Spin Master Corp.
Preliminary Q4 revenue modestly shy of RBC/consensus; full-year margin guide reiterated
TSX: TOY | CAD 34.21 | Outperform | Price Target CAD 51.00
Sentiment: Neutral
First impression: Spin Master reported preliminary Q4 revenue of $502.6MM (+7.9% YoY, +6.0% in constant currency), below RBC/consensus forecasts of $516.8MM/$522.0MM, and the company reiterated full year guidance for its Adjusted EBITDA margin to be "up" YoY (excluding the distribution revenue from the Paw Patrol movie). Our initial read is that while revenue was modestly short of forecasts (in line with the industry as U.S. toy industry sales were -8% YoY and global sales were -7% YoY in 2023, according to Circana), we believe our Adjusted EBITDA forecast is still reasonable given the potential for better- than-expected Q4 margins.
For the full-year, Gross Product Sales ("GPS") were -9.7% YoY (in line with guidance for down high-single digits YoY) and revenue was -6.5% YoY excluding PAW Patrol: The Mighty Movie distribution revenue of $15.6MM (in line with guidance for down mid-single digits YoY). By segment, Toys GPS was +4.8% YoY (+2.4% on a constant currency basis) while Toys revenue was +2.5% (driven by higher order volume). Entertainment revenue was +76.9% YoY (+77.2% on a constant currency basis; driven by higher distribution revenue associated with new content deliveries from Unicorn Academy, Rubble & Crew, and Vida the Vet, as well as ongoing distribution revenue from PAW Patrol: The Mighty Movie) and Digital Games revenue was +7.1% YoY (+6.9% on a constant currency basis; driven by higher in game purchases in Toca Life World and higher subscription revenue from Piknik and PAW Patrol Academy). Relative to our forecasts, lower-than-expected Toys revenue was partially offset by higher-than-expected Entertainment and Digital Games revenue, driving total revenue below our forecast. See Exhibit 1 below for results details vs. forecasts.
2023 Adjusted EBITDA guidance reiterated: In conjunction with the release, Spin Master noted it continues to expect 2023 Adjusted EBITDA margin (excluding PAW Patrol: The Mighty Movie distribution revenue of $15.6MM) to be "up" YoY. Our current forecast reflects full-year 2023 Adjusted EBITDA margin of 20.8% (+155 bps YoY).
Our thoughts: Overall, we view the pre-release this morning as largely neutral and expect the 2024 guidance (to be issued on February 28 in conjunction with full Q4/23 results) to be the next catalyst for the stock.
Recap of Mattel's Q4 results: Mattel (not covered) reported Q4 Net Revenue of US$1,621MM (+16% YoY, +14% in constant currency) vs. consensus of US$1,648MM coming into Q4 reporting, and Adjusted EBITDA of US$234MM vs. consensus of US $248MM. The company's 2024 guidance calls for Net Revenue to be "comparable" YoY in constant currency, while Adjusted EBITDA is expected to be US$975MM-US$1,025MM (vs. US$948MM in 2023).
Recap of Hasbro's Q4 results: Hasbro (not covered) reported Q4 Revenue of US$1,289MM (-23% YoY) vs. consensus of US $1,358MM coming into Q4 reporting, and Adjusted EBITDA of US$11MM vs. consensus of US$226MM. The company's 2024 guidance calls for Consumer Products Revenue to decline 7%-12% YoY (with 4 p.p. of the decline attributable to businesses shifting to an out-license model), while Adjusted EBITDA is expected to be US$925MM-US$1,000MM (vs. US$709MM in 2023).