Toy budgets shrink amid inflation: Spin Master

A person is silhouetted at the Spin Master toy and entertainment company in Toronto on Tuesday, January 29, 2019. Toymaker Spin Master Inc. says shoppers are becoming increasingly price sensitive and opting for less expensive toys as inflation continues to surge. THE CANADIAN PRESS / Nathan Denette

Toymaker Spin Master Inc. says shoppers are becoming increasingly price sensitive and opting for less expensive toys as inflation continues to surge.

Max Rangel, global president and CEO of the children’s entertainment company, said sales of pricier toys have slowed.

“We had quite a few items last year that were priced over $ 70 and that category was really growing pretty materially,” he said during a conference call Thursday. “Now items in that category of price have contracted a bit.”

Consumers are still buying toys though, with Rangel noting that sales of items in the $ 30 to $ 70 range are growing.

His comments came a day after the Toronto-based company increased its revenue guidance for 2022 after sales jumped 34 per cent in its latest quarter and profits surged more than tenfold.

Yet despite Spin Master’s positive first-quarter results, the toy maker is continuing to grapple with sporadic pandemic shutdowns in countries where it has factories.

Most notably, China’s financial capital Shanghai and some smaller cities have faced weeks of shutdowns in recent months.

But Mark Segal, Spin Master’s chief financial officer, said the company’s factories have continued to run at reasonable staffing levels or faced only brief shutdowns.

“There are some raw material delays from China but nothing material,” he told analysts during the call. “Overall what we’re doing is we’re working very closely with our suppliers in Asia.”

Spin Master is buying electronic components early, considering parts substitutions and doing “inventory pre-builds” to reduce the impact of any COVID lockdowns, Segal said.

The company has also padded its lead times, allowing more time for shipping and using multiple ocean carriers to ensure items are delivered on time, Rangel said.

Meanwhile, Spin Master is also facing its own inflationary pressure on raw materials like plastic resin and freight costs.

The company has passed some of those increased costs on to customers through higher prices.

“We balance our need for margin with price point management,” Rangel said.

Spin Master, which reports in US dollars, earned US $ 45.6 million or 43 cents per diluted share in its first quarter, up from US $ 3.2 million or three cents per share a year earlier.

Adjusted profits were US $ 57.5 million or 55 cents per share, up from US $ 8.4 million or eight cents per share in the first quarter of 2021.

Revenues for the three months ended March 31 were US $ 424.2 million, up from US $ 316.6 million in the prior-year quarter.

Toy revenues increased 37 per cent to US $ 350.9 million, digital games was up 49 per cent to US $ 51.1 million, while entertainment dropped 17 per cent to US $ 22.2 million.

This report by The Canadian Press was first published May 5, 2022.

Companies in this story: (TSX: TOY)


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