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Wednesday, October 1, 1997
Galoob Toys Inc.
(NYSE: GAL)
Phone: 650-952-1678
Website: http:www.galoob.com
Price (9/22/97): $14 3/4
HOW DID IT FIND TROUBLE?
For toymaker Galoob, the waning popularity of its playthings has been a real killjoy. Fickle toy buyers have grown tired of Galoob's offerings and have moved on to the next hot product. Like a signature Sky Dancer in flight, spiraling down to the ground, shares of the company have fallen, twirling wings and all.
BUSINESS DESCRIPTION
Three years ago Sky Dancers were a runaway holiday sensation. Like winged ballerinas, the Barbielike projectiles were launched into the air, and then would gracefully spin to the ground. The toy was revolutionary in that it broke down gender wall barriers -- it was an 'action" toy for girls. Traditional girl toys like dolls and crafts kept the children inside, and boy toys like trucks and pigskins encouraged them to be outside. Sky Dancers challenged the stereotype.
Galoob had limited success with other product lines like its video game-enhancing Game Genie, but it was Sky Dancers that ultimately launched the stock into Wall Street's fancy. The product line's success led to Galoob's introduction of Dragon Flyz, a similar toy geared towards the male market.
The company also sells licensed action figures and accessories associated with major movie releases like Star Wars and Men in Black.
FINANCIAL FACTS
Income Statement
12-month sales: $291.1 million
12-month income: $6.7 million*
12-month EPS: $0.45*
Profit Margin: 2.3%
Market Cap: $265.5 million
(*Includes one-time charges)
Balance Sheet
Cash: $16.7 million
Current Assets: $146.8 million
Current Liabilities: $25.7 million
Long-term Debt: N/A
Ratios
Price-to-earnings: 32.8
Price-to-sales: 0.9
HOW COULD YOU HAVE SEEN IT COMING?
Beyond the timeless success MATTEL (NYSE: MAT) has had with Barbie, most toys have limited life spans, but there will always be revivals. The movie Toy Story was instrumental in temporarily reviving the careers of HASBRO's (AMEX: HAS) Mr. Potato Head and OHIO ART's (AMEX: OAR) Etch-a-Sketch. Even Galoob itself has been successful with the re-release of the Star Wars trilogy last year. However, consumer tastes are fickle and eventually push Power Rangers and Cabbage Patch Dolls from the hot shelf and into the clearance bin.
So one may have figured that like a Sky Dancer at the top of its launch, the product would eventually peak after it snagged a few holiday headlines and accolades. For giants like Mattel and Hasbro this is would not be a major blow. Even a hot toy will contribute little relative to their expanded offerings, and there is always a rich pipeline for new fun and games.
But when the company is small, like Galoob, the descent rarely has a soft landing. In the last few years we have seen how the troll doll trend found shares of RUSS BERRIE (NYSE: RUS) rising and falling. EXX (AMEX: EXX.A) learned the same lesson as children went from chanting "Go, Go, Power Rangers" to "Oh No, Power Rangers." We're spared the present Beanie Babies craze ebb and flow because Ty is privately held.
WHERE TO FROM HERE?
Sales were already soft overseas for the Sky Dancers and Dragon Flyz lines back in the second quarter, but a domestic surge for Star Wars and Men in Black toys more than made up the difference. But with Men in Black fading at the movie theater, the third quarter at Galoob was not shaping up to analyst expectations.
Recently the company announced that earnings for this quarter and for the entire year would fall short of estimates.
So if the last holiday season was the peak, can this be a valley? The stock certainly has an enviable balance sheet, with no long-term debt and a quick ratio of 6.
Men in Black will now become an animated series on the WB network later this month. If that gives the characters renewed life in the cartoon circuit as was the case with Ghostbusters, it may very well help revive the company's shares.
The company has also lined up more toy tie-ins with the upcoming Starship Troopers and Anastasia and the Star Wars Trilogy remastered video release is also keeping the "Force" in the mind of toy collectors. So, where Sky Dancers are failing, Skywalkers are moving in. Investors may soon follow.
- Rick Aristotle Munarriz, tmfedible@aol.com
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