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Spin Master pivots past supply chain problems to deliver toys ahead of the holidays

November 9, 2021   by Brett Bundale (CP)

(CP) Canadian toymaker Spin Master Corp. has twisted its way past supply chain problems to deliver goods to retailers ahead of the holidays, the company’s most lucrative sales period of the year.

The children’s entertainment powerhouse posted record revenues in its third quarter, sending its profits soaring 56 per cent and positioning Spin Master for a strong final quarter of the year.

“We are pleased with our strong performance, which puts us on very solid footing leading into the holiday season,” Max Rangel, Spin Master’s global president and chief executive officer, told analysts during a conference call Thursday.

The company reported a double-digit increase in toy gross product sales, growing 16 per cent in three months ended Sept. 30, he said.

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Rangel attributed the success to Spin Master’s handling of disruptions that continue to rock the global supply chain, a strategy he said will continue to pay off in the company’s final quarter of 2021.

“We pulled forward finished goods production to increase capacity and we invested in more tooling to dual source manufacturing of certain product lines,” he said.

“We leveraged our diversified third-party manufacturing footprint across China, Vietnam, India and Mexico to optimize availability and we worked with our logistics providers to secure access to additional ports and shipping lanes.”

He added: “We are working very closely with our supply chain teammates because we have to make sure that the products are on shelves.”

Mark Segal, Spin Master’s chief financial officer, said the “macro supply chain issues” include waves of COVID-19 in China and Vietnam, container availability, port delays on the West Coast, and trucking capacity in North America.

“We haven’t yet seen a significant improvement in those factors,” he told analysts. “We’ve been managing around them and our supply chain team and commercial teams have done an absolutely outstanding job navigating those choppy waters and that’s been one of the reasons why we’ve had such strong results.”

The company ushered in price increases for its fall toy line to help offset the rising cost of raw materials like plastic resins and electronic chips as well as higher ocean freight costs, Rangel said.

Meanwhile, Spin Master digital games and entertainment revenues continue to climb.

The Toronto-based company’s first feature film – Paw Patrol: The Movie – has grossed more than US$135 million worldwide since its August release, Rangel said.

“The movie release has had a halo effect on our franchise,” he said. “Our reach among children has increased from 41 per cent to 60 per cent and awareness of Paw Patrol has risen globally.”

It also helped drive demand for toys, a tailwind the company hopes to ride into the holiday season.

A theatrical sequel to the movie is also in the works, with the second big screen feature  – PAW Patrol: The Mighty Movie – expected to be released in the fall of 2023.

Spin Master is also seeing growth in its digital games revenues and new subscribers. Fans post content on social media websites like YouTube and TikTok, helping attract new users, Rangel said.

The company recently announced a $100 million investment in early-stage toy, entertainment and digital games companies in a bid to bolster its product development pipeline.

Spin Master Ventures will make strategic minority investments in start-ups and entrepreneurs in the children’s entertainment space, the company said.

To launch the fund, Spin Master Ventures made minority investments in Nordlight, a mobile game development company based in Stockholm, and Hoot Reading, a Winnipeg-based online tutoring service.

The company, which reports in U.S. dollars, said Wednesday it earned US$135.4 million or US$1.29 per diluted share in its third quarter, up from US$86.8 million or 83 cents per share a year earlier.

Adjusted profits were US$132.6 million or US$1.26 per share, compared with US$95.1 million or 91 cents per share in the same quarter of 2020.

Revenues were US$714.5 million, up 25 per cent from US$571.6 million in the prior year.

The company was expected to report 88 cents per share in adjusted profits on US$609.2 million of revenues, according to financial data firm Refinitiv.

Spin Master shares were up more than 14 per cent on Thursday, trading at $47.95, up $6.05 from the previous day’s close of $41.90.