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| Statement |
|---|
| Happy to talk a bit more about another solid quarter and wrapping up another great year |
| We had 110 basis point improvement in this area in the quarter, driven by lower landed product costs for the product we import compared to last year, and ultimately, better ex-factory margins and a more favorable product mix |
| Perhaps more importantly, we continue to make solid progress in building a better future for our stakeholders, despite the persistent uncertainty around the economy and consumer strength |
| As much as we all enjoy talking about market share gains when they happen, we enjoy margin dollar gains even more |
| That strength flowed through SG&A to generate a full year operating margin of 8.3%, an improvement of 60 basis points over prior year despite losing topline scale |
| And it’s on shelf at retail that we continue to offer a strong and wide array of sub-$30 price point toys that deliver fun and innovation for the recipient and happiness and satisfaction for the gift giver |
| toy consumer products accounts was positive at two of the three, despite having difficult revenue comparisons with the prior year |
| So where we stand we’re very solid, but there’s just nothing great that’s coming out that is going to push the industry into these high levels of excitement |
| That level of improvement is driven by a combination of initiatives generating positive returns, designing for margin, working collaboratively with our factory base and carefully managing own inventory, which ranges from how much do we bring in, when and at what cost per container |
| On a full year basis, that’s 200 basis points to 400 basis points better than these results over the past five years and an unsung accomplishment within our financial results |
| As we increase the size and strength of our European team and footprint, the momentum for growth is building |
| It’s been four months since our last earnings call and update at the end of Q3 and I’m happy to say that we are very pleased with our performance since then |
| Nonetheless, with dollar costs up across SG&A, we still finished the year with an operating margin of 8.3%, the highest level we’ve achieved in 15 years |
| Better landed product cost and reduced ocean freight helped to contribute to an expansion of full year gross margin percentage |
| With that view, we’re once again set up for a solid year |
| This improvement generated a 6% increase in gross margin dollars in 2023 compared to prior year despite the sales decline |
| We made it through 2020 successfully and from there we have steadily delivered over the subsequent years, improving our financial health annually |
| This growth margin dollar level, $223 million, is the highest the company has achieved since 2015 |
| Although our shipping was also down, it was better than the industry and solidified our position of strength as the U.S |
| Over the past two springs, we have greatly benefited from high product lines driven by blockbuster April film releases, driving sales tied to the movie, as well as supporting and expanding our year-round business for those brands |
| Our Q4 adjusted EBITDA was slightly better than prior year, leading to a full year adjusted EBITDA of $75.7 million, slightly below 2022’s $76.4 million, but still a tremendous outcome for us at a performance level we did not anticipate at the beginning of the year |
| Although that backdrop doesn’t make doing solid business easier for anyone this year, we do feel we are better set up for success more than most |
| It remains a constant narrative in our organization to try to ensure we can maintain this level of cost of goods efficiency as it’s clearly a key driver of our strong results |
| We’re excited for this year |
| So by not having such a real hot theatrical or even TV initiatives this year, it’s really back to the basics, which is the positive for us |
| Since last quarter, we also made great progress sharing our new Simpsons line with retailers around the world |
| It’s a remarkable achievement |
| In addition, we have a movie that we’re really excited about, because we’ve had great track records with it in the past is the new Moana movie, which is coming out |
| We are extremely proud of our performance during this time, but are only looking forward towards another year that will inevitably prove challenging, but we feel is still filled with major opportunities |
| Movie released in Q2 2023 generated a lot of business in 2023, as well as promotional support of our evergreen Nintendo line, it wasn’t enough to close that gap, especially given we also benefited from a strong Sonic 2 film in 2022 as well |
| Statement |
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| In addition, many other manufacturers in the space continue to struggle creating additional noise in the market |
| As the press has noted, the Thanksgiving 2023 film release we supported underperformed from a box-office perspective and similarly was a challenge at retail |
| Lower volume and inventory levels mean some loss of scale as it relates to our warehousing expense |
| The full year number was down 11% versus prior year, primarily attributable to the massive amount of volume we did in 2022 from a Thanksgiving 2021 film release that was on fire all of last year |
| To hit some of the financial highlights for the quarter and year, Q4 net sales of $127.4 million were down 3% versus prior year, bringing our full year total net sales to $711.6 million |
| We were down less than $2 million in operating income on over $80 million in fewer sales |
| Before handing it off to John as we wrap up on 2023, I wanted to point out that when COVID struck in 2020, we made some difficult decisions and retrenched the business to ensure our stability, given a precarious financial position and the significance of the unknowns |
| And the relatively light volume this year tends to lead to a somewhat softer overall business |
| North America was down 13%, with both the toy and consumer product and costume business being down as I’ve discussed |
| In addition, year-end retail inventories at those same accounts were down high single-digit percentages versus prior year |
| Although that is motivating a persistent review of how and where we’re spending, it is nonetheless challenging to keep the cost base flat given how labor-driven it tends to be |
| Quoting the adjusted numbers only, our Q4 result was a loss of $1.4 per diluted share, compared to a loss of $1.42 per diluted share last year |
| The issues as it relates to Europe are more problematic |
| Our action play and collectible business was down 9% in the quarter and up 27% on the year, led by Super Mario Bros |
| And then kind of just how shall I -- how should we frame the international opportunity? I know there’s an overall global weakness, but I mean, I would think with some of the international initiatives, you guys might actually be up year-over-year on an international geography basis |
| We are not immune from the broad narrative that most cost areas are increasing more than not over the past couple of years, inclusive of labor |
| But we don’t think it’s, like I said, it’s probably not a top concern at the moment |
| For the fifth consecutive Q1, we find ourselves wondering about the outlook for the economy and more specifically the implications for the average consumer |
| So we’re not concerned with the inventory and that part, but I do believe when you close that inventory, you do hit margins somewhat |
| But realistically, it’s unlikely to provide a lot of chase opportunity for us in 2024 |
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