Industryweek 13179 Lego 1

World's Most Profitable Toymaker Sees Slowdown as US Stagnates

March 9, 2017
Sales increased 6% which marked a departure from the growth of 2010 to 2015, during which revenue more than doubled and net income almost tripled.

Just a few years after becoming the world’s most profitable toymaker, Lego A/S is warning that it won’t be able to sustain the same growth rates it delivered to reach that milestone.

“If you look at the last 10 years, some might call our growth supernatural,” Chief Executive Officer Bali Padda said  on March 9, after the Danish company reported earnings. “In terms of continuing that rate, we feel we reached a more sustainable level in 2016 and we see that going forward.”

Net income at closely held Lego last year rose by just 2.2% to 9.4 billion kroner (US$1.34 billion) after it spent money on expanding its facilities in China and Mexico.

Sales increased some 6% to 37.9 billion kroner. The results marked a departure from recent history. From 2010 to 2015, Lego’s revenue more than doubled and net income almost tripled.

Last year’s best selling items included the Lego Ninjago and Lego Friends building bloc sets, Padda said. The company also sold a lot of Millennium Falcons (based on the Star Wars movies), a set Lego re-launched in 2016 for a U.S. retail price of $149.99. Lego Batman sets may become the big seller of 2017 thanks to the new movie, the CEO said.

The toymaker said sales in the U.S., its biggest market, were flat last year “despite a significant increase in marketing spend in the second half of the year.” The U.S. results were hurt by stronger competition as well as “phenomenal” growth in 2015, which made for a tough year-on-year comparison, Padda said.

After years of significantly outpacing industry growth, Lego now says it will be happy if it just manages to grow a bit faster than the market, which is projected to expand by a “low to mid-single digit percent” annually, Padda said. That also holds for the U.S. market, where Lego wants to win market share in 2017.

“That is our ambition,” the CEO said.

Lego’s two biggest U.S. rivals had mixed results last year. Hasbro Inc. on Feb. 6 reported a 15% increase in U.S. and Canadian sales for 2016. Mattel Inc. on Jan. 25 said North American net sales declined 2% last year.

Padda took over as CEO in January as Jorgen Vig Knudstorp stepped down after overseeing Lego’s turnaround. He will instead become chairman of the company’s board.

By Christian Wienberg

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