Stocks were mixed Friday as investors weighed earnings reports and worries over a trade deal with China. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) finished on either side of the unchanged mark.
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Hasbro is still struggling
Hasbro said that the Toys R Us liquidation was having an effect on its business that was even larger than it had expected, and the resulting miss for Q4 caused shares to slip 1%. Revenue declined 13% to $1.39 billion, missing expectations of $1.52 billion. Adjusted earnings per share came in at $1.26, far below the $1.67 Wall Street was expecting.
Sales in the U.S. and Canada dropped 10% to $2.4 billion and operating profit fell by 25%. Internationally, the story was even worse, with sales declining 25% and operating profit plummeting 83%. On the positive side, Hasbro announced it is increasing the dividend 8% to $0.68 per share.
Hasbro's woes haven't changed much since an ugly Q3, when the company said the Toys R Us liquidation would continue to impact results into 2019, and bloated inventories in Europe were hurting sales there. When pressed on the conference call, company officials wouldn't quantify how much of the sales decline was due to the Toys R Us debacle, but continued to insist that the effect was "unprecedented but finite," that inventory levels are improved, and that Hasbro would return to growth in 2019.
Mattel reports a surprising profit
Mattel's sales were hit by the Toys R Us liquidation, but apparently to a lesser degree than were Hasbro's, and cost-cutting measures helped the company beat low expectations, causing shares to soar 23.2%. Net sales fell 5.4% to $1.52 billion and the company reported earnings per share of $0.04, compared with a loss of $0.82 per share in Q4 last year. Analysts were expecting Mattel to lose $0.16 per share on sales of $1.44 billion.
Gross sales, which exclude returns, sales discounts, and sales allowances, fell 11%, or 9% in constant currency. Gross sales in North America were down 10%, driven by a 17% impact from Toys R Us, and international gross sales fell 7%, with 3% of that coming from Toys R Us. Companywide, adjusted gross margin improved to 46.6% from 32% and operating profit improved by $358 million.
As far as investors are concerned, Mattel was the clear winner over Hasbro this holiday season, especially in its execution in Europe and cost-cutting. No doubt the better transparency and lower expectations didn't hurt, either.