by 1 percent in constant currency, and decreased 11 percent as reported. Gross margin decreased 410 basis points, driven mainly by the negative impact from changes in currency exchange rates of 340 basis points. Adjusted other selling and administrative expenses decreased $24.8 million, reflecting continued cost improvement initiatives. Adjusted operating loss for the quarter was $36 million, compared to prior year’s adjusted operating loss of $14.6 million. The company’s debt-to-total capital ratio as of March 31, 2016 was 45.7 percent.

For the quarter, net cash flows used for operating activities were approximately $91 million, compared to approximately $53 million in the prior year. The increase was primarily driven by a higher net loss, and higher working capital usage. Cash flows used for investing activities were approximately $53 million, a decrease of approximately $39 million versus the prior year primarily due to changes in foreign currency forward exchange contracts. Cash flows used for financing activities and other were approximately $149 million, compared to approximately $144 million in the prior year.

Capital Deployment

The board of directors declared a 2016 second quarter cash dividend of $0.38 per share, which is flat compared to the second quarter of 2015. The dividend will be payable on June 10, 2016, to stockholders of record on May 19, 2016.

Sales by Brand

Mattel Girls and Boys Brands

For the first quarter, worldwide gross sales for Mattel Girls & Boys Brands were $527.9 million, down 8 percent in constant currency versus the prior year. Worldwide gross sales for the Barbie brand were flat in constant currency. Worldwide gross sales for Other Girls brands were down 58 percent in constant currency. Worldwide gross sales for the Wheels category, which includes the Hot Wheels and Matchbox brands, were up 9 percent in constant currency. Worldwide gross sales for the Entertainment business, which includes Radica and Games, were up 36 percent in constant currency.

Fisher-Price Brands

First quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends, and Power Wheels brands, were $272.6 million, up 9 percent in constant currency versus the prior year.

American Girl Brands

First quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $93.3 million, down 11 percent in constant currency versus the prior year.

Construction and Arts & Crafts Brands

First quarter gross sales for Construction and Arts & Crafts Brands, which includes the MEGA Bloks and RoseArt brands, were $61.9 million, up 78 percent in constant currency versus the prior year.

Jakks Reports Q1 2016

Jakks Pacific, Inc., reported financial results for the first quarter ended March 31, 2016. Consistent with company guidance issued on February 23, 2016, net sales for the first quarter of 2016 were $95.8 million compared to $114.2 million reported in the comparable period in 2015. The net loss for the first quarter of 2016 was $17.4 million, or $1.01 per diluted share. This compares to a net loss of $7.6 million, or $0.40 per diluted share, reported in the comparable period in 2015. Adjusted EBITDA for the first quarter was negative $9.2 million, compared to adjusted EBITDA of negative $0.9 million in 2015.

The year-over-year reduction in first quarter 2016 net sales and earnings reflects a decline in sales of a product line in international markets, and the increase in the quarterly loss also includes the impact of a loss of $0.05 per share due to fewer common shares outstanding during the quarter. The reduced share count is a direct result of Jakks’ ongoing stock buy-back program. On a static share count, the company’s earnings would have been a loss of $0.96 per share, in the middle of the range of previously announced guidance for the quarter. As reflected in the company’s guidance for the quarter, higher marketing expenses, including the timing of expenses associated with an earlier Easter holiday season, contributed to the decline in earnings from the year-ago period.

“Our performance in the first quarter is in line with our expectations going into 2016. We remain committed to maximizing the value of our portfolio with customers and consumers,” Stephen Berman, chairman and CEO, stated. “As expected, our gross margin continues to improve due to ongoing margin enhancement initiatives,” said Berman.

This summer Jakks is launching several new entertainment-licensed products inspired by major theatrical releases, including Batman v Superman: Dawn of Justice, Captain America: Civil War, Teenage Mutant Ninja Turtles: Out of the Shadows, Warcraft, Alice in Wonderland: Through the Looking Glass, and Finding Dory.

Working Capital and Cash Flow

As of March 31, 2016, the company’s working capital was $226.9 million, including cash and cash equivalents of $118.9 million, compared to working capital of $234.2 million, including cash and cash equivalents of $105.3 million, as of March 31, 2015. Net cash provided by operating activities for the first quarter was $32.6 million, compared to $38.8 million in the year-ago period.

Reiterating 2016 Guidance

For 2016, Jakks continues to forecast net sales to increase seven percent to approximately $800 million; diluted earnings per share to increase 10 percent to approximately $0.78 per share, subject to share count changes; and adjusted EBITDA to increase 28 percent to approximately $65 million. This guidance reflects anticipated gross margin expansion and operating margin growth in 2016.

Share Repurchase

In June 2015, the board of directors authorized the company to repurchase up to $30 million worth of shares of the company’s outstanding common stock and/or convertible notes through open market purchases or in privately negotiated transactions. Approximately 2.9 million shares of common stock at an aggregate cost of $23 million and $2 million face amount of 2020 convertible notes at a cost of $1.9 million were repurchased through the end of the first quarter. At quarter end, approximately $5 million remained available in the current buy-back authorization.

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