Lego deal helps boost toy distributor's profit

Toy distributor Funtastic will turn its back on big retailers such as Kmart, Big W and Target after the merchants "lost their nerve" ordering stock last Christmas.

The company reported a net profit of $9.3 million for the six months to January 31, driven largely by a one-off $3.2 million gain from the closing of a 2012 Lego deal.

It also announced it would restore a dividend for the first time in six years of 0.5¢.

Like for like, the company's profits were up around 9 per cent from last year - a vast turnaround from when it was crushed by debt just over a year ago.

Despite the positive result, chief executive Stewart Downs said the business had failed to do as well as it expected over the critical holiday period due to the company's "mass merchants" - Target, Big W and Kmart - all reducing their orders.

"The toy market was actually negative for five weeks leading into Christmas week, so everyone lost their nerve," he said.

"The week of Christmas they got all those sales back again, but we obviously didn't have as much stock out there as we wanted to because everybody got nervous."

He said the company was trialling certain product lines with specialty retailers, such as Toyworld and ToysRUs, and was looking for alternative online channels.

"Going into Christmas, we saw the specialty retail market do really well," he said. "Obviously we want to do this in a very smart and focused way."

Funtastic shares closed the day flat at $0.235.

Mr Downs said the business maintained a cautious outlook for the year given low consumer confidence, but was committed to paying down $12 million of its $55-plus million debt in the second half.

"Our plan, now that we've stabilised the business, is to reduce our core debt and reward our shareholders," he said.

Funtastic markets and distributes toy brands such as Lego and Pillow Pets and DVD brand Madman Entertainment.