Of the many things I enjoyed as a kid, candy and baseball cards are near the top of the list. Come to think of it, they both still rank fairly high for me today. In fact, I have a bowl of candy on my kitchen table that would give a dentist nightmares -- really, it's just for the kids -- and a treasure trove of sports cards that has its own insurance policy. Unfortunately, none of the cards was printed within the past decade, and most of the candy says Hershey
Therein lies much of the problem for Topps
Call me cynical, but I just don't believe that kids have as much interest in card collecting as, say, chatting on cell phones or playing their Sony
Against that challenging backdrop, the company released yet another weak quarterly report card this morning. Second-quarter sales rose 9.4% to $75.3 million, but escalating expenses for marketing drove operating income down 31% to $3.3 million.
Following a modest decline last year, confectionary sales climbed 5.7% for the quarter. As has been the case, the company's Juicy Drop Pops continue to deliver strong results. And after failing to attract a sweet enough bid, Topps has decided to hang on to its candy business for now. Earlier this month, management outlined plans to separate the candy and entertainment segments, a restructuring move that is expected to trim annual costs by up to $2.5 million.
Meanwhile, the entertainment side of the business saw even more improvement, with revenues climbing 14.7%. Sports cards racked up double-digit sales gains during the quarter, with football cards (keying on Topps' 50th anniversary promotion) scoring particularly well. The WizKids Pirates strategy game, part of a line acquired in 2003, also contributed to the increase. The game can now be found at retailers such as Target
Like an aging slugger with steadily declining statistics, Topps is suffering from deteriorating financial results that have damaged its appeal. Still, the company is in excellent financial health, with $100 million in cash and no debt, and it has a valuable brand name that can be better leveraged. Furthermore, an aggressive program to buy back 5 million shares -- one-eighth of the company's current outstanding total -- will boost per-share results. Finally, the number of competing card manufacturers has dwindled, and Major League baseball has just cut the number of licensed distributors from four to two.
With outspoken critics like Pembridge Capital, which initiated (and later dropped) a proxy fight back in June, exerting pressure on management to unlock shareholder value, Topps may still have a few surprises in store.
Fool contributor Nathan Slaughter has an entire room of Topps baseball cards, but he owns none of the stocks mentioned.
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