Hasbro Tumbles After Toys ‘R’ Us Bankruptcy Rocks Sales Outlook

Updated on
  • Growth seen topping at 7 percent, short of analysts’ estimates
  • Third-quarter results were helped by sales of ‘Star Wars’ toys

The bankruptcy of Toys “R” Us Inc. is reverberating through the operations of Hasbro Inc., which said sales growth in the current quarter could be about half of what Wall Street expected. 

Toys “R” Us is Hasbro’s second-largest customer -- after Wal-Mart Stores Inc. -- and accounted for 9 percent of its sales. The toy retailer filed for Chapter 11 protection last month, but it’s planning to keep operating as the chain attempts to restructure its heavy debt load. The disruption hurt sales and operating profit last quarter, Hasbro said Monday, sending the shares down the most since July.

With the Toys “R” Us situation, as well as weakening economies in the U.K. and Brazil, Hasbro now expects sales to increase 4 percent to 7 percent in the fourth quarter. Analysts projected a gain of 11 percent. The bankruptcy adds “higher uncertainty to the level of shipments” to Toys “R” Us in the fourth quarter, Hasbro Chief Executive Officer Brian Goldner said on a conference call. The company paused shipments for a short period last quarter, he said.

“This is a shift from our prior expectations,” Goldner said. But “consumer momentum continues to drive our business. We are well positioned with a diverse in-demand portfolio.”

Pawtucket, Rhode Island-based Hasbro fell as much as 7.6 percent to $90.76 in New York, the biggest intraday drop in three months. The stock had gained 26 percent this year through the end of last week. Shares of rival toymaker Mattel Inc. slid as much as 5.6 percent.

Despite the Toys “R” Us turmoil, Hasbro’s profit and sales topped estimates in the third quarter, helped by toys based off “The Last Jedi” debuting at retailers. The ninth film in the Star Wars franchise, which reaches theaters in December, highlights the comeback of Luke Skywalker -- a central character who hasn’t been featured since the early 1980s.

“Star Wars” has been a bright spot for the company, showing that Hasbro’s bet on entertainment continues to pay off. The toymaker has a strong relationship with Walt Disney Co., which owns the Star Wars and Marvel properties, and also is building its own brands. The first feature film for My Little Pony debuted this month, following a successful animated series that started in 2010.

Revenue climbed 6.7 percent to $1.79 billion in the third quarter, compared with the average analyst estimate of $1.77 billion. Profit rose to $2.09 a share. Analysts projected $1.94.

(Updates share trading in second and fifth paragraphs.)
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