Troubled toy maker Mega Brands Inc. is redesigning the company, including the likely sale of a key division, in an effort to spark a financial turnaround after snapping a 22-year streak of sales growth and profitability.
The Montreal-based company lost US$97.1 million last year, thanks to lower sales, higher costs and the impact of yet another recall of its magnetic line of toys.
“Our objective in 2008 is to achieve a strong turnaround and restore investor confidence in our ability to generate shareholder value going forward,” CEO Marc Bertrand told analysts.
Mega Brands, reporting in U.S. dollars, said Monday the “difficult” year included a decline in sales to $524.5 million from $547.3 million, along with $113 million in one-time charges and other items.
These included $60.2 million ($25 million for the fourth quarter) primarily related to product recalls in 2007, $8.9 million in litigation expenses and a reserve for contingencies ($4.3 million in the quarter), and $36.9 million for inventory provisions and sales below cost.
“After 22 consecutive years of sales growth and profitability, we are disappointed to report lower sales and a net loss in 2007,” Bertrand said.
He added every effort is being made to achieve a meaningful turnaround as quickly as possible.
Despite the challenges last year, Bertrand noted 2007 was a record year for pre-school sales and an increase in international business.
North American sales fell to $352.7 million from $397.8 million due to lower toy sales, while international sales grew to $171.8 million.
Bertrand said a cost-cutting effort is on track to save $12 million a year, while Mega Brands has “exciting new products in the pipeline in all of our product categories,” including a “new generation of magnetic construction toys.”
The company has also announced plans to sell its stationery and activities business, which generates about US$200 million in annual sales.
Vic Bertrand, the chief operating officer, said the new magnetic toy line has garnered rave reviews and the support of retailers.
“We remain confident in the innovative design and superior engineering of this new concept,” he said. “We believe that we have addressed all safety concerns and are well on our way to restoring growth in the magnetic construction segment.”
