Toymakers have been under pressure for years from cheaper off-shore imports, margin-squeezing big-box retailers and children who increasingly prefer tablets to toys.
The bankruptcy of Toys R Us, one of the world's largest toy retailers, threw a wrench into the industry. According to Jefferies, the retailer comprised 11 percent, 9 percent and 15 percent of 2016 global sales for Mattel, Hasbro and Jakks Pacific respectively.
The disruption of its filing had a huge impact on Mattel and slightly less so on Hasbro. In North America, where Toys R Us filed for bankruptcy, Mattel's net sales this most recent quarter dropped by 22 percent. Amid its challenges, Mattel suspended its quarterly dividend.
Toys R Us is expected to emerge from bankruptcy, but will likely eventually have a smaller footprint. That means fewer stores in which to sell exclusive toys that Mattel and Hasbro make for the retailer. With potential store closings also comes potential liquidation sales that sell their toys at rock-bottom prices.