The recall wave that swept over toy retailers last year continues to inundate the affected companes, but the receding waters reveal a less devastated landscape than many observers feared.
Thomas & Friends toy train distributor RC2
RC2 reported second-quarter losses yesterday of $6.4 million, or $0.37 a share, on lower sales of $89.2 million. However, the numbers aren't quite as washed-out as they seem.
First, based on the numbers the major toy companies are reporting, any hesitancy parents displayed about buying toys last year has now evaporated. Mattel
This is where RC2's results become less muddy. Its losses include a one-time hit of $15 million, the payment the toymaker made to HIT Entertainment to settle the Thomas affair. At the same time, it extended its licensing agreement with HIT for the wooden trains, accompanied by a reduction in licensing payments. Investors no longer need to worry about RC2 losing the rights to the toy, which represent a large proportion of its sales.
Moreover, the company settled a class action lawsuit regarding the lead paint back in January. And among the retailers it depends on for more than 40% of its sales -- Wal-Mart
If you back out the one-time payment to HIT, you find that RC2 was actually able to turn a profit of $0.21 a share. That's assuredly less than what it earned last year on a comparable basis, but it marks a turning point for the toymaker. RC2 should manage to return to its prior growth track, and continue to play with the big boys.
Toy around with further Foolishness: