Mega Brands tallies loss
By Staff -- Playthings, 8/20/2008 5:41:00 PM
MONTREAL—Mega Brands this week announced it recorded a net loss for the second quarter as lower sales for its toys and stationery products for older kids, and additional product recall charges, ate into its bottom line.
The toymaker’s net loss for the quarter $3.6 million or $0.10 diluted loss per share compared to net earnings of $4.0 million or $0.12 diluted earnings per share in the second quarter of 2007. Its loss from operations was $2.4 million compared to earnings from operations of $8.7 million in the prior year's period.
Net sales during the quarter decreased 12 percent to $106.4 million. Sales of the company’s toy lines dropped by $10.6 million to $47.3 million, due mainly to lower shipments of licensed toys in the Boys 5-plus category—the change being primarily a “timing issue,” according to the company—which offset increased sales of its preschool construction toys. The decrease in sales also reflected $2.5 million of additional product recall charges related to its Magtastik and Magnaman lines.
Net sales for Mega’s stationery and activities product lines—a business currently for sale—declined to $59.1 million from $63.6 million in the second quarter of 2007. This decrease was attributed to shrinking shipments of lower-margin children's activity products. Those products have been since discontinued under a SKU rationalization program.
On a geographical basis, net sales in North America decreased approximately $10 million to $71.1 million; international net sales increased by $1 million to $35.3 million.
The company this week completed a $75 million financing deal, the proceeds from which “will allow us to operate in the normal course as we gear up for the peak toy selling season. I know this is welcome news for our suppliers, our customers and our employees,” said Marc Bertrand, Mega Brands president and CEO. “We are very aware that many of our current shareholders are not happy with the dilution of their ownership as a result of this financing. However, given the deterioration of our liquidity position, I can say without reservation that this was the best alternative.
“Our lenders have also agreed to important changes to our credit facilities,” Bertrand added. “These changes, combined with the $75 million of new money, provide us with significant financial resources and with greater flexibility to implement our Value Enhancement Plan, restore the company to profitability and build our future.”
According to Bertrand, the company’s actions around that plan will generate $12 million in annualized cost savings beginning in the third quarter, have resulted in new processes to improve the efficiency of its supply chain and positioned the company to achieve better margins through “value engineering, price adjustments and improved product mix.”
Bertrand added that Mega Brands has reached an agreement with its insurers for the recovery of an additional $9.3 million related to the settlement of lawsuits for magnet ingestion recorded in 2006. “We expect to receive payment shortly and to record this amount in our third quarter results,” Bertrand said. “This means we have recovered almost the full amount of our $13.5 million settlement.”
