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Holiday toy season will be 'business as usual' despite Toys R Us bankruptcy filing

  • While toy companies have felt pressure from Wall Street in the wake of Toys R Us' filing, industry sales are expected to remain on target.
  • In the short term, many toy companies are scrambling to determine just how big of an impact the Toys R Us bankruptcy filing will have on sales.
  • While the short term may be uncertain for these toy companies, many are feeling confident that the Toys R Us bankruptcy will not have a long-term impact on their businesses.
Shoppers at the Toys 'R' Us store in Paramus, New Jersey.
Getty Images
Shoppers at the Toys 'R' Us store in Paramus, New Jersey.

Toys R Us may have filed for bankruptcy, but that doesn't mean the toy industry is going to suffer this holiday season.

While toy companies have felt pressure from Wall Street in the wake of the Toys R Us filing, industry sales are expected to remain on target.

"Kids, who are the majority of toy consumers, aren't paying any attention to this," Juli Lennett, an analyst at The NPD Group, told CNBC via email. "Kids will continue to make their holiday wish lists and parents/grandparents will continue to put these new toys under the Christmas tree. My expectation is that the holiday season will be business as usual for consumers."

Toy sales in the fourth quarter account for about 50 percent of annual sales for the industry, according to Lennett. Last year, toy sales were estimated to reach $27 billion based on consumer data from NPD. This year, sales are expected to grow 4.5 percent.

In the short term, many toy companies are scrambling to determine just how big of an impact that Toys R Us bankruptcy filing will have on sales.

Hasbro said that it is "currently in the process of evaluating the terms of the Toys R Us bankruptcy filing." The company declined to comment further.

"There is some negotiations happening between vendors and Toys R Us right now that will take some time, but for the consumer it should be business as usual," Jim Silver, toy analyst and CEO of TTPM, an online toy review site, told CNBC via email.

He said that Toys R Us is one of the four big retailers for companies like Mattel and Hasbro — the top two toymakers in the U.S. — and a location that many toy makers have used to launch new items.

In particular, WowWee, the toy company behind Chip, the robot dog, is slated to sell an exclusive unicorn version of its popular Fingerlings toy at Toys R Us this season. WowWee did not immediately respond to CNBC's request for comment.

Companies like Jakks Pacific have already lowered their guidance for the year, expecting a strain on sales because of the retailer's troubles.

"Most of the guidance reduction is applicable to 3Q17, as JAKK's shipments to Toys "R" Us (TRU) were light due to uncertainty over getting paid; now that TRU will operate under bankruptcy protection and suppliers will be assured of receiving payment, JAKK expects potentially less of an impact on 4Q17 sales and earnings," Linda Bolton Weiser, a Davidson analyst, wrote in a research note Thursday.

Jakks said in a statement Wednesday that it "does not anticipate any long-term material adverse impact from the Toys 'R' Us bankruptcy filing."

Weiser lowered her rating on the toy company to underperform from neutral after Jakks cited uncertainty around Toys R Us shipment levels and possible store closures by the retailer in 2018

While the short term may be uncertain for these toy companies, many are feeling confident that the Toys R Us bankruptcy will not have a long-term impact on their businesses.

"2017 continues to present a challenging retail environment, which has now been further disrupted by the Toys 'R' Us Chapter 11 filing," Stephen Berman, CEO of Jakks Pacific, said in a statement Wednesday. "Nevertheless, the announced availability of DIP financing leaves us optimistic that we can resume our relationship with Toys 'R' Us as one of its significant suppliers."

Jakks isn't the only toy company standing by Toys R Us. Spin Master's COO, Ben Gadbois, said in a statement that the company will "continue to support Toys R Us."

"We have strong confidence in the ability of their management, and all their employees, to re-emerge stronger and healthier," he said. "Toys 'R' Us is an important part of the toy industry and we wish them the best."