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Hasbro declines after setback from the collapse of Toys ‘R’ Us

New York - The demise of Toys 'R' Us took a toll on Hasbro last quarter and that isn’t likely to abate until later this year.

Hasbro posted declining sales in all business areas in the quarter, sending the shares down on Monday by the most in more than two months. The toymaker said the drop was a result of the Toys 'R' Us liquidation, as well as “uncertainty” in some operations and excess inventory in Europe.

That liquidation in the US is expected to end in the second quarter, but what happens in Europe remains to be seen, CEO Brian Goldner said on a call with analysts. The hit to sales will be less pronounced in the second half of this year, he said.

“We’re working aggressively around the world to put the impact of Toys 'R' Us behind us,” Goldner said. “Importantly, this is not something happening to our company.’

The retailer, one of Hasbro’s largest customers, filed for bankruptcy in September, had a terrible fourth quarter and then announced the liquidation of several divisions, including the US This has presented another hurdle for toymakers that were already dealing with slowing growth and concerns that the success of making so many products based off an ever-growing slate of kids entertainment is waning.

Shares of Hasbro dropped as much as 4.6% to $79 in New York, the biggest intraday decline since February 8. They had already slid 8.9% this year through Friday’s close.

Goldner said he expects retailers such as Walmart and Target to expand toy offerings.

Takes time

“The opportunity to absorb all of the Toys ‘R’ business is present” for our remaining retail partners,” Goldner said. “We are just building those plans to do that, but it takes some time.”

The Toys 'R' Us effect could be clearly seen in Hasbro’s results. In North America, sales sank 19%. Revenue dropped even more in Europe with a decline of 28%. The liquidation also generated expenses of $61.4m.

The world’s largest publicly traded toymaker, based in Pawtucket, Rhode Island, lost $112.5m in the quarter, versus a profit of $68.6 million a year earlier. Sales of franchise brands, which include Transformers and My Little Pony, collapsed 19% to $361.7m.

Goldner has said that revenue will take a hit this year, but declined on Monday to give more specific sales guidance. He said the company would update investors later this year.

The first quarter, which runs through March, is Hasbro’s smallest by revenue. This is usually when toymakers are rebuilding inventory for the rest of the year.

Overall sales in the period sank 16% to $716.3m, the company said. Analysts had estimated $821.2m on average. Excluding the Toys 'R' Us costs and other items, profit dropped to 10 cents a share, compared with projections for 32c.

Sales and profit grew in areas unaffected by Toys 'R' Us, including Latin America and Asia Pacific, and in the entertainment and licensing division, “suggesting the underlying business remains stable,” said Stephanie Wissink, an analyst at Jefferies. That’s “a positive indicator for 2019 growth,” she said.

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