Group goes for growth as 'pets' prove big hit

Character Group said the Go Go range nearly ran out of stock amid a rush from parents to snap up the "interactive hamsters" that squeak and scuttle across the floor.

Some retailers were even said to have air-freighted the toys in directly to ensure they could match demand.

Character is hoping the range – to be renamed Zhu Zhu Pets from this month – will continue to be a best-seller over 2010, with a new boys' version of the product, called Kung Zhu, coming out later this year.

The Go Go Pet craze helped the group's sales rise 1.2 per cent in the first four months of its financial year against a wider market decline of 8.5 per cent.

Character said its performance in the run-up to the peak toy selling season would now result in a "significant turnaround" in profits for the six months to February 28.

"Growth in revenues and profits is expected to continue for both the 2010 financial and calendar years," added the firm.

Karin Shah, Character's finance director, said he expected a rise in analysts' current pretax profit forecast of 1.8m for the six months to February 28. Character made a loss of 3.8m in the same period the year before.

The firm's shares soared 10 per cent on the comments yesterday, which suggest the firm is heading for a marked revival.

Character, based in Surrey, had been hit by the collapse of major customer Woolworths, which fell into administration in the run-up to last Christmas and devastated first half sales.

Mr Shah said: "The beauty about Woolworths was that it was actually convenient shopping. You could go down the High Street and buy.

"There was a high element of off-the-shelf buying... We've basically lost a lot of that."

While most of the decline in the British toy market was probably due to the recession, it may have been compounded by a decline in impulse buying because of the demise of Woolworths, Mr Shah said.

The chains that have captured Woolworths market share in toys, like Argos and Toys R Us, are often outside town centres.

Mr Shah added: "It's a trip somewhere, unless you do it (buy toys) online. But most toys you actually like to see and feel when you buy."

While this Christmas was helped by sales of popular toys such as the Go Go Pets, it also benefited from a higher mix of more profitable products.

Sales of normal margin products rose 18 per cent, with loss-making or clearance stock down more than 40 per cent.

It sold around 700,000 Go Go Pet hamsters, including accessories, in the four months to December 31.

Safety concerns surrounding the toys in early December failed to dampen demand, although Character was quick

to launch a robust defence against what it said were "entirely groundless" claims.

Already known as Zhu Zhu Pets in the US, the toys are made by American firm Cepia and distributed in the UK by Character, sold directly via the firm and to other retailers.

Character said retailers were at one stage forced to limit the number of Go Go toys per customer so that they could not be bought in bulk and sold at inflated prices on the internet.

Christmas sales were also strong for in-house developed branded products, such as Peppa Pig, Postman Pat and Scooby Doo, which it plans to sell in the US for the first time this year.

Over the next year, it plans to bring out new ranges, including Doctor Who and Hero 108.

Toy story

The Character Group designs, develops and distributes toys, games and giftware.

The business was founded in 1991, and mainly distributed products sourced from overseas third parties.

In 2003, the group decided to increase the development of its own products and now more than 70 per cent of all products marketed by the group are developed

in-house and are sold in more than 30 countries worldwide.

The group, based in Surrey, operates mainly in the UK and China, and has offices in London, Oldham, Hong Kong and Shenzhen, China. It employs around 225 people worldwide.

The Character Group was incorporated in the UK in 2005, and is AIM listed.