Mega reports first net loss

Mega Brands promises ?meaningful turn around? following ?difficult? 2007.
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In reporting its fourth quarter and full year financials, Mega highlighted its record sales of preschool construction products and continued growth in international sales, while alluding further to the possible sale of the Rose Art business.

However, the firm, which has been plagued by product recalls, stated that it has suffered lower sales and a net loss for the first time in more than 20 years of consecutive sales growth and profitability.

“2007 was a difficult year for Mega Brands, for our employees and shareholders, and for our many loyal fans. We are disappointed with our overall performance and we promise that no effort is being spared to achieve a meaningful turnaround as quickly as possible,” Marc Bertrand, president and CEO, said.

Net sales for the full year reached $524.5 million, down $22.8 million on 2006 efforts. Net loss was $97.1 million compared with net earnings of $25.3 million. Charges totalled $113 million, associated with recall costs and legal expenses among others.

Net sales in the fourth quarter fell 22 per cent to $128.8 million compared with the corresponding period in 2006. Net loss was $66.2 million compared with net earnings of $2.8 million. Charges for the quarter reached $37.3 million.

Toy sales declined seven per cent, reflecting the reversal of sales and credits associated with recalled products and lower shipments of Magnetix products. However a “strong performance” in preschool product lines and increased sales of games and puzzles partially offset the sales dip.

Stationery and Activities product sales remained stable at $213.6 million.

International sales rose 15 per cent of total net sales to $171.8 million, compared with $149.6 million in 2006. However, North American sales declined from almost $400 million in 2006 to $352.7 million in 2007.

Despite recent set backs, Bertrand is confident the firm can move forward.

“We are solidly on track to achieve the $12 million in annualised saving targeted under the Value Enhancement Plan announced at the end of the third quarter. We have exciting new products in the pipeline in all of our product categories and we are pleased to be working with Intertek, a leading provider of quality and safety solutions, as we roll out Magnext, the new generation of magnetic construction toys,” Bertrand added.

“We are very focused on executing the many operational and new product initiatives under way. With the recent amendment to our credit agreement, we now have the financial flexibility to implement current initiatives that will strengthen our cored toy business while exploring a sale of our Stationery and Activities business through an orderly process.”

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