Hasbro Inc. and Mattel Inc. shares are moving in opposite directions following earnings reports that demonstrate the ongoing impact of the Toys ‘R’ Us liquidation.
shares soared 22.3% in Friday trading after the company, whose big names include Barbie and Hot Wheels, reported fourth-quarter earnings and revenue that beat expectations.
Fisher-Price and Thomas & Friends gross sales fell 15% in the quarter, including a 9% impact from Toys ‘R’ Us.
“As the effects of Toys ‘R’ Us moderate and move back to the channel inventory in China, the brand [Fisher-Price] will be in a better position to restore growth,” said Mattel Chief Executive Ynon Kreiz on the earnings call, according to a FactSet transcript.
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Thomas & Friends has new content, but “there has been a longer-than-expected release time frame” in the U.S. “resulting in limited incremental exposure,” Kreiz said.
“We are taking a fresh look at Thomas holistically and looking at other ways to improve the entire customer experience.”
SunTrust Robinson Humphrey analysts maintained their hold rating on Mattel shares, but raised their price target to $15 from $13.
“Despite a tough year for the toy space and several company-specific challenges, 2018 certainly ended on a high note,” SunTrust wrote. “While the worst may now be behind Mattel, we would like greater visibility into long-term earnings power and believe there could still be quarterly volatility in the interim. We would also like a better understanding of Mattel’s content/theatrical strategy and when that could begin to yield meaningful revenue/earnings streams.”
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Mattel recently announced that it would be making a live-action Barbie movie starring Oscar nominee Margot Robbie, a Hot Wheels movie, new play sets through a partnership with National Geographic, and toys based on the boy band BTS.
Hasbro shares, on the other hand, are down 4.4% in Friday trading after adjusted earnings and revenue missed expectations.
“For Hasbro, in addition to losing hundreds of millions of dollars of revenue from Toys ‘R’ Us, the liquidation of an additional hundreds of millions of dollars of their retail inventory sold into the market at large discounts was more impactful to 2018 than we and industry experts estimated,” said Hasbro Chief Executive Brian Goldner on the earnings call, according to FactSet. “It is an unprecedented yet finite event.”
Toys ‘R’ Us was Hasbro’s third-largest customer in the U.S., and second largest in Europe and Asia-Pacific, according to Goldner.
“We are surprised with the severity of the miss but take some solace that retail inventory levels have significantly declined, which should allow Hasbro to start 2019 with a relatively clean channel and a more efficient cost structure. Furthermore, we remain positive toward the company’s upcoming product line,” wrote MKM Partners analyst Eric Handler in a note after the earnings release.
MKM rates Hasbro shares buy with a $102 price target.
Among the products discussed on the call are Nerf Fortnite and Nerf Overwatch, part of the company’s gamer series.
Mattel shares are down 5.4% over the last year, Hasbro stock have fallen 10.7%, and the S&P 500 index
has gained 4.1% for the period.