Goodwill impairment blows out Toys“R”Us ANZ losses

Goodwill impairment blows out Toys“R”Us ANZ losses

The Australian operator of toys and hobbies brand Toys"R"Us has today reported its full year results for the period ending 31 July, detailing how the company overcame a flat market for the toy segment and ‘challenging’ trading conditions generally.

The Melbourne-based company, formerly called Funtastic but renamed Toys“R”Us ANZ Limited (ASX: TOY) following the acquisition of Hobby Warehouse Group in 2020, saw group revenue rise by 74 per cent year-on-year to $37.9 million.

However, a $14.5 million goodwill impairment relating to the company’s B2C segment, as well as increased operating expenditure and investment in marketing, working capital and inventory to fund growth, saw statutory losses blow out to $24.7 million - up from a $3.1 million loss the year prior.

Commenting on the company’s results, Toys“R”Us ANZ CEO and managing director Louis Mittoni - the group’s largest shareholder and founder of Toys“R”Us’ exclusive licensee Hobby Warehouse and gaming products distributor Mittoni Pty Ltd - says he is pleased with the brand’s organic growth in FY22 against a challenging backdrop.

“In delivering growth, the company overcame the effects of elevated COVID-19 cases across Australia and mixed Australian consumer confidence in H1, and the flow-on effects of the outbreak of war and expectations of higher interest rates in H2,” Mittoni said.

“During this period, we have tightened our focus on providing the leading toys, hobbies and baby products as we seek to enrich the lives of children and parents through our e-commerce direct-to-consumer retail operations. Our B2B business complements these operations and contributes increasingly profitable growth for the company.

“Although the FY22 statutory loss at a group level reflects sustained investment ahead of an expected growth phase, we remain tightly focused on delivering growth in profitability and cash flow from the present period onwards.”

The CEO became the largest shareholder in Toys“R”Us after selling Hobby Warehouse to Funtastic in a scrip deal worth $32.6 million at the time, but at today’s significantly lower share price of around 3 cents per share his 34.33 per cent shareholding is worth around $7.9 million.

Mittoni says the company is now focused on accelerating expansion plans, both at home and overseas.

“We are excited to implement our plans to accelerate and scale our Toys“R”Us, Babies“R”Us and Hobby Warehouse operations in Australia, and relaunch Toys“R”Us and Babies“R”Us in the UK,” Mittoni explains.

“We are now ready to scale up in the UK, having carefully built the operational capability to meet shoppers' expectations and demand from market launch right through to the peak trading season.

“We continue to pursue our medium-term goal of 5 per cent market share penetration in the toys, baby and hobby markets in all licensed regions. The company sees this as a highly achievable goal and we remain focused on deploying capital efficiently to drive increasingly consistent top line growth in FY23 and beyond.”

Of the company’s total group revenue, $26 million came from the group’s B2C arm, and $11.1 million from its B2B arm.

Year-on-year revenue growth in the B2C segment of 98 per cent was driven by an increase in the company’s average order value, which was $133.50 as of Q4 FY22. The total number of B2C e-commerce customers also grew to 188,000, representing YoY growth of 30 per cent.

TOY also says organic growth was driven by the July 2021 commissioning of an e-commerce logistics centre in Dandenong South, Victoria, which increased the capacity and efficiency of the toy merchant’s storage, picking and logistics processes.

Design and construction of a new 19,650sqm warehouse facility in Clayton, Victoria has largely been competed as of September 2022. At nearly four times the size of TOY’s previous interim facility, Toys“R”Us says it will be empowered to meet its ‘ambitious’ growth plans as a result.

The group’s UK expansion is ‘on track’, and will be a capital-light, digital-first market entry during the fourth quarter of the 2022 calendar year - meeting UK shoppers in time for the holiday season.

Toys“R”Us says it has appointed logistics provider Amethyst Group to run its warehousing and distribution in the UK - a market that represents “significant near-term growth opportunity for the company, delivering into the largest toy market in Europe and the fourth largest globally with a strong brand and a fragmented competitive environment”.

TOY shares are down 17.86 per cent to $0.023 per share at 11.16am AEST.

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