Hasbro revenue slumps on soft sales of 'Star Wars' toys

Key Points
  • Hasbro says sales of "Star Wars" and "Frozen" toys lagged during the fourth quarter.
  • Hasbro says its partner brands segment slumped 21 percent in the fourth quarter.
  • Franchise brands, like Nerf, Monopoly and My Little Pony performed well for the company, rising 11 percent in the quarter.
Star Wars toys on sale at Toys R Us in Times Square, New York.
Adam Jeffery | CNBC

The force was not with Hasbro during the holidays.

The toymaker said Wednesday that sales of "Star Wars" and "Frozen" toys lagged during the fourth quarter.

Hasbro also reported fourth-quarter earnings that far exceeded expectations, but revenues that fell short.

Hasbro shares jumped more 3 percent in early trading, reversing a 5 percent fall in the premarket.

Here's what Hasbro reported compared with projections by a Thomson Reuters survey of analysts:

  • Adjusted EPS: $2.30 vs. $1.80 expected.
  • Revenue: $1.60 billion vs. $1.72 billion projected.

Hasbro said earnings in the latest period took a $2.35 per share hit from changes in the U.S. tax law. It said it posted a net loss of $5.3 million, or 4 cents per share, down from a net profit of $192.7 million, or $1.52 per share, a year ago.

"Overall consumer demand slowed in November and December both for the industry and for Hasbro," CEO Brian Goldner said in a statement. "A decline in Partner Brands and Europe revenues resulted in us not meeting our fourth quarter revenue expectations."

Hasbro's partner brands segment, which include "Star Wars," "Frozen" and "Marvel" merchandise, slumped 21 percent in the fourth quarter.

The company said it doesn't see the fall in sales as "Star Wars fatigue," but rather a result of the timing of the merchandise release and advertisements. Goldner said that between Force Friday, a September merchandising event, and the release of "The Last Jedi" in December, customers were bombarded with products from other entertainment properties, like "Thor: Ragnorak" and "Justice League."

"So narrowing those windows so you're really able to take advantage of the specific marketing and these big marketing campaigns around the brands enables you to do quite a strong job in merchandising those films," he said.

In 2015, Force Friday lead to monumental sales of "Star Wars" toys ahead of "The Force Awakens," the first "Star Wars" film in nearly a decade.

"Clearly there was a lot of pent-up up demand across the board," Goldner said.

Hasbro expects to see a pickup in sales of toys tied to "The Last Jedi" as the film becomes available to the public on home video. It will begin advertising its merchandise for the stand-alone Han Solo film in April, ahead of the film's release in May.

"We continue to believe it will be that kind of business for us with great visibility to entertainment and great sustainability and frankly some better profitability for us as we go forward as we partner," Goldner said during an earnings conference call. "Therefore we could have a more valuable brand over the next five years than we've had over the period that led up to the 2015 movie those same five years."

Hasbro gaming, which includes a variety of board games and digital gaming, fell 4 percent in the quarter, and emerging brands, which includes Baby Alive and Furreal Friends toys, fell 5 percent. The company said that Tyler the Tiger was the top toy sold during the holiday period.

Franchise brands, like Nerf, Monopoly and My Little Pony performed well for the company, rising 11 percent in the quarter.

Here's how the segments performed for the full year:

Excluding items, the toy manufacturer earned $2.30 per share. Analysts, on average, had expected Hasbro to earn $1.80 per share.

Revenue in the quarter fell 2 percent to $1.6 billion and fell short of expectations of $1.72 billion.

Hasbro warned last October of weak holiday sales due to the bankruptcy of retailer Toys R Us. Residual effects from the bankruptcy weighed heavily on rival Mattel's earnings during the crucial holiday period.

Hasbro relies heavily on Toys R Us for sales. In 2016, the toy retailer was tied with Target as the second-largest seller of Hasbro goods, accounting for 14 percent of Hasbro's sales in the U.S. and Canada.

In January, Toys R Us said it was planning to shutter roughly 180 stores — about one-fifth of its U.S. store fleet.

"We estimate less than half the stores in their announced closures directly affect our initial plans, but we also expect Toys R Us to streamline inventory at remaining stores," Goldner said during the call. "Much of this impact will be felt in the first two quarters of the year. We anticipate during 2018 that we will right-size our business with Toys R Us."

Hasbro did not offer guidance for 2018. Goldner said the company would provide more insight on its forecast at the New York Toy Fair in mid-February.