Mega Brands' sales plummet, losses grow

Toymaker Mega Brands Inc. saw sales slammed by the economic recession, resulting in deeper fourth-quarter losses.

The Montreal-based company, which makes Mega Blocks and other children's toys, lost $323.3 million US, or $8.83 a share for the final three months of 2008. That was compared to a smaller loss of $66.2 million, or $1.81 a share for the same period one year earlier. (Mega Brands reports all financial figures in U.S. dollars.)

The company said revenue for the quarter dropped 21.6 per cent, giving Mega Brands sales of $101 million for the period versus $128.8. million for the same time in 2007.

For the year, Mega Brands posted sales of $447.7 million, down almost 15 per cent compared to 2007.

"Consumer products companies were affected by the dramatic decline in the global economy during the fourth quarter of last year and Mega Brands was no exception," said Mac Bertrand, the firm's president and chief executive officer.

Since early August, Mega Brands' stock price has dropped almost 90 per cent, to less than half a buck.

Three-month stock chart for Mega Brands Inc.

The reduced equity valuation forced the company to absorb approximately $150 million in goodwill writedowns, related mainly to its Rose Art toys and its China operations.

The firm recently secured a waiver from some lenders, which relaxed certain conditions surrounding Mega Brands' repayment of certain outstanding debt.

Now, Mega Brands must maintain minimum earnings before interest, depreciation and amortization of $4 million for the quarter ended June 30.

As well, if the company's quarterly cash holdings are $9 million less than Mega Brands' forecast, some lenders can demand the immediate repayment of their loans.

Tough 2009 predicted

Mega Brands said the current year — in which Canada and the United States are expected to see GDP contract — will not offer much relief.

"For 2009, we are planning for an even more challenging retail environment than last year," Bertrand said.

As a result, Mega Brands said it will stick to its cost-cutting plans, which have already saved the toymaker $65 million in lower supply chain charges.

Interestingly, Denmark's Lego Group, which makes the famous Lego building block and is Mega Brands' main competition, saw its earnings and sales rise in 2008.

Lego earned approximately $243 million US in 2008, up from a profit of $230 million for 2007.

Better still, the company said its annual sales rose by 18.7 per cent and should see "modest sales increases in 2009," Lego said in releasing its earnings back in February.