The Die Is Cast

But stationary die-cast racing miniatures can also produce a wipeout, when too many turn a collecting boom to bust, leaving behind a junk pile of unwanted inventory. That was the message behind the disappointing performance of Action Performance (ATN) Tuesday.

Shares of the Phoenix-based auto racing merchandiser crashed 21% to $9.35 on Tuesday after it swung to a loss and suspended the quarterly dividend.

"The market for die-cast collectibles is soft and a lot of it is Action's own fault," says Dennis McAlpine, a principal at the independent research boutique McAlpine Associates. "It flooded the market to keep sales going. Action saturated it with new versions of the same things. Instead of one Jeff Gordon car with one paint scheme, it put out four or five paint schemes to get the collectors to buy them all, and it outlasted the collectors' ability to buy."

For the second quarter ended March 31, the company reported a net loss of $2.9 million, or 16 cents a share, reversing the year-ago profit of $1.3 million, or seven cents a share. Thomson First Call had a consensus estimate for a profit of six cents. Revenues fell 10% to $75.3 million, whereas the company had hoped to improve on first-quarter sales of $76.1 million.

In addition to the metal replicas of Nascar cars, Action markets t-shirts, hats and other racing memorabilia. It blamed the disappointing results on lower sales of die-cast collectibles to mass merchandisers and, to a lesser extent, lower apparel sales to wholesalers.

Domestic sales of die-cast cars fell 21% to $23.8 million, with the biggest area of weakness in the mass merchandise space, where sales plunged 43% to $7.8 million. Apparel sales slid 7% to $30.5 million, driven by a decline in sales of Jeff Hamilton merchandise.

"Our current business model has resulted in too much product being shipped into the channel, which pressures pricing and angers our core customer, reducing demand and creating financial stress for our distributors," said David Riddiford, Action's chief financial officer, during a conference call late Monday. "To break this vicious cycle, we identified that breaking our distribution channel is paramount with the emphasis for the organization to shift to profit growth rather than sales growth."

According to McAlpine, sales began to slump when collectors who bought the toy cars began to find them listed at a discount to the retail price on eBay (EBAY).