By Paul Zilloro | Stock.Market@News.Today
Mattel fared better during the fourth quarter, as overall sales fell 5%, helped by Barbie and Hot Wheels, its two largest brands. The company also reported better-than-expected earnings, thanks in part to cost cuts, boosting the stock by 20% in morning trading Friday. Hasbro, meanwhile, posted a 13% drop in quarterly sales, as the maker of Nerf blasters and My Little Pony dolls was unable to recapture as much of the lost Toys “R” Us sales as it had anticipated. Hasbro shares fell 5%.
Despite Toys “R” Us’s liquidation completing midyear, the event cast a shadow across the rest of the year. Toys sold at deep discounts during store-closing sales found their way to other retailers and online, eating into some of the holiday sales that manufacturers expected. Retailers that did broaden their toy selection to pick up the displaced market share still approached the category cautiously, limiting inventory and requiring the manufacturers to keep more in their own warehouses until later
Hasbro Chief Executive Brian Goldner said Friday the liquidated inventory in the market was “more impactful” than the company and analysts had projected. “It is an unprecedented yet finite event,” Mr. Goldner said. Hasbro executives said they were hit harder by Toys “R” Us’s liquidation because the company’s brands such as Nerf were strongly supported by the retailer, compared with brands that were rebuilding after years of declining sales.
The U.S. toy industry sales fell 2% overall in 2018 to $21.6 billion, according to the research firm NPD Group Inc., with a slump toward the end of the year after Toys “R” Us stores closed. It was a sharp turnaround from the first half, when NPD said sales rose 7%. One place where toy companies were able to make up ground is online, where the industry’s sales are rapidly shifting. Mr. Goldner said Hasbro’s online sales increased more than 10% in the fourth quarter when excluding Toys “R” Us’s impact.
After a difficult holiday season, which accounts for nearly half of sales, executives said they enter 2019 relieved that the impact of Toys “R” Us is waning. Mattel CEO Ynon Kreiz said that despite the challenges of 2018, the toy industry is still in good shape over the next few years, with annual growth of nearly 5% projected through 2022.
“We expect the impact to subside and people will find other ways, other channels, other outlets” to buy toys, Mr. Kreiz said in an interview Thursday. “The demand is clearly there.” Mattel, which released its results after the markets closed Thursday, posted an unexpected profit, indicating the impact of Mr. Kreiz’s turnaround plan, which has included steep cost cuts.
Revenue at the El Segundo, Calif.-based company also was higher-than-expected amid continued improvement with Barbie. Sales in the brand rose 12% in the period, as the 60-year-old doll’s new marketing and more diverse product line is boosting sales. Sales, though, declined for Fisher-Price infant toys and Mega building blocks.
Mr. Kreiz is also laying the foundation for more movies and television shows to come out of Mattel that could eventually help sell more toys. It has recently signed deals to develop movies based on Barbie, Hot Wheels and Masters of the Universe and last week added a Walt Disney Co. veteran to develop television shows based on toy brands Mattel owns. “We think we’ll start seeing impact from that in not too distant future,” Mr. Kreiz said.
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Hasbro executives said they expect the company’s sales to grow again in 2019, helped by the recently acquired Power Rangers brand, which is launching a new television series, and the release of a sequel to the “Frozen” movie, for which Hasbro is making dolls and other toys. “2019 is about a return to growth, about moving beyond the Toys “R” Us bankruptcy and liquidation,” Mr. Goldner said on a conference call.