Remember the brawls leading up to Christmas 2016 when parents were fighting over the last Hatchimal on the shelf? And then the distressed cries of children on Christmas Day when the Hatchimals refused to open on cue? Those highs-and-lows sum up the shareholder sentiment of recent years for Canadian toymaker Spin Master Corp. (TSX:TOY).
In June 2018, Spin Master was trading at an all-time high of $58. More recently, Spin Master seems to have fallen out of fashion just as quickly as Furbies, with the stock currently trading around $44.
With an earnings release scheduled for this week, can Spin Master spin back into a winner?
Previous earnings release lowered guidance
During the previous earnings release in November, Spin Master lowered its guidance for the full year. The company originally projected organic gross product sales relative to the prior year to be in the mid-single digits. However, the company lowered expectations to the low-single digits.
Even robust sales in the company’s most popular product line, Gund, weren’t enough to raise the outlook. Gund, which Spin Master purchased in 2018, is the oldest plush toy manufacturer in the U.S. and is recognized as one the world’s leading and most beloved toy brands.
Last year, the closure of 800 Toys “R” Us locations across the U.S. shook the entire toy industry. Spin Master pointed to the fact that the industry had never experienced such a large toy retailer disappear so quickly.
According to data from the NPD Group, the overall performance of the toy industry in the third quarter of 2018 was down 7%, thereby affecting the bottom line of all toy manufacturers.
Spin Master believes that time will lessen the impact of the closures by Toys “R” Us, as other retailers ramp up plans to fill the void. The company anticipates that by the end of 2019, almost all sales volume previously attributed to Toys “R” Us will be redistributed throughout other retailers.
Spin Master plans to relaunch an iconic toy line
In addition to its popular line of toys from PAW Patrol, Air Hogs and Hatchimals, the company plans to resurrect an old favourite.
Spin Master is banking on a relaunch of the highly successful line of Bakugan toys and its correlative cartoon. It’s been 12 years since Bakugan was introduced and the kids who once thought Bakugan was cool are now grown. The company admits that the toys must appeal to “an entirely new generation of kids” who are more sophisticated in media than the kids who played with the toys and watched Bakugan when it first aired in 2007.
Although the toys will retain the essence of the original line, there will be new features, such as apps, which Spin Master hopes will bring Bakugan into relevance once again.
In conjunction with the release of the toys, Cartoon Network features a reboot of the once popular series. Spin Master hopes to capitalize on the popularity of YouTube by producing complementary short-form content.
Spin Master continues to be a leader in toy innovation. At this year’s Toy of the Year (TOTY) awards, Spin Master surpassed its 100th nomination. The company received two TOTY awards: Creative Toy of the Year for Cool Maker KumiKreator and the Vehicle Toy of the Year for PAW Patrol Ultimate Rescue Fire Truck.
This week’s earnings should shed some light on the new product initiatives from the company, as well as the impact of the first holiday season without massive retailer Toys “R” Us. As a huge fan of the company’s products, I hope Spin Master will improve its guidance going forward, put Toys “R” Us in the rearview mirror and give the shareholders something to cheer about.
