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Mega Brands looks to stave off competitors

Marc and Vic Bertrand of MEGA Brands Inc.

John Morstad/john morstad The Globe and Mail

Mega Brands Inc., the feisty Canadian toymaker that has survived legal fisticuffs with Lego AS and near-bankruptcy following the recall of a line of dangerous magnetic toys, is facing some fresh challenges in the play space.

The Montreal-based company has picked up the ball smartly in its post-turnaround push to get back in the game.

The maker of snap-together building blocks, play sets, puzzles and arts-and-crafts items, Mega Brands is astute at refreshing its core products and extending them into new categories. It has done well with movie and video-game tie-ins and is holding its own in the key building sets category.

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But these days, it also has to deal with a shaky economic context and the threat of growing competition from established and new players in its key construction-toy segment.

Analysts will be taking a close look at the toymaker's fourth-quarter and year-end financial results when they are released Friday to see how it did during the critical holiday season, and how 2013 is shaping up.

Going by Lego's stellar year-end results – released last week – Mega Brands management has to meet high expectations. The Danish king of toy bricks produced a 25-per-cent increase in sales. That reflects the fact that toy building set sales rose 14 to 16 per cent in the United States last year, compared with a drop of about 3 per cent for the toy industry generally, said Lutz Muller, head of toy industry consultants Klosters Trading Corp.

Mega Brands is holding on to its roughly 10 per cent share in the building-sets market, he said. And it appears to be doing well with its Mega Bloks Barbie line, introduced just before Christmas last year, which is intended to bring more girls into the boy-dominated construction category. The move echoes Lego's introduction of its Lego Friends line, also targeting girls.

"Given the success of Lego Friends, we think expectations are high for Barbie," BMO Capital Markets analyst Gerrick Johnson said in a recent research note.

Among new entrants in the rapidly expanding construction sector that Mega Brands has to keep an eye on are Character Group Plc and Hasbro Inc., the latter with its line of Lego-compatible Kre-O Transformers toys.

Mr. Muller says he thinks Mega Brands' outlook for building sets in 2013 is good, but views the company's lineup of movie tie-ins somewhat thin, with just one theatrical release: the Smurfs movie, set for release on July 31.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More


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