LEGO Announce A Decline In Revenue & Profit

Today the LEGO group announced its full year financial results for 2017, where they reported a decline in revenue and operating profit.  Which is the first time in 12 years that profits has declined for the company and they also reported that net profit dropped by 17%.

This continues a trend of toy companies struggling in the past year, with Hasbro announcing sales are down and with the problems at Toys “R” Us.  There have been many different reasons for the decline, the popularity of digital content such as playing on tablets (which LEGO are trying to get more involved in) and “movie fatigue”.

From the Disney side, LEGO have said that “Star Wars sets performing to their expectations”, though this could been effected by poorer sales of Rogue One sets, reducing expectations for sets from the Last Jedi.   And it isn’t clear if Marvel and Disney themed sets have been selling well.

In an interview with the BBC, a LEGO spokesperson said “There wasn’t enough room to get 2017 toys into the stores”.  This could have been a response to having released too many sets, which has caused LEGO and retailers to make discounts to move stock.  But LEGO have said they have been making changes to reduce these issues in the future

Here are the official details:

  • Revenue for the full year decreased by 8 percent to DKK 35.0 billion compared with DKK 37.9 billion in 2016. Excluding the impact of foreign currency exchange, revenue for the full year declined 7 percent compared with 2016.
  • Operating profit (profit before financial items and tax) for 2017 was DKK 10.4 billion compared with DKK 12.4 billion for 2016, a decrease of 17 percent year on year.
  • Net profit for the full year was DKK 7.8 billion compared with DKK 9.4 billion in 2016.
  • Cash flow from operating activities for the year was DKK 10.7 billion compared with DKK 9.1 billion in 2016.
  • Decline in revenue was driven in part by clean-up of inventories across the value chain. Global consumer sales were flat and trended upwards in the final months of 2017.

Niels B. Christiansen, the LEGO Group CEO said: “2017 was a challenging year and overall we are not satisfied with the financial results. However, we ended the year in a better position. In December, consumer sales grew in seven of our 12 largest markets and we entered 2018 with healthier inventories. In 2018, we will stabilise the business and invest to build sustainable growth in the longer-term.

“During 2017, revenue in our established markets declined, primarily due to actions we took to clean up inventories. This decline impacted our operating profits. We also simplified and reduced the size of the organisation to meet current business requirements and these difficult actions are now complete. Our balance sheet, cash flow and profitability, remain sound.

“We started 2018 in better shape and during the coming year we will stabilise the business by continuing to invest in great products, effective global marketing and improved execution. There is no quick-fix and it will take some time to achieve longer-term growth.”

While revenue in established markets in North America and Europe declined in 2017, total consumer sales across a number of these markets improved, particularly in the final months of the year. The LEGO Group sees opportunities to return to growth in these regions and will work closely with retail partners to bring LEGO play experiences to more children.

The Group also sees strong potential in China, where revenue grew high double-digits in 2017. It recently signed a partnership agreement with one of the country’s largest internet companies, Tencent, and has plans to further expand its presence in this strategic market. The company also will open an office in Dubai towards the end of 2018 to support efforts to expand operations in the Middle East and Africa.

Across the LEGO portfolio, performance of classic LEGO ranges was satisfactory and LEGO® City, LEGO DUPLO, LEGO Creator and LEGO Friends continued to perform well, demonstrating the timeless appeal of LEGO play. LEGO NINJAGO also benefited from the release of the movie in September. LEGO Star Wars products, released in the second half of 2017, performed in line with expectations.

 

 

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