Executives attributed the company’s “disruptive year” to the downfall of Toys R Us, which was the biggest toy retailer in the United States and sold a great deal of Hasbro products until it filed for bankruptcy and completed the liquidation process. The last remaining stores closed in the summer. While the void left by Toys R Us represents a huge opportunity for companies such as Target, Walmart and Amazon, it’s had a crippling effect on toymakers like Hasbro that are struggling to build relationships with new retailers and move excess inventory.
“The segment’s quarterly performance was negatively impacted by the loss of Toys R Us revenue and not meeting all shipping demands late in the quarter across an expanded retail footprint,” the company said in a statement.
On a conference call with investors, chief executive Brian Goldner said Hasbro is restructuring its supply chain operations to fill shipments for new retailers, many of which are smaller than the company was used to. Next year, Goldner said, Hasbro will build a warehouse in the Midwest to help improve shipping time and flexibility.
“It’s great when all these different retailers want to take toys in, but it results in higher costs and more supply chain disruption,” said Linda Bolton Weiser, an analyst with D.A. Davidson. “They’ve done a good job replacing about one-third of the lost volume already.”
Toys R Us also owed Hasbro roughly $59 million last September, and the company’s bad debt expenses bit into Hasbro’s performance this year.
The biggest shock in revenue drops came from the company’s partner-brand products, which fell 37 percent. The category, which includes big licensed brands such as Disney Princesses and Star Wars, was hurt by a lack of new material, such as blockbuster movies, that generates interest in toys and other products.
The damage to revenue from Toys R Us didn’t come as a shock, Bolton Weiser said. The only surprise was the drop in partner brands, Bolton Weiser said, but sales should bounce back with new Frozen and Toy Story films next year.
The underwhelming earnings report comes on the heels of a USA Today report that Hasbro will be making a round of job cuts, which should trim less than 10 percent of its workforce. Hasbro employs more than 5,000 people, with about half of its employees working in the United States. On a conference call with investors Monday, chief financial officer Deborah Thomas said Hasbro is expecting to rack up $50 million to $60 million in severance charges from the cuts.
Hasbro’s rival, Mattel, is grappling with the same void left by Toys R Us. In July, Mattel announced that it would cut nearly 2,200 jobs, almost a quarter of its workforce, The Washington Post reported.
Executives didn’t want to speculate on the call about whether the losses from Toys R Us would dent the fourth quarter, but they said they remained optimistic about the upcoming holiday season and rebuilding the business without Toys R Us.
“This is a year of transition for us,” Goldner said on the call. “In 2019 we’ll return Hasbro to growth.”