Spin Master, a leading global children's entertainment company, has announced its financial results for Q1 2020.
Decrease in revenue
"Q1 2020 was a challenging quarter for Spin Master,” said Ronnen Harary, Spin Master's co-chief executive officer. And this was reflected in the company’s revenue figures, which decreased by 4.9 per cent from $239.0m to $227.3m.
Increase in net loss
Net loss in Q1 2020 increased by 27.8 per cent for Q1 2020 to $26.7m, compared to the same period in 2019, when a loss of $20.9m was reported.
Factors affecting Q1 results
The challenging start to the year came, Harary said, “as we dealt with both the evolving Covid-19 situation and the carryover effects from the operational challenges we experienced in the second half of 2019.”
- Carryover effects from 2019’s operational challenges
Speaking of the company’s efforts to address the operational challenges that the company faced in the second half of 2019, Mark Segal, Spin Master's chief financial officer, said: "During the quarter we undertook intensive initiatives to address these issues. We have made meaningful progress through a combination of structural supply chain changes, improved cross-functional collaboration and cost management initiatives that we expect will yield improved operating efficiencies as we enter our seasonal sales peak in the second half of 2020.
- Effect of Covid-19 on Spin Master’s supply chain
Earlier this year, the outbreak of Covid-19 in China, led to the closure of many factories, before the virus spread to other parts of the world. These factory closures affected many toy companies, including Spin Master. Harary said: “Covid-19 first affected our Asian supply chain early in Q1 and we worked extremely hard to stabilise it by the end of the quarter. As the virus spread to customer markets, we adapted quickly and implemented measures to minimise the potential impact to our people and to Spin Master as a whole.
- Effect of Covid-19 on product demand
The outbreak of the virus has led to a widely reported surge in demand for toys, games and playthings to help occupy and educate children while they remain at home. This trend is reflected in data published by The NPD Group, sales data reported by retailers including John Lewis, as well as Q1 data from other suppliers in the toy industry. And Spin Master has also reported increased demand for certain categories.
Harary said: "Our POS in the quarter was up significantly over last year, particularly for categories such as games, puzzles, activities and arts and crafts as well as demand for our entertainment content and digital gaming, as consumers looked to occupy their children whilst at home.”
Increase in gross product sales
While revenues were down in the first quarter, gross product sales in the same period increased by 0.7 per cent to $242.3m from $240.5m. The increase was primarily driven by the activities, games, puzzles and plush and boys action and construction business segments. In North America, gross product sales increased by 2.2 per cent to $144.6m and by 13.6 per cent in Europe to $73.5m. In the rest of the world, sales fell by 29.4 per cent to $24.2m.
Category sales comparison
Spin Master also reported its business segment gross product sales.
- Activities, games and puzzles, and plush
Gross product sales increased by $15.1m or 24.0 per cent to $78.1m, driven primarily by Kinetic Sand and games and puzzles, partially offset by Gund.
- Remote control and interactive characters
Gross product sales decreased by $10.9m or 35.0 per cent to $20.2m, primarily due to Hatchimals, partially offset by PAW Patrol RC.
- Boys action and construction
Gross product sales increased by $9.7m or 19.6 per cent to $59.1m. The increase was primarily driven by sales of DC licensed products, Bakugan and Tech Deck, partially offset by DreamWorks Dragons.
- Pre school and girls
Gross product sales decreased by $6.9m or 10.9 per cent to $56.5m. The decrease was primarily driven by PAW Patrol, Twisty Petz and Off the Hook, partially offset by higher sales of Candylocks.
Gross product sales decreased by $5.2m or 15.5 per cent to $28.4m.
Optimism for the remainder of 2020
In spite of disappointing Q1 figures, both Segal and Harary remained optimistic for the balance of the year.
Segal, said: “Our liquidity position remains strong and we are operating from a solid financial position with 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 for long term growth."
Harary said: “We are focused on keeping our team safe and productive, keeping costs down and managing our cash flow prudently whilst continuing to invest for the long term.
“We believe in the underlying resilience of the toy industry and our diversified portfolio of brands, entertainment properties and digital toys. Our commitment to our strategy and our strong financial base, positions us for long term success."