Top Stories
Top Stories

Here's what a Toys R Us bankruptcy means for toymakers: More clarity ahead of the holidays

Key Points
  • In 2016, Toys R Us made up 11 percent of Mattel's sales and 9 percent of Hasbro's.
  • Now, with some clarity on Toys R Us' future plans, vendors are expected to cut back shipments to the company by the fourth quarter.
  • Toymakers' stocks were seen rebounding slightly on Tuesday in light of the news.
Here's what a Toys R Us bankruptcy means for toymakers

Mattel and Hasbro — the top two toymakers in the U.S. — saw their stocks rebound on Tuesday, following news that Toys R Us has filed for bankruptcy ahead of the key holiday shopping season.

Ever since news broke at the beginning of the month that Toys R Us had hired a law firm and was weighing filing for bankruptcy as one outcome, the retailer's vendors have been punished by the Street.

In 2016, Toys R Us made up 11 percent of Mattel's sales and 9 percent of Hasbro's, according to Jefferies analyst Stephanie Wissink.

Now, though, with some clarity on Toys R Us' future plans, vendors are left to make their own decisions over redirecting business toward other retailers such as Amazon, Target or Wal-Mart.

Plus, the funding Toys R Us is hoping to arrange through the bankruptcy process will reassure the chain's vendors that they will get paid.

Toys R Us already has a commitment from some lenders, including a JPMorgan-led syndicate for more than $3 billion in debtor-in-possession financing. The details of that funding will be subject to court approval, but Toys R Us said it immediately could give its operations a boost.

Toy demand isn't expected to be lost during the holiday season, but it could be picked up by other channels, analysts said.

"The [Toys R Us] bankruptcy is likely to create some dislocation among the vendor roster," Wissink wrote in a Tuesday note to clients.

But companies such as Hasbro and Jakks Pacific are "strongly positioned" to maintain their financials and pursue other opportunities, Wissink said. "The strong will survive."

Wall Street is comparing Toys R Us' latest moves too closely — and dangerously so — to past bankruptcies in the sporting goods and consumer electronics categories, she went on. But in the case of toys, parents are still purchasing gifts for their kids, only through different outlets and more online.

"We do not expect the bankruptcy event to trigger a domino effect in toy retail, implying massive discounting systemwide that pressures vendor margins on a sustained basis," Wissink added.

Shares of Barbie maker Mattel closed down more than 6 percent on Monday, as reports surfaced that a bankruptcy filing was looming. Shares of Hasbro, which sells Nerf and Transformers and has outperformed Mattel this year, closed the day down near 2 percent.

On Tuesday, Hasbro closed nearly 2 percent higher, while Mattel shares closed more than 1 percent higher. Jakks Pacific, which makes a wide range of licensed toys, fell nearly 1 percent.

Toys R Us is "not as big a sales channel for toy companies as many think, though still material," BMO Capital Markets' Gerrick Johnson said in a note to clients.

Representatives from Hasbro, Mattel and Jakks didn't immediately respond to CNBC's requests for comment.

On Tuesday morning, Toys R Us took to its Twitter account to redirect users to a page of its website, where it explains the retailer "is committed to working with our vendors to help ensure that inventory levels are maintained and products continue to be delivered in a timely fashion."

Thus far in 2017, both Mattel's and Jakks' stock are each down about 45 percent, while Hasbro shares have climbed a little more than 22 percent.

WATCH: What next after online competitors crushed Toys R Us?

What next after online competitors crushed Toys 'R' Us?