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Toys 'R' tough business
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April 16, 1998: 3:23 p.m. ET
Hasbro, Mattel say inventory changes at Toys 'R' Us played hob with sales
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NEW YORK (CNNfn) - Hasbro Inc. and Mattel Inc., two titans of the toy-making world, blamed a strong dollar and changes in the buying habits of a major retailer for lower- than-hoped-for first quarter profits which, in Hasbro's case, nosedived more than two- thirds from last year's levels.
Both companies posted earnings Thursday a penny above Wall Street consensus estimates. But while inventory reductions at the retailer, Toys 'R' Us, sent net income at Hasbro into a virtual tailspin from the year-ago mark of nearly $26 million, Mattel's diversified portfolio enabled it to better weather the tumult and still post strong earnings.
Nearly a month after issuing an earnings warning related to the Toys 'R' Us changes, Hasbro posted a profit of $7.8 million, or 6 cents a diluted share, down 69.6 percent from year-ago earnings of $25.7 million, or 20 cents a share.
Revenue at Hasbro over the same period plunged 13.1 percent, from $555.8 million to $482.8 million. The toymaker, based in Pawtucket, R.I., said the impact of a stronger U.S. dollar resulted in a $10 million, or 2 percent, revenue loss.
Mattel's earnings, by contrast, rose to $12.7 million, or 4 cents a diluted share, from $5.1 million, or 1 cent a share, in 1997, before a Tyco integration and Mattel restructuring charge. The 1997 charge resulted in a first-quarter loss of $204.6 million, or 72 cents a share.
Total sales at Mattel increased 2 percent to $705 million from $694 million in 1997.
Jill Barad, Mattel's chairman and chief executive officer, said that the Toys 'R' Us situation and "the managing down of specific 1997 doll inventory" resulted in declines in shipments of the company's trademark Barbie dolls in the quarter. At the same time, Barad said retail sales of Barbie remained strong, while sales in the infant, preschool, wheels and entertainment categories also grew.
"Our balance sheet remains strong, with inventories and receivables being well managed and cash at a healthy $332 million," Barad said. "The strength of our portfolio of brands and our strong financial position give us continued confidence that we achieve our projected earnings per share growth of at least 15 percent for the year."
Hasbro's chairman and chief executive officer, Alan Hassenfeld, said the company's product lines had performed "as expected." He said last year's sales had been given a boost by the theatrical re-release of the "Star Wars Trilogy" and anticipation of release of "The Lost World: Jurassic Park."
"We expected a difficult comparison this year, and this has been compounded by the significant reduction in inventories and increased seasonality of purchasing patterns at Toys 'R' Us," Hassenfeld said.
Hassenfeld said increased sales by Hasbro Interactive, Beast Wars/Transformers and the Super Soaker line of water toys had helped to offset the expected decline. He also said that new acquisitions and a profit-enhancement program this year "should provide a platform for future earnings growth."
Shares of Hasbro (HAS) were down 5/8 at 35-3/8 in mid-afternoon trading Thursday on the New York Stock Exchange, while Mattel (MAT) stock dipped 7/16 to 38-9/16.
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