Spin Master reports 54% revenue growth in Q2

With a little help from Hatchimals, the Toronto-based toy and entertainment company is reporting revenue of US$276.7 million for the quarter and is on track to exceed 2017's overall sales forecast.
August 2, 2017

Spin Master is reporting its highest recorded revenue and EBITDA for Q2 2017. The Toronto-based toy and entertainment company posted revenue of US$276.7 million, up 54% from the same period last year. Excluding revenue from Swimways (acquired in Q3 2016), revenue increased by 37.4%. Adjusted EBITDA, meanwhile, was US$43.7 million (an increase of 72%).

According to Spin Master, sales growth complemented by improved operating leverage contributed to the increase in adjusted EBITDA. The second quarter also saw the launch of the company’s Hatchimals Colleggtibles line, which expanded its hit toy property Hatchimals into the uber-hot collectibles category.

Gross product sales grew by 52.2% to US$283.2 million, driven largely by sales of Hatchimals, PAW Patrol and Swimways products. Excluding Swimways, gross product sales saw a 35% increase. Brands including Secret Life of Pets, Angry Birds and Spy Gear, meanwhile, saw declines.

Gross product sales for the business segment of Remote Control and Interactive Characters grew 310.9% to US$84 million, while Pre-School and Girls grew 20.9% to US$90.2 million and Activities, Games & Puzzles and Fun Furniture grew 8% to US$57.8 million. Increases in Activities, Games & Puzzles and Fun Furniture was driven largely by Cardinal, Etch A Sketch and Kinetic Rock. Growth in Remote Control and Interactive Characters benefited from strong sales of Hatchimals, Hatchimals Colleggtibles and ZoomerZupps. PAW Patrol, meanwhile, drove growth in the Pre-School and Girls segment.

The Boys Action and High-Tech Construction segment, however, declined by 53.1% to US$17.6 million (down from US$37.5 million in Q2 2016). The losses in this segment were largely due to the declining sales of Angry Birds and Secret Life of Pets licensed products, though this was partially offset by the increase in sales of Meccano, Tech Deck and Pirates of the Caribbean licensed products.

In North America, specifically, gross product sales increased by 60.3% and Europe saw growth of 32.4%, while the rest of the world saw growth of 42.4%. In an effort to take advantage of international territories, Spin Master announced in June that it would launch its Hatchimals and PAW Patrol brands in China, with plans for further expansion of all of its core brands in the area.

Net income was US$22.1 million compared to US$3.6 million in the second quarter of 2016. Adjusted net income, meanwhile, was US$22.2 million (up from US$11.7 million in 2016).

Other Revenue—which reflects merchandising royalty and TV distribution income from products marketed by third parties using Spin Master’s IP as well as app revenue from Toca Boca and Sago Mini—was US$17.6 million (up from US$12.4 million in 2016). Gross profit increased by 54.4% to US$141.4 million, reflecting higher sales of owned IP products and higher Other Revenue. This growth was offset by lower gross margin Swimways sales.

Additionally, Spin Master acquired outdoor toyco Aerobie at the end of Q2 2017 for US$10.65 million. The move is part of the company’s continuing attempts to diversify its product offerings and build on its outdoor business segment. Moving forward, Spin Master will work on innovation for the Aerobie line through its global research and development network.

For the full year 2017, Spin Master now expects organic gross product sales (excluding Swimways) to grow in the mid-20% range relative to 2016, an increase over the guidance provided with the Q1 2017 results. Including Swimways, Spin Master expects gross product sales growth in the low 30% range compared to last year.

In Q1 2017, Spin Master’s sales rose to US$227.7 million. The quarter saw increases for the Pre-School and Girls Segment (up 6.6% to US$84.7 million) and declines for Activities, Games & Puzzles and Fun Furniture (down 3.5% to US$48 million) as well as for Boys Action and High-Tech Construction (down 42.8% to US$13.2 million).

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