RC2 reports losses

Firm blames fall in product categories and re-call costs for Q2 losses.
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RC2 Corporation yesterday reported that net sales were down by 14 per cent to $92.2 million for its second quarter, compared with $106.6 million last year.

The loss of more than $10 million was attributed to the 27 per cent drop in pre-school product sales, particularly Bob the Builder, John Deere and Thomas & Friends.

The firm also reported the negative impact its wooden railway toy product recall had on the quarter's performance. Returns and allowances cost the firm $3.3 million and it estimates it will spend a further $3 to $4 million (net of tax) in the second half of 2007 on the product recall, including costs to defend the law suit filed against the company.

Curt Stoelting, RC2's CEO, said that the second quarter was very challenging.

"In the second half, we expect a continuation of lower pre-school by sales trends with some positive contribution from our new products launching in this category which include the Take Along by Learning Curve's Nickelodeon product line and our new Play Town platform brand featuring wooden figures, playsets and books," he said.

"As expected, our gross margin, excluding the impact of charges related to the voluntary recall, declined in the second quarter and for the first six months as we continued to experience the impact of increase China and raw material costs, particularly zinc, and a shift in our product and distribution mix," he continued.

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