Toys Are Selling, but Mattel and Hasbro Aren’t Cashing In

Date: Tuesday, July 28, 2020
Source: The Wall Street Journal

Toy makers post sharp revenue declines because stores didn’t rush to restock

Toys from Barbie dolls to board games are flying off the shelves, literally and virtually, as parents look for ways to entertain their children during the coronavirus pandemic. But retailers haven’t rushed to restock their inventory, causing financial pain at toy makers.

The discrepancy caused sharp revenue declines at Hasbro Inc. HAS +1.39% and Mattel Inc. MAT +5.06% in the second quarter compared with a year earlier, even as the companies say global retail toy sales rose in the period.

Mattel said Barbie’s sales rose 35% at the retail level, but only increased 7% on a wholesale basis. Hasbro said its games business, which includes Monopoly and Nerf, posted a 50% increase in retail sales, five times higher than revenue growth for the company.

The wide split between point-of-sale trends, which toy makers say reflects underlying demand, and financial performance reflects the extreme retailing conditions during the global pandemic. About 30% of stores were closed globally at the start of the quarter, the companies said, halting sales and any follow-on orders to replenish inventory.

As stores have opened, retailers have been cautious to stock up, amid uncertainty from the virus and precarious financial situations at some chains.

“They are managing their inventory tightly, more cautiously,” Mattel Chief Executive Ynon Kreiz said in an interview last week. “Everyone is trying to pace themselves.”

Online shopping has helped as thousands of stores closed. Mattel said online sales doubled in North America in the latest quarter, while Hasbro said digital sales rose more than 10%.

But online merchants such as Inc. generally buy less inventory than large retailers, who place orders for items to fill shelves at thousands of stores. Also, as bricks-and-mortar retailers shifted to an online sales model, they didn’t need as much product.

“As retailers moved to a digital model and stores were closed, their retail inventory requirements declined,” Hasbro CEO Brian Goldner said on Monday’s earnings call.

The tightening of inventory led to a 15% drop in revenue to $732 million at Mattel in the latest quarter, while Hasbro’s revenue declined 29% to $860 million, when accounting for the recent acquisition of Entertainment One Ltd. and its Peppa Pig and other brands. Hasbro and Mattel each reported quarterly net losses.

Hasbro said it also lost out on some sales because factories, some of which were closed in the quarter, were unable to make enough board games that were in high demand, such as Jenga, Battleship and Mouse Trap. Most of Hasbro and Mattel’s toys are made outside the U.S.

Executives said that as more stores open, they expect better sales in the second half of the year, which includes the critical holiday season. The increased consumer spending on toys isn’t likely “to retrench,” Mr. Goldner said. “We expect it to continue to expand,” he added.


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