And for the second time in two months, the embattled Sydney-based distributor of toys and other products, Funtastic (FUN) has cut profit guidance and tipped further write downs of between $3 to $6 million.
But it is also the third poor news from the company in three months – it has previously revealed impending losses and write downs from carrying a key asset in its books at too high a value and a weak first half trading result.
The company yesterday also revealed the impending departure of its CEO later this year.
The earnings downgrade is substantial – around 50%, which is a very significant cut.
The company told the ASX yesterday the downgrade was due to a weaker than expected performance from the launch of "Chill Factor" in North America, describing sales as "encouraging but slower than expected".
Funtastic also said there has also been "softer than expected sales performance" in the Australian retail market.
The company says full-year EBITDA, prior to asset carrying value adjustments, is now expected to be between $10 to $12 million, down from previous guidance of $19 to $23 million.
The write-down will be as a result of the company embarking on "an aggressive clearance plan to reduce non-core, slow moving and obsolete stock" which will hit the carrying of the inventory by somewhere between $3 million and $6 million.
The company also announced the departure of CEO Stewart Downs after five years in the top job. He will be replaced by the head of the company’s international division, Nir Pizmony, effective August 1.
FUN 1Y – Funtastic CEO goes as profit guidance halved
It was only a month ago that Funtastic reported poor first half results for the six months to January, along with write offs.
The litany of errors from this company started in early March when Funtastic warned that following approaches to buy its Madman film distribution operation, due diligence had revealed the business was over-valued in Funtastic’s books.
In early April, the company revealed the final write downs and a big loss for the January half year. The company, which has Lachlan Murdoch and Gerry Harvey as shareholders, reported a bottom line loss of $25.88 million for the January half year.
The wholesaler, which sells Chill Factor slushy makers, Leapfrog toys and Power Rangers action figures, wrote down the value of its Madman Entertainment film distribution unit by $24.16 million after receiving offers for the business that were well below book value of $52 million.
Funtastic is still looking to raise $28 million from the sale of the Madman film unit to a consortium that includes Madman founders Paul Wiegard a Funtastic director and Tim Anderson, Madman’s joint managing direction.
As a result of the weakening sales and margins, earnings before interest tax depreciation and amortisation from continuing operations plunged 83% to $1.69 million after a drop in sales of key agency brands such as Ben 10 and Power Rangers, while costs rose, fuelled in part by the weaker Australian dollar and the cost of offshore expansionary moves.
The bottom line loss, of more than $25 million which was tipped in the early March update, compared with a net profit of $9.3 million in the first half of 2012-13.
At the time Mr Downs (the CEO and a big shareholder) forecast full-year EBITDA between $19 million and $23 million, which was down sharply from the $23.9 million in 2012 – 13.
Now that’s estimated to be $10 to $12 million, and of course, no dividend.
Funtastic shares were trading at 13c at the time of the April report. Yesterday they closed at less than half that level at 6c, after a fall of 13%.
The shares went into a trading halt late last week.
