Why Mattel’s Gain Is Hasbro’s Pain

Hasbro Inc. (NASDAQ: HAS | HAS Price Prediction) and Mattel Inc. (NASDAQ: MAT) have each released their fourth-quarter financial results, and we are now seeing the stocks move on Friday. Although Toys “R” Us had a lot to do with these reports, one company was the clear winner in the clash of the toymakers.

Hasbro posted $1.33 in earnings per share (EPS) and $1.39 billion in revenue, which compared with consensus estimates of $1.67 in EPS and $1.52 billion in revenue. The same period of last year reportedly had EPS of $2.30 on $1.6 billion in revenue.

Overall the lower revenues for this quarter reflect lost Toys “R” Us revenues throughout 2018 in the United States, Europe and Asia Pacific, as well as a more meaningful impact than expected from the liquidation of the retailer’s inventory into these markets.

Additionally, revenues declined internationally, mainly in Europe, where Hasbro addressed changing consumer shopping behaviors, a rapidly evolving retail landscape and reduced retail inventory, amidst challenging economies in key markets, notably the United Kingdom.

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In terms of its segments, Hasbro reported:

• Franchise Brands net sales fell 8% year over year to $729.9 million.
• Partner Brands net sales decreased 20% to $272.9 million.
• Hasbro Gaming net sales fell 22% to $267.4 million.
• Emerging Brands net sales increased 5% to $119.0 million.

Mattel said that it had $0.04 in EPS and $1.52 billion in revenue. Thomson Reuters consensus estimates had called for a net loss of $0.16 per share and revenue of $1.44 billion. In the same period of last year, the company posted a net loss of $0.72 per share and $1.61 billion in revenue.

For the fourth quarter, net sales were down 5% as reported, and 3% in constant currency, and gross sales were down 11% as reported and 9% in constant currency, reflecting a negative 8% impact from the Toys “R” Us liquidation and a negative 2% impact from the slowdown in the China business.

One of the key highlights from the report was that Mattel delivered gross margin of 46.6% in the fourth quarter and 39.8% in the full year. Note that this is the first gross margin improvement for each of the fourth quarter and full year since 2013.

In terms of its segments, Mattel Power Brands net sales decreased 6% to $1.2 billion, or 3% in constant currency. Toy Box brands net sales fell 21% to $519 million, or 19% in constant currency

Shares of Hasbro were last seen up 1% at $91.46, in a 52-week range of $76.84 to $109.60. The stock has a consensus price target of $102.31.

Mattel was up about 25% at $15.40 a share, within a 52-week range of $9.09 to $18.02. The consensus analyst target is $13.93.

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