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August 31, 2012
WSJ.com, By Jens Hansegard
LEGO Sees Solid First Half Despite U.S. Concerns
LEGO A/S Chief Executive Jørgen Vig Knudstorp signaled deep concern about the
U.S. toy market on Friday even after the iconic Danish toy maker reported a
solid first-half performance because of better-than-expected sales to girls,
demand for movie-themed play sets and solid growth in Asia.
Europe’s biggest toy maker, known for making colorful interlocking plastic
bricks, said it shrugged off a sluggish global toy market to post an increase in
net profit of 36% during the first six months of 2012, and a revenue increase of
24%. The global toy market, meanwhile, fell 4% during the period, the company
said.
LEGO is the third-biggest toy maker in the world, after Mattel Inc. and Hasbro
Inc., both of which are based in the U.S., and it has about 8% of the global
market share. The Billund, Denmark, company is closely held.
Despite LEGO momentum through June, Mr. Knudstorp said in an interview that the
approaching presidential elections, rising debt and economic uncertainty are
weighing on the critical U.S. market.
“The U.S. consumer is still quite heavily indebted, and with an election coming
up, whoever gets elected, taxes will go up and government spending will go
down,” Mr. Knudstorp said. “So what will that do to consumer spending? So
there’s a big factor of uncertainty in the U.S.”
Mr. Knudstorp, a 10-year veteran of the toy industry, said clouds have already
formed over the U.S. toy market: “These six months have been the most negative
toy market that I have seen in the U.S…so that worries us.”
While concerned about the stability of the U.S. market, Mr. Knudstorp said he is
confident LEGO can post decent double-digit growth in the Americas over the
coming five to 10 years.
In the first half of this year, Europe’s largest toy maker notched big gains in
the U.S., with sales increasing 23%. That was topped by an increase of more than
50% in Asia. LEGO sales in European markets rose by just over 10% on average.
LEGO ability to withstand choppy economic conditions comes following a number of
new product introductions. Mr. Knudstorp said the company’s big launch in 2012
is an in-house development called LEGO Friends, which are construction toys
aimed at girls. The company sold twice as many sets as expected in the first six
months.
LEGO “Lord of the Rings” and “Avengers” boxed construction toy sets were hot
during the period, and the company will continue to develop both its own
portfolio and its intellectual-property franchise collaborations with the likes
of LucasFilm Ltd., The Walt Disney Co. and Warner Brothers.
Later this year, the new “Hobbit” movie directed by Peter Jackson and the launch
of the LEGO “Lord of the Rings” videogame—made by a partner that franchises the
LEGO name—are expected to boost sales of the brand’s popular “Lord of the Rings”
LEGO toys further.
During the first six months of the year, LEGO reported net profit of 2.02
billion Danish kroner ($338.5 million) up from 1.48 billion kroner a year
earlier. Revenue increased 24% to 9.13 billion kroner.
Despite its deep participation in the U.S., the company’s biggest growth is
coming from Asia, which is still the smallest region for LEGO but is likely to
drive growth in the coming years, Mr. Knudstorp said. The company expects to
grow twice as quickly in Asia as it does in the Americas.
“China is strong, South Korea and Japan is strong,” he said. We’re seeing growth
in most Asian markets. But trading in India remains very difficult because of
the country’s lack of a formalized western-style retail structure (which) makes
it difficult to get the sort of distribution we would like.”
wsj.com
-end of report-
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