Hasbro Posts Loss in Q1, Discusses TRU Effect

Posted April 24, 2018

Share This Post Now!

No matter the shape (if any) of Toys R Us’ (TRU) U.S. business going forward, Hasbro is moving quickly to expand business at other retailers and expects ecommerce to make up a large portion of revenue lost by the chain’s liquidation, Hasbro executives told analysts.

That ecommerce will come from brick and mortar retailers like Walmart and Target as well as online-only companies such as Amazon and Alibaba, CFO Deborah Hancock told analysts. TRU accounted for 9% of Hasbro’s revenue 2017, but that percentage was down substantially in Q1 ended April 1, Hasbro executives said.

Other retailers are expanding their toy assortments in light of TRU’s liquidation, and Hasbro is getting a portion of that, CEO Brian Goldner said. Those retailers have “robust” promotional plans for the coming months due both the upcoming slate of film releases and the expected impact of TRU’s on-going liquidation sales, Hasbro executives said.

How the business will shake out in non-U.S. markets is less clear; Hasbro executives wouldn’t give guidance about the company’s business outside the U.S., citing the uncertainty about how many stores will survive, and under whose ownership.

Canadian investment firm Fairfax Financial Holdings Ltd. filed a CDN$300 million stalking horse bid for TRU’s 82 Canadian stores, setting the floor for a bankruptcy auction set for today in Kirkland & Ellis’ New York offices. A hearing on the proposed sale of those stores is slated for Tuesday in U.S. Bankruptcy Court, Richmond, Va. Also, Toys ‘R’ Us has received multiple bids of more than $1 billion for an 85% stake in its Asian business, its attorney Joshua Sussberg said at a U.S. bankruptcy court hearing earlier this month. Meanwhile, Smyths Toys agreed to pay €79 million for 93 shops and four online stores in Germany, Austria and Switzerland, Toys R Us said in an SEC filing.  Smyths, which operates 110 stores, will rebrand the locations under its own banner. The agreement is pending the approval of the U.S. Bankruptcy Court, Richmond, Va.

Goldner said he believes Hasbro has the opportunity to recover all the business lost in the TRU meltdown; “we just have to execute on it,” Goldner said. “There is lots of interest from retailers in growing their business with us. Toys R Us is the reason our business is down right now, but we will put that in our rear view mirror in the next few quarters.” Hasbro expects the liquidation to affect business throughout this year with “profitable growth” returning in 2019, Hancock said.

Hasbro had a $112.4 million net loss in Q1, down from a $68.9 million profit a year earlier. Revenue declined 16% to $716.3 million due largely to Toys R Us’ liquidation.

It recorded a $61.4 million bad debt expense tied to Toys R Us. Hasbro’s revenue from franchise brands dropped 19% to $361 million as gains in Monopoly were offset by declines in every other brand. Sales of partner (licensed) brands dropped 6% to $200.6 million as increases in Marvel- and BeyBlade-related toys were offset by declines in other brands. A lone bright spot was entertainment and outbound licensing, which posted a 21% gain in revenue to $64 million as its operating profited jumped 23% to $13.9 million. Much of that increase was on the entertainment side, due to “Stretch Armstrong and the Flex Fighters” launching on Netflix, Hancock said.

Hasbro’s U.S. and Canada business reported a $23.4 million operating loss, reversing a year-earlier $64 operating profit as Toys R Us’ liquidation resulted in a $52.3 million bad debt expense.  In international markets, revenue declined 16.6% to $287.9 million as Hasbro posted a $56 million operating loss, reversing a $500,000 profit a year earlier. European revenue was down 28%, while those in emerging markets declined 5%. Latin America (2%) and Asia Pacific (3%) posted gains.