Hasbro (NASDAQ:HAS) recently put the final wrap on 2018, reporting a forgettable holiday shopping season. Since Toys R Us went bankrupt over the summer, the toy maker's sales have struggled to move higher in spite of a healthy U.S. consumer spending lots of money (retail sales were up over 5% from 2017 according to the U.S. Census Bureau). Difficulties remain -- as indicated by the negative 9% stock performance over the last 12 months -- but a solid pipeline for the new year could mean a rebound is in store.

When kids don't get what they want

The sudden absence of Toys R Us meant Hasbro needed to double down on digital distribution, an easier-said-than-done task. It also didn't have any blockbuster movie hits during the summer months (like the Transformers franchise, which got a prequel in Bumblebee in December 2018), and partner sales with the likes of Disney (NYSE:DIS) also had an off year. With multiple headwinds converging at once, full-year results suffered.

Metric

Full-Year 2018

Full-Year 2017

YOY Increase (Decrease)

Revenue

$4.58 billion

$5.21 billion

(12.1%)

Gross profit margin

59.6%

61%

(1.4 p.p.)

Operating profit

$331 million

$810 million

(59.1%)

Earnings per share

$1.74

$3.12

(44.2%)

Adjusted earnings per share

$3.85

$5.46

(29.5%)

YOY = year over year. P.p. = percentage point. Data source: Hasbro.

To make matters worse, the company began diversifying its toy production away from China as a result of the trade spat with the U.S. That ate into profit margins, although management said it is on track to reduce its exposure to China to 60% by the end of 2020. Hasbro also had to deal with sliding sales in Europe. Management cited a report from market research group NPD that said toy and game sales fell 4% on the continent in 2018.

To put it simply, it was a bad year for the toy industry. It was the first annual industrywide sales decline since 2009 -- the year the financial crisis started to abate. Reflecting the ugly numbers -- especially during the all-important holiday shopping season -- Hasbro's stock carries a trailing-12-month price to earnings (P/E) ratio of 52. Wall Street feels optimistic, though, as the 12-month forward expected P/E is only about 19. That would indicate a dramatic rebound is in the cards.

A toy robot standing atop a mountain of other toys

Image source: Getty Images.

The kids are alright

Though the numbers were underwhelming, Hasbro did post some significant accomplishments. The company said it was the No. 1 toy seller on Amazon in 2018, and its online points-of-sale grew by a double-digit percentage as it shifted away from its now-defunct legacy partner. While transitioning to digital can be a painful process, it's a necessary one to survive in the digital-first world we live in (ahem, Toys R Us). The milestone paves the way for Hasbro to eventually return to growth.

The company purchased the Power Rangers in 2018, with a new TV show set for release later this year. That builds on Hasbro's history of turning popular toy brands into media assets as well, a vertically integrated franchise that capitalizes on all aspects of kids' entertainment. In a similar fashion, Hasbro wants to build on its board-game and card-game strength by bringing popular titles like Dungeons & Dragons to the video-game world. With video games only growing in popularity, management has made it clear it wants to bring more of its brands into a digital format and has promised some examples will be forthcoming.

And finally there's the partnership development pipeline, most notably at Disney. Hasbro handles all the toy production for Mickey and company, and it's shaping up to be an especially busy year for the theme park and movie studio. From Star Wars to Marvel superheroes to live-action remakes of Disney classics, Hasbro is anticipating a big rebound in toy sales from the slew of movie releases in the year ahead.

Check out the latest Hasbro earnings call transcript.

Along the road to recovery, investors will also be treated to a higher dividend payout. The board recently hiked its quarterly dividend by 8% to $0.68 per share, making for an annual yield currently at 3.1%. Though 2018 was one worth forgetting for Hasbro, adversity often spells opportunity. With a course charting a rebound in place and a decent investor payday, this stock is worth a look right now.