Spin Master Corp. announced its financial results for the third quarter ended September 30, 2019.
Revenue of $548.1 million decreased by 11.6% from $620.0 million.
Gross product sales decreased by 11.4% to $583.3 million from $658.2 million, with an unfavorable foreign exchange impact of $5.4 million or 0.8%. The decline was driven primarily by a decline in Hatchimals, which is in the Remote Control & Interactive Characters segment, partially offset by growth in Boys Action and High-Tech Construction.
Gross product sales increased 1.6% in Europe and declined 15.3% and 12.1% in North America and the rest of the world, respectively. International gross product sales on a combined basis were 36.2% of total gross product sales, increasing from 33.3%. Other revenue increased by 3.4% to $26.7 million.
“We have made solid strides in executing our long-term growth strategies,” said Ronnen Harary, Spin Master’s Chairman and Co-CEO. “While our performance in the third quarter was negatively affected by several challenges, we do not believe it is indicative of our expected full year 2019 performance nor our long-term growth and value creation prospects. We believe Spin Master’s diversified portfolio of brands and franchises, driven by our relentless focus on innovation and storytelling, is strong and healthy and the power of our international platform, as well as our ability to capture the hearts and minds of kids with engaging multiplatform entertainment and digital content, will continue to drive long term profitable growth.”
Ben Gadbois, Spin Master’s President and Chief Operating Officer commented, “Our decision to manage our brands more tightly using domestic replenishment and an evolving retailer trend away from direct import orders towards domestic orders shifted shipments from the third quarter to the fourth quarter. In addition, increased inventory levels arising from our decision to bring in inventory earlier to mitigate US tariffs, together with short term disruption caused by our US East Coast warehouse consolidation, created congestion in our US supply chain. This resulted in a significant shift of both shipments and orders from the third quarter to the fourth quarter. We are pleased with the progress we have made in October, with both orders and shipments off to a strong start. We remain on track to deliver top line growth for the full year.”
Gross profit was $286.9 million, representing 52.3% of revenue, compared to $317.8 million or 51.3%. The increase in gross margin was primarily due to favorable changes in product mix, partially offset by increased freight-related expenses and higher sales allowances.
Selling, general and administrative expenses (SG&A) remained flat compared to the prior year. As a percentage of revenue, SG&A was 29.7% compared to 26.2%. This increase was driven by higher selling expenses from increased sales of licensed products, increased distribution expenses resulting from the shift towards higher domestic sales compared to direct import sales, primarily in the US and higher marketing expenses, partially offset by lower administrative expenses.
Net income was $92.1 million or $0.89 per share (diluted), compared to $107.9 million or $1.06 per share (diluted). Adjusted net income was $93.2 million or $0.90 per share (diluted), compared to $117.7 million or $1.15 per share (diluted).
Gross product sales decreased by $74.9 million or 11.4%, to $583.3 million with an unfavorable foreign exchange impact of $5.4 million or 0.8%.
Gross product sales in Activities, Games & Puzzles, and Plush decreased by $14.1 million or 8.5% to $152.4 million. The decrease was driven primarily by lower sales of Bunchems and the Games & Puzzles portfolio, partially offset by increases in Cool branded products.
Gross product sales in Remote Control and Interactive Characters decreased by $120.7 million or 50.7% to $117.3 million, primarily due to lower sales of Hatchimals, while Luvabella, Zoomer and Air Hogs also declined, partially offset by sales of Owleez, Monster Jam RC and Juno.
Gross product sales in Boys Action and High-Tech Construction increased by $66.0 million or 177.0% to $103.2 million. The increase was primarily driven by sales of Bakugan, DreamWorks Dragons and Monster Jam, partially offset by decreases in Boxer, Fugglers and Flush Force.
Gross product sales in Pre-School and Girls decreased by $4.4 million or 2.1% to $204.0 million. The decrease was driven primarily by declines in Party Popteenies and Rusty Rivets, partially offset by increases in PAW Patrol, Twisty Petz and sales of Candylocks, Awesome Bloss’ems and Pre Cool.
Gross product sales in Outdoor decreased by $1.7 million or 21.1% to $6.4 million.
Spin Master continues to focus on driving growth. Its principle strategies, which remain unchanged for 2019, include:
- Innovate using global internal and external research and development network;
- Developing evergreen global entertainment properties;
- Increasing international sales in developed and emerging markets; and
- Leveraging the company’s global platform through strategic acquisitions.