During the first half of 2018, Funtastic (ASX: FUN) was flying high on improved profits, but the toy manufacturer is now singing a different tune in the wake of Toys R Us' nationwide demise.
Toys R Us is Funtastic's fourth largest retail trading partner which announced in May this year that it had fallen into voluntary administration.
Funtastic says the Toys R Us closure will have a serious impact on its bottom line, and as a result has dropped its normalised EBITDA guidance from $3-3.5 million to $2.5 million.
While the result won't meet initial expectations, the company says it still represents an $8.1 million improvement on its previous recorded 5.6 million loss during FY17.
Funtastic isn't the first company to feel the effects of Toys R Us' shock exit from the market.
In May, analysts predicted that a merger boom would be on the cards as smaller toy manufacturers aim to recoup their presence in the market.
China Market Research Group analyst Shaun Rein said smaller toy companies would rely on mergers and acquisitions (M&A) to gain more negotiating power with bigger retailers who are notoriously "picky" about which brands they stock.
"If you're a young brand, it's hard to be found," said Rein.
"A lot of the smaller niche brands that you'd buy because you'd seen them while browsing in Toys 'R' Us are going to be hit very hard."
Funtastic announced at the half year that it would continue to focus on growing its brands in its own Toys & Plus business, as well as grow its apparel contracts and secure additional licencing and agency agreements with tech and confectionary groups.
E-commerce is also at the forefront of the company's plans, with Funtastic looking to drive customers to online, as well as implementing social marketing and looking for new channels of distribution.
Earlier this year, Funtastic secured the rights to distribute the toys and entertainment products for the upcoming Toy Story 4 movie.
The contract may prove a saviour for the company as it is expected to generate revenues in excess of $25 million during the 2019 and 2020 financial years.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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