Hasbro's profit took harder-than-expected hit from Toys R Us store closures

Key Points
  • Hasbro's profit was hit harder by Toys R Us' bankruptcy and liquidation than the company had forecast.
  • Sales in the toy industry fell 2 percent last year as toy manufacturers endured their first Christmas without Toys R Us in more than 60 years.
  • Hasbro's gaming category, which includes "Magic: The Gathering" and "Monopoly" also took a hit, falling 22 percent.
Brian Goldner CEO of Hasbro.
Adam Jeffery | CNBC

Hasbro's fourth-quarter earnings missed estimates by a wide margin, but investors shrugged off the news after the company outlined a promising slate of new toys for 2019.

Shares of the toy maker were down 4.9 percent Friday after falling as much as 10 percent before the opening bell.

The company teased new toys from popular franchises like "Star Wars," "Frozen" and Marvel's "Avengers," hinting that these products could be major sales drivers for Hasbro in the coming year.

In the quarter ended Dec. 31, the company said it was hurt by the closure of Toys R Us stores more than it had forecast.

"2018 was a very disruptive year, driven by the bankruptcy and liquidation of Toys R Us across most of the world and a rapidly shifting consumer and retail landscape," CEO Brian Goldner said in a statement Friday. "During 2018, we diversified our retailer base, meaningfully lowered retailer inventories, and delivered innovative new offerings to our global consumers.

"We were not, however, able to recapture as much of the Toys R Us business during the holiday period as we anticipated as the effect of its liquidated inventory in the market was more impactful than we and industry experts expected," he added. "It is an unprecedented yet finite event."

Before its bankruptcy filing, Toys R Us was Hasbro's third largest customer in the U.S. and its second largest customer in Europe and Asia, Goldner said during an earnings conference call Friday.

Hasbro reported net income of $8.8 million, or 7 cents per share, compared with a loss of $5.3 million, or 4 cents per share, a year earlier, when it took a one-time charge related to changes in U.S. tax laws.

Excluding certain items, the company earned $1.33 per share, below analyst estimates of $1.67 per share, according to Refinitiv.

Revenue fell 13 percent to $1.39 billion in the quarter from $1.6 billion a year earlier. Analysts had forecast revenue of $1.52 billion.

Hasbro and rival toymaker Mattel had to scramble to find new retail locations for their products in the wake of Toys R Us' bankruptcy.

While several retailers, including Target, Walmart, and even drugstores, expanded their toy sections this past holiday season, there were still far fewer shelves showcasing toys in 2018 than in previous years. The loss of shelf space appeared to disproportionately affect items like plush toys, building sets and sports toys.

Sales in the toy industry fell 2 percent last year as toy manufacturers endured their first Christmas without Toys R Us in more than 60 years. In the U.S., customers spent $21.6 billion on toys in 2018, less than the $22 billion shelled out for action figures, dolls and games in 2017, according to market researcher NPD Group.

Hasbro's portfolio took a big hit in the quarter. Sales of franchise brands like Nerf, Monopoly, and My Little Pony, fell 8 percent and partner brands, which include "Star Wars," "Frozen" and "Marvel" merchandise, slumped 20 percent in the fourth quarter.

Notably, Disney did not release a "Star Wars" film during the fourth quarter this year and therefore sales of "Star Wars" merchandise had a difficult comparison with last year's release of "Star Wars: The Last Jedi."

Hasbro's gaming category, which includes "Magic: The Gathering" and "Monopoly," also took a hit, tanking 22 percent.

The only bright spot was Hasbro's emerging brands, toys like Lost Kitties and Yellies, which were up 5 percent during the period.

In 2019, Hasbro should benefit from a number of entertainment licenses. The company will sell toys from movies like "Star Wars: Episode IX," "Captain Marvel," "Avengers: Endgame" and "Frozen 2" throughout the year. In the past, "Star Wars" toys alone have brought in more than $500 million in sales during the quarter in which they were sold.

"We're also seeing the opening of a new theme park land of Galaxy's Edge, which is both in Anaheim and in Orlando, and we get to the end of the movie 'Star Wars: Episode IX,' which debuts in theaters in December, and that impact from the film and all of our efforts will reach across both 2019 and 2020," Goldner said. "So we're really excited about a full-year effort."

WATCH: The rise and fall of Toys R Us

The rise and fall of Toys R Us
The rise and fall of Toys R Us