Spin Master gets boost from Melissa & Doug deal, sees slow spending through 2024

The Toronto-based company, whose toy and entertainment brands include Paw Patrol, Bakugan and Hatchimals, has reduced the average prices of its toys by nine per cent for 2024, the CEO said on the call.

"With rising prices and basics like shelter, food and energy, consumers are feeling the pinch," Max Rangel, president and CEO, told analysts on a conference call Wednesday.

"We expect this environment will continue throughout 2024 as consumers manage through the impact of high interest rates and inflation," he added.

The comments came as Spin Master reported a loss of US$54.8 million in the first quarter, compared with a loss of US$1.9 million a year earlier. Its revenues totalled US$316.2 million, up from US$271.4 million during the same quarter last year.

The acquisition of toy company Melissa & Doug, which closed Jan. 2, added US$40.4 million to Spin Master's revenue during the quarter.

The US$950-million purchase of the Wilton, Conn.-based company known for its wooden and sustainable toys, adds more nostalgic offerings for preschoolers to Spin Master's roster.

Chief financial officer Mark Segal said in a release that toy gross product sales excluding the acquisition's impact were in line with a year earlier, during what's normally the lowest quarter for the toy industry.

"Spin Master has always been a seasonal business, and with Melissa & Doug, even more so," Segal told analysts on a call.  

Melissa & Doug is heavily weighted toward the second half of the year, bringing 80 per cent of the total revenue, especially from the sales during the fourth quarter, he added. 

The company was focused on Melissa & Doug's integration efforts during the first quarter, improving cost efficiencies from the acquisition and moving toward $6 million in net cost savings this year, it said in the release. The goal is to achieve $25-$30 million in savings and efficiency by the end of 2026.

"We've already begun to capitalize on cost synergies and identify revenue growth opportunities," Segal said in a statement.

Spin Master has a series of new releases lined up for the fall as the company marks 30 years in business, the CEO said.

The innovation pipeline this fall is going to three times the levels seen last year, Rangel added. The company is planning to launch Ms. Rachel, Sticker Wow and Fold Play Gym among other indoor and interactive offerings. 

Despite a strong lineup, Segal said the company is expecting the toy industry will continue to face headwinds from an ongoing economic slowdown.

He said the expectation from the upcoming innovations "is tempered by the reality that consumer behaviour in 2024 is likely to continue to be pressured."

Rangel said the company's top retailers in the U.S. have expressed "cautious optimism" for the second-half of the year, as the inventory levels improve.

"The retail group has reacted incredibly positive to our to our lineup," he added.

This report by The Canadian Press was first published May 8, 2024.