The Toronto-based toy and entertainment company dodged an overall decline with a slight sales increase of just 0.7% in the first quarter to $242.3 million. Overall revenue declined 4.9% to $227.3 million compared to $239 million during the same period last year. Gross product sales increased by 2.2% in North America and 13.6% in Europe but fell 29.4% in the rest of the world.
Declines across most categories were offset by a 24% increase across activities, games, puzzles, and plush — largely fueled by sales of games and Kinetic Sand products — and a 19.6% increase in action and construction products led by brisk sales for the new DC Comics collection, Bakugan, and Tech Deck.
“Q1 2020 was a challenging quarter for Spin Master, 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. COVID-19 first affected our Asian supply chain early in Q1 and we worked extremely hard to stabilize it by the end of the quarter. As the virus spread to customer markets, we adapted quickly and implemented measures to minimize the potential impact to our people and to Spin Master as a whole,” says Ronnen Harary, Spin Master’s co-CEO. “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. We have made significant progress in resolving the operational challenges we faced in 2019 and are well-positioned for the second half of 2020. 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.”
The company also took a hit in profitability in the first quarter of the year. Gross profit fell to $90.8 million compared to $107.7 million last year. The company cites the decrease in gross margin as being due to higher freight, reconfiguration expenses, and inventory provisions.
“Q1 profitability was significantly affected by the carryover of operational challenges from the second half of 2019,” says Mark Segal, chief financial officer, Spin Master. “During the quarter we undertook intensive initiatives to address these issues. We have made meaningful progress through a combination of structural supply chain changes and 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. Our liquidity position remains strong and we are operating from a solid financial position with substantial liquidity available. During the quarter we drew down $350 million on our committed credit facility and our total cash position increased to $424 million at the end of the quarter. As the year progresses, we will continue to focus on strengthening our core in order to build and maintain an efficient, high margin, and a sustainable global platform for long term growth.”
Spin Master will hold a conference call to discuss these results at 9:30 a.m. ET on May 7.