- 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
- Business Insider/Jessica Tyler
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
- Sam Jonah/ Shutterstock
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 $561 million in profits in 2016 to losses of more than $100 million in 2017 and 2018.
Jakks Pacific swung from aan adjusted operating profit of $17 million in 2016 to a loss of $19 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
- Getty/Justin Sullivan
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 $8 million worth of products to Toys R Us globally in the final quarter of 2018, down from about $53 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
- Business Insider/Jessica Tyler
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 $60 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 $50 million, $15 million, and $13 million in bad-debt costs respectively over the same period.