Mega Brands to battle with Lego in construction toy aisle with new products

MONTREAL – A battle could be shaping up in the construction toy aisles as Canadian toy maker Mega Brands takes a run at industry leader Lego by introducing a series of new products appealing to young girls, boys and adult collectors.

North American retailers are cautious about adding untested brands in the face of a weak Christmas buying season and continuing softness early in the year.

But Mega Brands CEO Marc Bertrand said Friday the company has the products customers are looking for to drive sales and further expand the construction category, the toy industry’s fastest growing segment.

“We think the category’s got a lot of room to grow,” he said in an interview at the annual meeting in the sprawling building that houses its Montreal production facility.

“If we have the right content, whether they’re interested in Lego or an action figure or a vehicle, we think they’re going to choose Mega Bloks.”

The Montreal-based company is counting on a series of new construction toys, along with a resurgence of its stationery and activities business to continue its turnaround.

Much of the hope is centred on courting girls with the introduction of building sets based on the iconic Barbie brand early next year.

“We think it’s going to be one of our biggest launches ever,” he said, pointing to Barbie’s appeal around the world.

Hope for success of the Barbie building set rests in the idea that while boys are known to build and crash their creations, girls prefer to build and accessorize. The new Barbie offering includes miniature dolls, a whole suburb with a large pink dream house and beach house that can be assembled, along with a pink car.

Toy analyst Gerrick Johnson of BMO Capital Markets said licences are key in the toy business and Barbie is an iconic brand that nobody else has.

“There is a lot of buzz around the Barbie line,” he said after the annual meeting.

Johnson said Mega Brands’ fresh brands give it an opportunity to gain market share from Lego, which sells pricey box sets craved particularly by young boys. The Danish toy giant also recently entered the girls construction segment.

“I think there’s definitely a huge opportunity to take some of that business from Lego.”

Mega Brands (TSX:MB) is also adding construction toys based on licences of leading video game Skylanders, online game World of Warcraft, Halo 4, Hot Wheels and an upcoming Spiderman movie.

Chief innovation officer Vic Bertrand gave shareholders a preview of some of the toys that will soon hit store shelves and marketing that will hit airwaves to promote the brands.

“What you see here is a powerful portfolio, strong momentum in retail programs that are improving globally, which is beginning to deliver results for Mega,” he told shareholders.

“That is what we call momentum and we are confident that this year will be a great year and this momentum will continue into 2013.”

A move into the educational craft business through a partnership with LeapFrog, along with a resurgence in the Rose Art brand will also help Mega Brands reach its target of returning to $500 million in annual sales in three years, Marc Bertrand added.

Bertrand said he’s not concerned about Mega Brands’ ability to repay about $120 million of debt that comes due in 2015. Even if doesn’t gain proceeds from warrants if the company’s share price doesn’t surpass around $10, Bertrand said Mega Brands could refinance the debt.

“Our plan is to grow the business, grow the share price, if not, we think the debt is refinanceable.”

Mega Brands’ results have been steadily improving since several recalls of its magnetic toys reduced sales and nearly forced the company into bankruptcy.

It has some 1,300 employees with offices, manufacturing facilities and distribution centres in 14 countries.

On the Toronto Stock Exchange, Mega Brands shares lost 32 cents, or five per cent at C$6.08 in Friday trading.