RC2 stays profitable as sales slip; ups credit
By Staff -- Playthings, 11/4/2008 8:35:00 AM
OAK BROOK, Ill.—RC2 Corp. said that third quarter net sales fell nearly 8 percent while income grew incrementally compared to the corresponding period of 2008. The toy and infant products maker also said it signed a new $145 million credit facility.
Net sales for the third quarter ended on September 30 decreased approximately 8 percent to $132.9 million compared with $144.8 million for the third quarter a year ago. Excluding net sales of discontinued product lines and recall-related items, net sales for the third quarter of 2008 of $132.2 million decreased approximately 6 percent compared with net sales for the third quarter of 2007.
"Our 2008 third quarter sales results reflected conservative ordering by retailers in the North American market," said Curt Stoelting, RC2’s CEO.
Net income was $11.1 million, or $0.64 per diluted share, in the 2008 third quarter, up from $10.8 million, or $0.52 per diluted share, in the year ago third period. The results for the third quarter of 2008 were negatively impacted by terminated acquisition costs of $0.9 million and an investment write-off of $1.4 million, both net of tax. These charges were mostly offset by recoveries of recall-related items of $1.9 million, net of tax. The net impact of these items was $0.02 per diluted share in the third quarter 2008. The results for the third quarter 2007 were negatively impacted by recall-related items of $5.9 million, net of tax, or $0.28 per diluted share.
The 2008 third quarter gross margin increased to 46.7 percent as compared with 44.1 percent in the prior year, primarily due to lower recall-related items. Excluding recall-related items, gross margin decreased slightly primarily due to higher product and transportation costs, which were mostly offset by current year price increases, cost savings initiatives and positive changes to the company’s product mix. Selling, general and administrative expenses decreased $1.7 million to $41 million in the third quarter due to lower variable sales costs. Lower sales volumes resulted in a decline in operating income, excluding the impact of recall-related and non-recurring items, to $19.1 million during the third quarter 2008, from $25.1 million in the year ago period.
According to Stoelting, sales in RC2’s preschool, youth and adult products category declined 9 percent on a comparable basis in the 2008 third quarter. Declines were tallied among its Nickelodeon, Bob the Builder, radio-control and Thomas & Friends product lines; helping the company’s bottom line were comparable sales increases due to initial shipments of the Learning Curve Caring Corners product line and strength in its John Deere product lines.
International sales increased by 12 percent, despite a negative impact of 3 percent, due to foreign currency exchange rates.
Sales in the company’s mother, infant and toddler products category declined by 1 percent, reflecting an improved trend when compared with the first half of 2008. “In this category, we generated sales increases in Lamaze developmental toys and infant and toddler gear and feeding products marketed under our The First Years brand, which were offset by sales declines in our The First Years infant care and toy product lines,” Stoelting said.
Based on the company’s results through September 30, 2008, and the impact of current economic conditions, RC2 lowered its outlook for the remainder of 2008. The company now estimates that fourth quarter 2008 diluted earnings per share are expected to range from $0.45 to $0.60, a range that excludes the impact of non-recurring items, if any, that may be recorded in the fourth quarter of 2008. Accordingly, full year 2008 diluted earnings per share, excluding recall-related and non-recurring items, are expected to range from $1.48 to $1.63.
Looking forward, Stoelting said, “We remain very concerned about the current economic conditions and its impact on consumer spending in the holiday season. We continue to closely monitor ordering trends and retailers’ point of sale information. In the current environment, it is difficult to predict with high certainty retail sales trends and ordering patterns for the fourth quarter … We continue to be guided by our strategic plan which includes accelerated development of new high value product lines. Our new product pipeline in both product categories is strong for 2009. We are particularly excited about our new Super WHY! preschool play and early learning product line.”
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