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Jan 21, 2020

Spin Master cuts sales forecast due to industry softness; shares fall

Spin Master lowers sales forecast as Hatchimals disappoint


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TORONTO - Shares of Spin Master Corp. fell Tuesday after it said sales were going to be worse than expected because of problems with its distribution system, a softer U.S. market, and fallout from trade disputes.

The Toronto-based toy giant says results for its fourth quarter and 2019 as a whole would likely show a one per cent drop in gross product sales, compared with its guidance in November of growth in the low single digits.

“I want to personally apologize for our performance in 2019. We let ourselves, our customers, consumers and our shareholders down,” said Ronnen Harary, co-founder and co-CEO of Spin Master on an analyst call Tuesday.

The company's mistake was to try to consolidate its four distribution centres into a single warehouse in the third quarter, just as its busiest season was ramping up, Harary said.

“This was a major error in judgment....we should not have undertaken a project of this nature at this point in time, just as we entered our seasonal shipping peak.”

The consolidation was further complicated by a shift in buying patterns and congested retail supply chains after Toys “R” Us collapsed in the U.S., and the trade dispute between the U.S. and China that pushed the company to bring toys in earlier to avoid tariffs, only to have to deal with higher inventories.

“I think we had a bit of hubris. We were gunning for consolidation, cost savings, integration, all these things in the midst of all these macro factors,” Harary said.

The logistics crunch pushed up costs, while dropping toy sales in the U.S., down two to four per cent compared with international growth of four to five per cent from a variety of factors, including a shortened holiday season, also put pressure on results.

The company also felt the effects of the fading interest in its Hatchimals toy that were a blockbuster when they launched but which saw sales decline by over US$230 million year over year. Taking Hatchimals out of the equation, gross product sales for 2019 were up 16 per cent over 2018, Spin Master said.

Excluding the impact of foreign exchange, Spin Master said it expects gross product sales for 2019 to be approximately flat relative to 2018. The company is expected to report its full financial results on March 4.

The company, which produces original content as well as toys, is behind several popular brands including Paw Patrol, Bakugan, Zoomer, and Air Hogs, its first major success after it launched in 1998.

Shares in the company closed down $1.84, or about five per cent, at $35.46, after dipping as much as 20 per cent to $29.99 in early trading.