Hasbro CEO: 'We were unable to meet all of the demand within the quarter'
- Hasbro's earnings miss on the top and bottom lines, sending shares down.
- The company says U.S. retail inventories are down 17 percent.
- Hasbro expects to add a warehouse in the Midwest to help meet this demand and shorten delivery time.
It's been more than a year since Toys R Us filed for bankruptcy, and toy maker Hasbro is still struggling with the fallout.
Shares of Hasbro were down about 3 percent Monday, after the toy company's earnings missed on the top and bottom lines and executives detailed inventory issues in the third quarter.
Although retailers rushed in to fill the void left behind by Toys R Us, these new partners have been waiting to place toys on shelves until closer to the holiday season. Previously, Toys R Us would take on inventory earlier in the season. As a result, Hasbro said its retail inventories in the U.S. were down 17 percent in the third quarter.
"These are real retailer reductions across our business and then certainly Toys R Us has some impact," CEO Brian Goldner said on an earnings conference call Monday.
Amazon, Target and Walmart have become increasingly more important for Hasbro and its competitors, as have alternative retailers like drug and grocery stores. Other retailers such as Kohl's, J.C. Penney and Best Buy have also cleared more shelf space for toys.
Hasbro said that demand for toys and games was high late in the third quarter.
"We were unable to meet all of the demand within the quarter," Goldner said. "As a result, approximately $50 million of U.S. third-quarter orders shipped in the first week of the fourth quarter."
Hasbro expects to add a warehouse in the Midwest to help meet this demand and shorten delivery time. Chief Financial Officer Deb Thomas said the company has seen higher shipping costs in the U.S. because of new trucking regulations and a shortage of drivers.
Hasbro has relied heavily on Toys R Us for sales. Target became the second-largest seller of Hasbro goods in 2016, accounting for 14 percent of its sales in the U.S. and Canada.
Toys R Us, which accounted for 15 to 20 percent of U.S. toy sales last year, shuttered its last U.S. location on June 29. Hasbro also noted that the recent bankruptcy of Sears had no impact on its business because it it accounted for less than 1 percent of revenue last year.
One bright spot for Hasbro is that 83 percent of customers who bought a toy during the liquidation of Toys R Us said they had already given it away or would be gifting it before the end of September, according to a report by NPD Group.
That leaves only 17 percent who said they would be giving the toy to someone during the fourth quarter. NPD's Juli Lennett noted that birthdays and "no special occasion" were listed as the top two reasons for purchasing these liquidation toys, with Christmas coming in third.
"So as we go through these transitions our underlying business is quite strong. Our brands are good. Consumers are very excited about what we're doing," Goldner said. "It's just that again we've got to get through the disruption of the Toys R Us business and as, I mentioned, Toys R Us was largest for us in Q3 last year, followed by Q4."
Programming Note: For more on Hasbro, watch CEO Brian Goldner's interview on "Mad Money" tonight at 6 p.m. ET.