Hasbro, Inc. ( HAS) stock plummeted more than 8 percent on Monday morning after the company reported disappointing numbers across the board in the first quarter. The company says its business is healthier than the numbers suggest and that the Toys ‘R’ Us liquidation has taken a large toll on Hasbro’s business.
Hasbro reported first-quarter adjusted earnings per share of 10 cents on revenue of $716.3 million. Both numbers fell well short of consensus analyst estimates of 33 cents and $814 million. Revenue was down 16 percent from a year ago.
Franchise brands revenue, which includes My Little Pony and Nerf, fell 19 percent in the first quarter. Partner brands revenue, which includes Star Wars and Marvel merchandise, was down 6 percent. Gaming revenue dropped 22 percent, and emerging brands revenue fell 6 percent.
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Hasbro and competitor Mattel ( MAT) have been hit by the loss of Toys ‘R’ Us, one of their largest retail partners. Toys ‘R’ Us filed for bankruptcy in September 2017. In January, the company announced it was closing 180 stores, and in March it said it will be closing its remaining 735 U.S. stores and liquidating its assets.
“Our underlying financial strength is sound, and despite the near-term challenges associated with a major customer liquidation, Hasbro is positioned to manage a challenging 2018 and drive growth in 2019 and beyond,” CFO Deborah Thomas says in a statement.
Analysts estimate Toys ‘R’ Us has represented an average of 9 percent of Hasbro sales over the past three years, and the company was likely assuming Toys ‘R’ Us would account for roughly 6 percent of 2018 sales prior to the liquidation announcement.
KeyBanc analyst Brett Andress says the Toys ‘R’ Us liquidation is bad news for Hasbro, but there’s a silver lining for long-term investors.
“While [Toys ‘R’ Us] headlines have clearly been an overhang for the last several months and the official news of the closures is a negative for [near-term] earnings trajectories, it does clear the decks from a sentiment/headline risk standpoint,” Andress says. “Liquidation is akin to ripping the Band-Aid off of an otherwise drawn-out process, and the favorable timing (early spring versus worst-case holiday season) should allow the channel to properly adjust into the holiday.”
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KeyBanc has an “overweight” rating and $110 price target for HAS stock.
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Hasbro Earnings Take Toys ‘R’ Us Hit originally appeared on usnews.com
