- The bankruptcy of Toys R Us and closure of hundreds of its stores dealt a heavy blow to the nation’s biggest toymakers.
- Losing one of their biggest customers weighed on sales and profits, shrunk their distribution, and lumped them with unpaid debt.
- Watch Hasbro,Mattel,Spin Master, and Jakks Pacific trade live.
The bankruptcy of Toys R Us in September 2017 and closure of hundreds of the toy retailer’s stores dealt a heavy blow to the nation’s biggest toymakers.
Toymakers’ sales suffered from the loss of a huge customer
The bankruptcy of Toys R Us meant the nation’s toymakers lost one of their biggest customers.
Hasbro’s sales plunged 12% last year as it lost out on “hundreds of millions of dollars in revenue from Toys R Us,” CEO Brian Goldner said on the group’s fourth-quarter earnings call.
The maker of Transformers, Nerf, and My Little Pony isn’t expected to restore its revenue to pre-Toys R Us levels until next year. However, its pending takeover of Entertainment One – the TV-and-movie studio and distributor behind Peppa Pig – could accelerate its recovery.
Similarly, Mattel’s revenue dropped 11% in 2017 and a further 8% in 2018. Sales at the maker of Barbie, Hot Wheels, and Fisher-Price aren’t expected to fully recover until 2022.
Spin Master, which makes Hatchimals and Paw Patrol toys, suffered an especially sharp slowdown. After surging more than 30% in 2016 and 2017, its sales slowed to just 5% in 2018, and are set to rise just 1% this year.
Jakks Pacific – which makes Harry Potter, Incredibles 2, and Nintendo toys – has also suffered. Its revenue shrunk 13% in 2017, and fell a further 7% in 2018.
The Toys R Us bankruptcy weighed on profits
Toymakers’ profits took a hit from the Toys R Us bankruptcy.
After jumping 19% in 2016, Hasbro’s adjusted operating profits slid 1% in 2017 then plunged 26% in 2018.
Similarly, Mattel swung from $US561 million in profits in 2016 to losses of more than $US100 million in 2017 and 2018.
Jakks Pacific swung from aan adjusted operating profit of $US17 million in 2016 to a loss of $US19 million in 2017. Meanwhile, Spin Master’s profits dropped 10% in 2018, after climbing 37% in 2017.
Toys R Us’ brand power, nationwide presence, and vast range allowed it to price some toys at a premium. Other toy retailers charge less, Spin Master said, which ate into its profit margins last year.
Toymakers’ distribution plunged
Toymakers were able to put their products in front of customers across America while Toys R Us was in business. Its closure dramatically shrunk their distribution footprint.
Spin Master pointed to its products being less widely available as a factor in its underperformance last year. It shipped just $US8 million worth of products to Toys R Us globally in the final quarter of 2018, down from about $US53 million in the same period of 2017.
Similarly, without Toys R Us to stock its products, Hasbro suffered a 24% drop in its retail inventories last year.
Toy companies were lumped with unpaid debts
Manufacturers and wholesalers often fill orders from retailers and grant them a few months to sell the items and pay them back. The sudden bankruptcy and liquidation of Toys R Us meant it didn’t pay back suppliers, leaving them saddled with unpaid debts.
Hasbro stomached more than $US60 million in bad-debt expenses and other after-tax charges – including unpaid bills and inventory becoming obsolete – related to Toys R Us in the first half of last year.
Mattel, Spin Master, and Jakks Pacific incurred about $US50 million, $US15 million, and $US13 million in bad-debt costs respectively over the same period.