Toy distributor Funtastic will raise $24.6 million from its shareholders to reduce debt amid a challenging retail environment.

The company would immediately repay $15 million in debt once the funds were raised and the remainder would be used to invest in growth, Funtastic said on Thursday.

The company confirmed its expectations of a $10.4 million profit for the year to July 31, a turnaround from the $38.2 million loss in the previous 12 months.

Funtastic also forecast earnings and sales growth in 2012/13.

“Whilst our forecast growth is not dependent on an Australian retail turnaround, the board felt that it was prudent to strengthen the company’s balance sheet,” managing director Stewart Downs said.

The funds would insulate Funtastic from further economic shocks, he said.

Funtastic distributes toys, sporting goods, confectionery and nursery products in Australia, including the Ben 10, Razor and Power Rangers brands.

It also owns a toy manufacturing business in Hong Kong and the MadMan home entertainment company.

Sales are forecast to grow by between five and eight per cent in 2012/13 and earnings in that year are expected to rise to between $23 million to $25 million, from $20.1 million in 2011/12.

Dividends are also expected to by fully franked from 2012/13.

Under the company’s funding plans, existing shareholders will be offered one new share for every three held, at 14.5 cents each.

Funtastic shares will remain in a trading halt at 16 cents while the first stage of the offer is conducted.