Spin Master says toy retailers and new entrants fighting for Toys ‘R’ Us sales

TORONTO — Rival toy store chains are working on plans to win the market share Toys “R” Us left up for grabs following its bankruptcy and liquidation in the United States and Britain, Canadian toy maker Spin Master said Wednesday.

Both existing toy retailers and new players are fighting hard to gain the bankrupt toy retailer’s 12 per cent market share in the U.S., Ben Gadbois, Spin Master’s global president and chief operating officer, told analysts after the company reported it incurred a US$15.2 million bad debt expense in the first quarter, due to the travails of Toys “R” Us.

The Toronto-based company, which is a supplier to Toys “R” Us, believes up to 90 per cent of the retailer’s sales will be absorbed by other retailers later this year, but expects the American industry will face about a two per cent hit.

The closing of Toys “R” Us stores in the United States and Britain will end an important sales venue for toy manufacturers.

Spin Master, which makes popular toy brands such as Hatchimals and Paw Patrol, expects its second quarter will be challenging as the biggest impact of the retailer’s liquidation is felt, and because traditional Easter sales were shifted this year to the first quarter.

However, it expects the landscape will normalize in 2019.

Spin Master co-chief executive Ronnen Harary said the sad demise of the toy retailer in the U.S. and the U.K. is not a sign of weakness in the toy industry or retail in general.

He added that the company is pleased that many Toys “R” Us operations around the world, including in Canada, have been sold or are in the process of being sold and will continue to operate. Canadian Toys “R” Us locations were bought by Fairfax Financial Holdings Ltd., which was the sole bidder in the auction process, offering $300 million.

Spin Master reported late Tuesday that its net income fell nearly 14 per cent to US$8.7 million or nine cents per share in the first quarter of its 2018 fiscal year.

That compared with US$10.1 million, or 10 cents per share, for the same quarter the previous year.

Adjusted net income was US$22 million, or 22 cents a share for the quarter, compared with US$13.6 million or 13 cents a share for the same quarter the previous year.

The first-quarter profit beat analysts’ estimates of 15 cents per share, according to data compiled by Thomson Reuters Eikon.

Spin Master says revenue for the quarter ended March 31 increased 25.5 per cent to US$285.7 million from US$227.7 million.

The company’s shares gained 7.8 per cent at $53.80 in morning trading on the Toronto Stock Exchange.

Companies in this story: (TSX:TOY)