Wednesday to Sunday!
31 Jan – 4 Feb 2018
The Company expects to report a decrease of approximately 1% in Gross Product Sales for 2019 compared to 2018 and compared to a US toy industry decline of between -2% and -4%, according to various industry reports. Excluding the impact of foreign exchange, the Company expects Gross Product Sales for 2019 to be approximately flat relative to 2018.
Previous guidance on November 3, 2019 was for the Company to grow organic Gross Product Sales in the low single digit range relative to 2018. The decrease, relative to expectations from previous guidance, was primarily driven by a decline in Gross Product Sales in the US caused by industry-wide softness of toy sales during the shortened 2019 US holiday shopping season and operational performance challenges related to the consolidation of our new East Coast DC. Excluding sales of Hatchimals products, which declined over US$230 million year over year, Gross Product Sales for 2019 rose approximately 16% over 2018.
"Our overall performance in the fourth quarter and for 2019 as a whole, was disappointing relative to our outlook in early November. Despite the solid performance of several of our brands and franchises, we were unable to fully offset the year over year decline in Hatchimals sales. Furthermore, we did not execute as we have in previous years, at the level we needed to in order to meet our profitability targets," said Ronnen Harary, Spin Master's Co-Chief Executive Officer.
"We continue to remain focused on the execution of our long-term strategy. As we look forward to 2020 and beyond, the strength, diversity and depth of our innovative brands, entertainment franchises and mobile digital portfolio, along with our track record of successful innovation, gives us confidence in delivering our long-term organic Gross Product Sales growth target of mid to high single-digits."
Consequently, the Company now expects Adjusted EBITDA Margin for 2019 to be approximately 14%. Previous guidance provided on November 3, 2019 was for Adjusted EBITDA Margin to be slightly below Adjusted EBITDA Margin achieved in 2018. Factors that reduced Adjusted EBITDA Margin include lower annual Gross Product Sales, higher annual warehousing and distribution costs, higher promotional spending in the fourth quarter and deleveraging of fixed operating costs.
"We continue to make progress against our long-term strategic priorities, despite our disappointing 2019 results," said Ben Gadbois, Spin Master's Global President & COO. "As we described previously, both Spin Master and the industry faced a number of challenges throughout 2019. Although we started the fourth quarter with positive momentum based on the progress we had made in October with both orders and shipments off to a strong start, order levels, shipments and our operational performance for the remainder of the year were considerably below our expectations. We took the necessary steps to address these challenges, which required both elevated levels of promotional spending and significantly higher than normal freight, warehousing and distribution costs particularly in the US. Through 2020 we will be focused on improving operational efficiency, adjusting our operational model to improve execution going forward and rectify the challenges we faced in 2019. We believe we are well positioned for 2020 and we look forward to discussing our 2020 outlook when we release our fourth quarter and 2019 results."