Charge derails Mega Brands' profit
By Staff -- Playthings, 11/13/2008 2:35:00 PM
MONTREAL—Mega Brands reported a large net loss and a nearly 12 percent decline in sales, but tallied an operating profit for its fiscal third quarter thanks to cost saving efforts.
Excluding a $150 million non-cash goodwill impairment provision related to its acquisition of Rose Art, Mega Brands recorded earnings from operations for the three monhts ended on September 30, 2008, of $22.2 million (U.S), up from a $5.1 million loss in the corresponding period of 2007. Including the $150 million write-down, the construction toy maker reported a loss from operations of $127.8 million and a quarterly net loss of 122.1 million or $3.34 per share, up from a loss of $11 million in the corresponding period of 2007.
Net sales in 2008’s Q3 declined 12.6 percent to $160.9 million. Sales were lower in both of the company's reporting segments (Toys and Stationery/Activities), reflecting mainly softer sales in certain product categories and weakening consumer demand, the company said.
Net sales of the company’s Toys product lines declined to $101.7 million, down from $111.6 million in the third quarter of 2007, a decrease attributed to lower shipments in the Boys 5-plus category and reflective of $6.9 million in product recall charges related to its Magnetix brand.
Net sales of Mega Brands’ Stationery and Activities product lines fell to $59.2 million, down from $72.5 million in the third quarter of 2007. The decrease reflected “a challenging back-to-school season for all suppliers as major retailers were determined to end the season with low inventories,” according to the company.
On a geographical basis, net sales in North America were $100.3 million in the third quarter of 2008, a $17.4 million slip from 2007's Q3 tally. International net sales declined to $60.5 million, off $5.9 million from the similar period of 2007. The decrease was mainly due to lower shipments in Mexico due to weaker demand, credit concerns with certain retailers and the impact of foreign exchange rates.
"We are pleased to report a profit for the quarter, before impairment of goodwill and other assets, despite continuing cost pressures and a challenging retail environment,” said Marc Bertrand, Mega Brands’ president and CEO. “The implementation of our Value Enhancement Plan is beginning to yield early positive results and we are continuing the realignment of our global operations to improve margins while maintaining our focus on product innovation."
Following the end of the quarter, Mega Brands “significantly downsize[d]” operations in its former Rose Art facility in Shenzen, China—a site that specialized in magnetic toys and was “underutilized, according to the company—and will outsource its production responsibilities to third-party suppliers who already manufacture more than 50 percent of the toymaker’s products by sales revenue. The transfer of the plant's production to outside vendors will be completed by the end of 2008.
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