4Kids "extremely disappointed" by 2008 results

Economic downturn "deeply" impacts firm's licensing revenue and trading card game sales in Q4.
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4Kids Entertainment has posted its financial results for Q4 and the year ended December 31st 2008 - revealing that its revenue was hit by the economic downturn, while declining licensing revenue of some of its more established properties throughout the year was also a factor.

Net revenues for the three months ending December 31st totaled $14.3 million, compared to $16.5 million for the same period in 2007. 4Kids' net loss for the period stood at $19.6 million, compared to a net loss of $16.8 million in 2007.

Meanwhile, for the full year net revenues were $63.7 million, compared to $55.6 million in 2007. Revenue included approximately $15.3 million from the sale of Chaotic trading cards.

The net loss, however, was $36.8 million, as compared to $23.3 million for the same period in 2007.

"The sharp economic downturn and associated severe deterioration of consumer confidence starting in September 2008 deeply impacted our licensing revenue and trading card game sales in the fourth quarter," said Alfred Kahn, chairman and CEO of 4Kids Entertainment.

"Our results were also impacted by declining licensing revenue throughout the year from some of our more established properties. While we are extremely disappointed by our results for 2008, we implemented significant cost cutting initiatives in the fourth quarter of 2008 and the first quarter of 2009 that we expect to reduce our operating costs by $25 million in 2009 as compared with 2008.

"While Chaotic trading card sales for the first nine months of 2008 were in line with our expectations, sales for the fourth quarter fell well below our expectations at $0.5 million," Kahn continued. "This decline in sales is primarily due to retailers and distributors reducing, cancelling or returning orders in an effort to reduce their inventory as they respond to the rapid, steep economic decline.

"In addition to impacting sales, it also triggered an increase in our reserve for returns and allowances and a $3 million write-down of our trading card inventory."

Despite the dip in Q4 sales, Chaotic finished the year as the number three selling trading card game in the US. 4Kids is confident that the brand still offers a tremendous opportunity for the firm in the future, however. The cards are rolling out in the UK, France and Germany during the first half of this year, while additional licensed product will also be available from master toy licensee Spin Master and video game partner Activision.

Bruce Foster, CFO at 4Kids, added: "During the fourth quarter, we experienced a measurable decrease in our cash and investments of $32.6 million. This decrease was attributable to multiple factors including declining revenue, as described above, and continued investment spending in our trading card game and website subsidiaries, TC Digital Games and TC Websites."


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