Spin Master Corp T.TOY

RBC 2

[retiredcf]

October 23, 2024

Spin Master Corp.
Read-through from Mattel’s Q3/24 results

TSX: TOY | CAD 31.01 | Outperform | Price Target CAD 46.00

Sentiment: Neutral

Details

Mattel (not covered) reported Q3/24 results after market close:

• Net revenue of $1,844MM (-4% YoY, -3% in constant currency) versus consensus of $1,858MM

• Adjusted EBITDA of $584MM versus consensus of $524MM

• North American and International Gross Billings growth was -3% YoY and -4% (-2% in constant currency), respectively, due to a tough YoY comp with the Barbie movie in Q3/23 (excluding movie-related impacts, Gross Billings would have increased modestly)  while strength in Asia Pacific continues (+9%, +8% in constant currency).

• Management trimmed 2024 net sales guidance from 'comparable' YoY in constant currency to 'comparable to slightly down' due mainly to year-to-date performance (versus a change in the Q4/24 outlook) while reiterating: (i) 2024 adjusted EBITDA, EPS and FCF guidance; (ii) the expectation of global toy sales to be down modestly in 2024, which remains a slight improvement from the outlook at the beginning of 2024 with the industry performing better than originally anticipated; and (iii) the expectation that the toy industry will return to growth in 2025. In addition, management expects a "good" holiday season with sales growth of +2.5%-3.5% YoY and overall POS growth in Q4/24 in part due to increased retail support, shelf space, marketing/promotions and greater representation across major holiday catalogs.

• Other notables: (i) management characterized retailer sentiment heading into the holiday season as positive overall; (ii) management indicated that POS declined high-single digits in Q3/24 and low-single digits year-to-date (due mainly to a tough Barbie comparable); (iii) Asia Pacific POS increased low-single digits while the U.S., EMEA and Latin America declined high- single digits; and (iv) COGS deflation resulted in a ~50bps tailwind to adjusted gross margins in Q3/24, albeit with management expecting modest cost inflation in Q4/24.

  Implications

  We believe Mattel’s Q3/24 results, updated 2024 guidance and management commentary are largely a neutral read-through for Spin Master given what appears to be a demand environment for toys that is generally unchanged despite the lingering concerns around the health of the consumer heading into the holiday season (2024 guidance for Spin Master, which includes Toy Gross Product Sales and Consolidated Revenue excluding M&D 'in line' with 2023, originally factors in some degree of macro headwind and market volatility).