CIBCEQUITY RESEARCH
July 20, 2022 Earnings Update
SPIN MASTER CORP.
Q2/22 Preview: Potential Risks Unlikely To Materialize
Our Conclusion
Spin Master will report Q2 results after market close on Wednesday, July 27.
Management will host a conference call the following day at 9:30 a.m. ET.
Dial-ins are 800-437-2398 or 647-792-1240 and a live audio webcast can be
found here. We have updated FX estimates, with the weaker EUR resulting
in a modestly lower sales growth forecast, though our EBITDA estimate is
virtually unchanged. Our price target ($62; $63 prior) is now based solely on
2023E, and now apply an 8x EBITDA multiple (previously 9x) to reflect
investors’ reluctance to own discretionary names, though that stance has
moderated recently. We view TOY as one of the highest-quality discretionary
stocks in our coverage universe. We reiterate our Outperformer rating.
Key Points
Management’s guide for 2022 involves low-double-digit growth in gross
product sales (GPS) and revenue, and flattish EBITDA margin vs. the
adjusted figure from 2021 (~19.2%). Our forecast for Q2 is 7% above
consensus EBITDA and 12% above consensus EPS.
For H2/22, we believe risks confront TOY and the industry more broadly.
These were highlighted on HAS’ Q2 call: FX headwinds, higher freight and
product costs, and softer growth in Europe all present challenges. However,
we contend that TOY’s performance of late has revealed far better execution,
an improved supply chain, and sales growth that’s outpaced peers. Price
increases in Q2 should protect margins, as should product innovation.
Recent licensing wins (including today’s announcement with Sony
PlayStation) and the shift to a larger digital mix should be ongoing tailwinds
as well. Finally, though magnitude is unknown, the recent announcement of
Toys “R” Us stores within Macy’s locations is incrementally positive.