Spin Master sees 'positive' back half of year for toy market after posting Q2 loss

Characters are shown at the Spin Master toy and entertainment company office in Toronto on Tuesday, January 29, 2019. THE CANADIAN PRESS/Nathan Denette

Spin Master Corp.'s chief executive is optimistic the year will end on a high note for the toy market, despite shoppers sticking with their deal-hunting behaviours.

"Even though the consumer continues to face many financial headwinds, particularly in the U.S., there are reasons to believe that the back half of the year will be positive for the toy category," Max Rangel told analysts on a Wednesday call.

His hypothesis is based on promising developments he foresees across several of the brands Spin Master is behind or licenses. Those brands include Paw Patrol, Bakugan, DreamWorks Dragons, Gund and Kinetic Sand.

In the fall, Rangel expects products from Ms. Rachel, a social media personality who created the children's music series "Songs for Littles," to perform well.

He also sees strength coming from new theatrical-based toy lines under the Superman, Dragons and Gabby's Dollhouse brands.

Rangel's remarks come a day after Spin Master revealed its second quarter brought a loss of US$24.5 million, compared with a US$28 million profit a year earlier.

Revenues for the period ended June totalled US$412 million, down from US$420.7 million during the same quarter last year.

Over the same period, the Toronto-based company's toy revenues tumbled to US$340.9 million compared with US$346.3 million a year earlier.

The company blamed the category's performance on customer orders and shipments shifting to the second half of 2024.

Its digital games revenue also fell, slumping by 14.3 per cent to US$34.7 million primarily due to lower in-game purchases in "Toca Life World," where players can explore and decorate different realms.

The entertainment portion of its business, however, saw gains. It brought in US$36.4 million in revenue compared with US$33.9 million a year prior.

The increase was attributed to higher distribution revenue associated with Paw Patrol's recent movie and series release, but partially offset by less new content from "Unicorn Academy" and "Vida the Vet."

While Rangel said the quarter's revenue results met Spin Master's expectations, Stifel analyst Martin Landry said some of the company's metrics over the period "underperform the industry."

"This is disappointing but can be explained by two sub categories, building sets and collector card sets, which are growing rapidly and for which Spin Master has limited exposure," he wrote in a note to analysts.

Melissa & Doug, a brand Spin Master bought in 2023 that is focused on wooden toys and make-believe playthings, is set to launch a construction toy line called Blockables in the fall.

The wood-based line "fits well" into the growing building set category and is part of what has left Rangel confident in how the company will perform in the second half of the year.

"We are encouraged that consumer sentiment appears to be improving and that families intend to prioritize purchases that bring both joy and value for their family, including toys," he said.

Chief financial officer Mark Segal, who announced Tuesday that he will retire in the first half of 2025, also spoke positively of upcoming quarters, saying there is a "large amount" of fresh content on its way, including some from "Toca Life World."

However, his outlook is "tempered by the reality that consumer behaviour is likely to continue to be volatile with five fewer shopping days leading into Christmas 2024."

This report by The Canadian Press was first published July 31, 2024.