Spin Master Corp. is sharpening focus on internally developed IP, but remains committed to licensing film-based properties, company executives told analysts. Licensed film-based products typically account for 15-25% of Spin Master’s annual sales, Chief Financial Officer Mark Segal told us.

While internally developed IP such as Hatchimals and LuvaBella dolls account for an ever-larger portion of Spin Masters’ sales, the company also is “investing more time in developing strong relationships with the studios,” Global Pres. Ben Gadbois said. Yet revenue from its boys action and high-tech construction business fell 37% in Q3 ended Sept. 30 to $75.4 million amid a decline in sales of products related to Angry Birds, Teenage Mutant Ninja Turtles and Secret Life of Pets.

“We did not comp some of the movies we did last year and that creates a decrease in the [boys action] segment, but that was planned,” Co-CEO Ronnen Harary said. “We are really refocusing this category [boy’s action] into driving more internally created IP. That doesn’t mean we won’t do movies, we will continue to do some, but you will see a bit of a different strategy moving forward.”

The new strategy follows a year in which there was a “bit of saturation” in film releases and “things haven’t connected as they did in previous years,” Gadbois said. “I think it is going to be a cyclical thing and films are going to be part of Spin Master’s portfolio and we are going to focus on taking in the movies that resonate with consumers. We will be part of the fold and the fray.”

Meanwhile, Toys R Us’ bankruptcy filing in September is expected to create “some sales disruption” in Q4 and early 2018, company executives said. The company resumed deliveries to Toys R Us shortly after the bankruptcy filing, but slid about $10 million in planned Q3 shipments to the chain into Q4. Spin Master also took a $5.4 million bad debt charge related to the bankruptcy filing, the company said. In the nine months ended September 30, Toys R Us accounted for 13% of Spin Master’s revenue, says Segal, slightly less than the 15% share of 2016 sales.

Overall, Spin Master’s Q3 net income grew 30.7% to US$108.8 million as sales jumped 27.6% to $606.1 million. The increase was led by a 78.3% gain in Spin Master’s remote control and interactive character segment where revenue jumped 78.3% to $264.1 million. Spin Master’s “other” revenue, which includes its outbound licensing business, increased 2.3% to $17.7 million. Sales of pre-school and girls products rose 19% to $215.7 million as revenue from Paw Patrol and Rusty Rivets offset declines in Brightlings and Poppies, the company said.

Paw Patrol starts its fifth season in early 2018. Rusty Rivets, which started a second season this month, currently has an exclusive at Toys R Us and will have broader launch starting in Q3 2018, Gadbois said. Spin Master and Arc Productions produce the series which airs on Nick Jr. in the U.S.

Contact:

Spin Master Corp., Mark Segal, Chief Financial Officer, (416) 364-6002 x2333,MarkS@SpinMaster.com