Hasbro Manages Toys R Us Impact Well; Stock Soars

Toy maker Hasbro (NASDAQ: HAS) reported second-quarter 2018 results before market open on Monday. Revenue and earnings per share declined 7% and 9.4% year over year, respectively. Loss drivers remained the same as last quarter: the bankruptcy and subsequent liquidation of Toys R Us in the U.S. and other geographic markets, and the company entering the quarter with excess retail inventory in Europe.

Shares of Hasbro closed up 12.9% on Monday, which we can attribute to both revenue and earnings coming in higher than most investors were expecting. Shares have pulled back about 5% on Tuesday as of midafternoon trading.

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Hasbro’s key quarterly numbers

Putting the revenue decline in context, sales to Toys R Us accounted for about 9% of Hasbro's revenue in 2017, according to fellow Fool Tim Green.

Earnings got a boost from a lower tax rate due to U.S. tax reform. The quarter's underlying tax rate was 17.4%, versus 24.7% in the second quarter of 2017.

For context — though long-term investors shouldn't place too much weight on Wall Street's near-term estimates — analysts were expecting adjusted EPS of $0.30 on revenue of $838.1 million. So Hasbro crushed both expectations.

What happened with Hasbro in the quarter?

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  • Revenue from franchise brands declined 8% from the year-ago quarter to $506.5 million. Growth in Magic: The Gathering, Monopoly, and Baby Alive wasn’t enough to overcome declines in other brands.
  • Revenue from partner brands declined 10% to $208 million. Declines in most brands were greater than the gains made by Beyblade and Disney‘s Marvel.
  • Hasbro gaming revenue was approximately flat at $134.3 million.
  • Emerging brands revenue slipped 1% to $55.6 million.
  • U.S. and Canada segment revenue declined 7% to $459.3 million, international segment revenue dropped 11% to $380.4 million, and entertainment and licensing revenue increased 26% to $64.7 million.
  • The company acquired the Power Rangers brand.

What management had to say

Here's what Hasbro CEO Brian Goldner had to say in the press release:

Looking ahead

Hasbro did a commendable job in the quarter managing the impact to its business from the Toys R Us bankruptcy, an event that has disrupted the entire toy industry.

The light at the end of the tunnel isn't far away, according to management. They expect the effect to Hasbro's business from the Toys R Us liquidation to lighten in the second half of the year — the more important half due to the holiday season. Moreover, Goldner reiterated on the earnings call that while the company doesn't expect "to capture all the lost revenues in 2018," it does anticipate that "by 2019 we should have moved beyond Toys R Us."

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro and Walt Disney. The Motley Fool has a disclosure policy.

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