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Spin Master expecting challenging year in 2024, plans to launch new 'value' toys

TORONTO — Spin Master Corp. says it expects to face a challenging year in 2024 amid ongoing economic pressures on shoppers, but could see growth as it integrates U.S. toymaker Melissa & Doug following the closure of its acquisition.

President and CEO Max Rangel told analysts on a conference call Thursday that Spin Master navigated a "challenging retail environment" in 2023 amid underwhelming demand for toys globally.

He said consumers spent less on toys amid high inflation and rising interest rates, instead shifting toward services and experiences such as travel, restaurants, concerts and sporting events since the COVID-19 pandemic.

"Consumers spent less per child in the toy aisle and traded down from a price point perspective across multiple categories as they had to make more considered spending decisions," Rangel said.

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"Looking forward, we expect that 2024 will be a challenging year due to the continued economic pressure on consumers and a shorter shopping period during the holiday season."

American Thanksgiving comes a little later this year, on Nov. 28 compared with Nov. 23 in 2023.

Rangel said the 2023 holiday shopping season didn't bring an expected surge in toy sales despite deep discounts as shoppers remained cautious.

The Toronto-based toy and entertainment company behind the popular Paw Patrol, Bakugan, Hatchimals, Rubik’s Cube and Gund toys reported a loss of US$30.1 million in the fourth quarter, compared with a loss of US$13.8 million a year earlier.

Revenues rose to US$502.6 million, up from US$465.8 million during the same quarter in 2022. Loss per diluted share amounted to 29 cents US, compared with 13 cents US a year earlier.

Rangel said Spin Master plans to launch a new "value" toy line in the second half of 2024 to address continued pressure on consumer discretionary spending.

"We believe there is a large opportunity to grow volume in this channel," he said.

"Our new value line leverages our strongest brands and licences including Paw Patrol, Gabby's Dollhouse, Monster Jam and DC Comics with price points as low as $1," he said.

The company also expects the acquisition of Melissa & Doug, which closed just after its 2023 fiscal year ended, to contribute between US$370 million and US$375 million in revenue, along with savings opportunities.

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

"We see many opportunities for growth by leveraging Melissa & Doug to grow our early childhood play capabilities," said Rangel.

Chief financial officer Mark Segal said Spin Master is ahead of schedule in achieving cost synergies associated with the acquisition, as it expects around US$6 million in savings in 2024 and nearly US$30 million by the end of 2026.

Rangel said the company hopes to capitalize on other initiatives this year, including the 50th anniversary celebration of the classic Rubik's Cube, through the launch of a mobile game called Rubik's Match.

Spin Master is also banking on the momentum it said it saw from the release of its second Paw Patrol movie last September.

Rangel said the company has surpassed US$200 million in global box office revenue from "PAW Patrol: The Mighty Movie," a film based on its hit television show and line of toys detailing the adventures of a crew of search and rescue dogs.

"The release of the second movie had a very positive impact on watch time across all Paw content, including the TV series, helping to fortify Paw's brand equity and health," he said.

Earlier in 2023, Spin Master also launched its first spinoff series of the franchise, Rubble & Crew, which Rangel said has been renewed for a second season.

He told analysts the spinoff show continues to be one of the top five preschool shows on Nickelodeon in its age category.

This report by The Canadian Press was first published Feb. 29, 2024.

Companies in this story: (TSX:TOY)

Sammy Hudes, The Canadian Press