Spin Master (TSE:TOY) said it has reduced the share of legacy Spin production sourced from China to about 25% and has built a more diversified supply chain, as the toy company manages tariff costs, inflationary pressures and shifting retailer purchasing patterns.
During a discussion with a CIBC analyst, Jonathan said tariffs affected about $50 million of cost of goods sold during the year. The company received approximately $40 million in tariff refunds but elected not to include the amount in earnings because it views the refund as a one-time benefit. Instead, the funds were used to reduce debt.
Commodity Costs and Product Planning
Beyond tariffs, Spin Master said higher oil prices, resin, transportation and component costs are expected to have an approximately $15 million impact this year. The company said it is not raising prices, instead using its annual product-line reset process to redesign products, manage plastic usage and adjust product mix while preserving targeted retail price points and margins.
Jonathan said the company is currently finishing direct-import activity that could affect the current year, before moving into spring selling. Direct imports for the spring season are expected to begin arriving in November and December and continue into January, while domestic replenishment typically rises in the fourth quarter.
Melissa & Doug Expansion Efforts
Spin Master said returning Melissa & Doug to growth has been a core focus this year. The company acquired the brand three years ago and described it as a more stable, replenishment-oriented business with a greater mix of specialty retail than its legacy Spin business.
Jonathan said Melissa & Doug’s sell-in rose in July and August, while point-of-sale trends showed stability in August. The company is pursuing growth through product innovation, additional shelf space and international distribution.
- The company launched Cherry Lane in August, a modular dollhouse designed for younger children that allows users to play from above rather than vertically. Spin Master said the product sold out on its direct-to-consumer channel at launch before moving into traditional retail.
- Melissa & Doug has partnered with Random House on books and with ice cream retailer Van Leeuwen on a toy ice cream shop. The Van Leeuwen product is currently the brand’s top direct-to-consumer item, according to Jonathan.
- Spin Master said Melissa & Doug has gained shelf space in the United States and is expanding its store presence internationally, including in Canada and Europe.
Jonathan described Melissa & Doug as a learning and traditionally wood-based brand, with core categories including pretend play, such as toy cleaning sets and ice cream shops. The company said the acquisition thesis included taking a predominantly U.S.-based brand into international markets.
Hapiko and AI-Enabled Physical Play
Spin Master also discussed its recent acquisition of Hapiko, whose Stickerbox product uses artificial intelligence to generate printable stickers based on a user’s prompts. Jonathan described the product as a red box with a screen and button that allows children or adults to create a sticker, then color it or add it to a collection.
He said the product’s proprietary operating system is designed to be child-safe and that Hapiko combines digital technology with physical play. Jonathan also highlighted the potential for recurring revenue from replacement sticker supplies, saying customer replenishment activity has demonstrated sustained engagement.
Hapiko has been sold out 13 times since launch, according to Jonathan. Spin Master expects its supply-chain resources, retail relationships and licensing capabilities to help expand the product. While Hapiko currently has one product in market, the company said it was also attracted by its development pipeline and sees potential to build the offering through 2027 and beyond.
PAW Patrol, Digital and Outlook
Spin Master said its third PAW Patrol movie was released in August and has generated box-office revenue of about $150 million to $155 million. Jonathan said the performance was between that of the first and second films, perhaps closer to the first, while partners including exhibitors, the distributor and Paramount were pleased with the results.
The company expects to receive $20 million of production revenue related to the movie in the third quarter. Jonathan said toy sales tied to the film are outperforming the first and second movie cycles, supported by retailer and promotional activity. U.S. point-of-sale trends moved from stable or slightly declining to positive in August and have remained positive, he said.
Spin Master also said Netflix viewership for PAW Patrol was up 5%, and it is investing continuously in the franchise. The company noted that the development cycle for another movie generally takes three to four years from the decision to proceed to release.
In digital, the company cited Toca Boca, which it said has roughly 50 million to 60 million active users globally, and Piknik, a younger-skewing learning platform with about 500,000 subscribers. Spin Master said it is adding content, partnerships and technology improvements to support engagement and revenue. It recently announced an Adidas partnership for Toca Boca and said its acquisition of reading app Lylli could support retention within the Piknik ecosystem.
The company reiterated its full-year outlook for low-single-digit revenue growth and mid- to high-single-digit EBITDA growth. For the third quarter, Jonathan said Spin Master expects stable revenue and a slight year-over-year EBITDA decline, citing an approximately $40 million timing shift of toy revenue into the second quarter, higher commodity costs, marketing timing and tougher comparisons for high-margin digital partnership revenue.
Spin Master said it expects roughly 200 basis points of gross-margin contraction in the quarter. It also said it remains focused on long-term margin expansion through growth in higher-margin digital and entertainment businesses, cost management and disciplined capital allocation. The company said it had reduced debt by $350 million since acquiring Melissa & Doug and returned $200 million to shareholders while maintaining low leverage.
About Spin Master (TSE:TOY)
Spin Master Corp. (TSX:TOY) is a leading global children’s entertainment company, creating exceptional play experiences across its three creative centres: Toys, Entertainment and Digital Games. With worldwide toy distribution, Spin Master is best known for award-winning brands including PAW Patrol ®, Melissa & Doug ®, Bakugan ® and Rubik’s ® Cube, and is the global toy licensee for other iconic properties. Through its in-house entertainment studio, the company creates and produces captivating multiplatform content including powerhouse preschool franchise PAW Patrol, along with other original shows, short-form series and feature films.
