Turns out the Wall Street analysts underestimated the grandfather of modern sports cards. The company’s third quarter earnings report released Wednesday was a good one and its stock is going mildly crazy.
"The continued strength of our U.S. sports card business reflects the success of our three-pronged strategy to reduce product proliferation, increase penetration with serious collectors and expand the market by bringing back kids," said Chairman and CEO Arthur Shorin.
Reports of the demise of baseball cards have been greatly exaggerated. A hobby that tends to turn on the fortunes of Topps got some good news Wednesday. Topps’ third quarter earnings beat Wall Street estimates, earning $3.7 million — 9 cents a share — during the three-month period ended Nov. 25. That’s a lot better than last year’s loss of $3.7 million during the same time frame which included an after-tax loss of $3.7 million from the discontinuation of the Company’s thePit.com business. Wall Street had expected a profit of 6 cents a share on revenues of $76.3 million.
Arthur T. Shorin, Chairman and CEO of Topps, stated, "Third quarter revenue reflects continued momentum in the U.S. sports card business and strong performance in the worldwide confectionery business. Importantly, this is our third consecutive quarter of strong earnings which highlight the progress we have made in our turnaround plan."
Net sales of the Entertainment segment increased 4.0% to $47.2 million in the fiscal 2007 third quarter from $45.4 million reported in last year’s third quarter. U.S. sports cards, which accounted for approximately two thirds of the segment’s sales increased 11% on a year-over-year basis. Sales of European sports products and licensed entertainment properties, including WWE, Happy Feet and Pokemon sales primarily in Europe increased in the quarter, partially offsetting anticipated declines at WizKids.
Confectionery net sales increased 15% to $31.5 million from the $27.4 million in last year’s third quarter. Growth in the period was driven by strong sales of Juicy Drop Pop, Megamouth spray and licensed candy products, as well as increased merchandising activity in Wal-Mart and initial sales of the Company’s newest confectionery product, Vertigo.
"Our third quarter progress is a direct result of the successful strategies that the Company has developed and implemented over the past 18 months," Shorin noted.
"On the confectionery side, we are pleased with the strong performance in the quarter, although we do see challenges in domestic candy sales for the remainder of the year. With a new team in place, we are actively moving to implement programs to broaden our in-store exposure, build upon our seasonal offerings and re-organize our field sales force to enhance channel focus. Additionally, initial trade reception for our recent Vertigo lollipop launch, which is designed to appeal to a broader audience, has been strong."
For the nine months ended November 25, 2006, net sales were $242.0 million, up 6.9% from the $226.3 million reported last year. Income from operations was $10.6 million, significantly ahead of the $ 2.6 million of the first nine months of fiscal 2006. Net income was $8.7 million, or $0.21 per diluted share, compared to $2.1 million, or $0.05 last year. Fiscal 2007 first nine month earnings included special, pre-tax charges of $2.9 million related to a June 2006 restructuring and costs incurred as part of the proxy contest. Income from operations for the first nine months of fiscal 2006 was impacted by approximately $200,000 in special charges as a result of a legal settlement at WizKids offset by restructuring related charges and asset write-offs. Net income for the same period in fiscal 2006 included an after-tax loss of $3.8 million related to the discontinuation of the Pit.com partially offset by a one-time tax benefit of $1.6 million from the successful completion of an IRS audit.
At November 25, 2006, the Company had $84.9 in cash and marketable securities and no debt. In the third quarter, Topps paid its regular quarterly cash dividend to shareholders of $0.04 per share. In addition, Topps repurchased 193,400 shares of stock under its 10b5-1 program which expired during the third quarter. The Company has 2.7 million shares remaining under the current repurchase authorization.