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Can Hasbro Recover From Its Holiday Blues When It Reports Earnings?

By Danny Vena - Apr 12, 2019 at 4:35PM

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Toys R Us is gone -- but not forgotten.

Even though iconic toy-seller Toys R Us is gone from the retail landscape, its absence is still sending ripples across the toy industry. Hasbro (HAS -0.10%) wasn't immune to the effects last quarter and also suffered from weakness in Europe resulting from shifting consumer behaviors and rapid changes in the retail landscape. The uncertain economy in the U.K. brought on by Brexit added to the instability.

Hasbro will soon update investors on its challenges, as the company is scheduled to report the financial results of its first quarter of 2019 before the market open on April 23. Let's recap the company's fourth-quarter results and review recent events to see if they provide any insight into what investors can expect when Hasbro reports earnings.

Dozens of Power Rangers assume fighting stances.

Image source: Hasbro.

A Toys R Us holiday hangover

For the fourth quarter, which includes the all-important holiday season, Hasbro reported revenue of $1.39 billion, down 13% year over year. The decline came across the breadth of the company's geographic markets and product segments. This resulted in adjusted net income of $170 million and adjusted earnings per share (EPS) of $1.33. Both top and bottom lines were far below analysts' consensus estimates, which called for revenue of $1.52 billion and EPS of $1.67.

A number of factors contributed to the disappointing results. In addition to the loss of Toys R Us as a sales channel during the holidays and the weakness in Europe, there were fewer blockbuster movie tie-ins related to Disney's Star Wars, Frozen, and Princess lines to spur sales during the quarter.

Hasbro said it would reduce expenses to counter the weaker sales and earmarked $70 million to $80 million in annual cost efficiencies it intends to achieve by 2020, with $50 million to $55 million coming this year.

Recent events

There were a few recent developments that occurred after the company's recent earnings report that should be of interest to Hasbro shareholders.

In late February, Hasbro announced that it had been recognized by Ethisphere Institute as one of the 2019 World's Most Ethical Companies. A total of 128 honorees were selected across 21 countries and 50 industries and chosen for "improving communities, building capable and empowered workforces, and fostering corporate cultures focused on ethics and a strong sense of purpose." 

Earlier this month, Hasbro revealed that Jamie Gutfreund would be joining the company as Chief Consumer Experience Officer. This is a newly created C-suite position for the company, and Gutfreund "will lead the design and implementation of consumer-focused strategies that effectively connect the company's brands with global audiences."

What the quarter could hold

Hasbro didn't provide specific guidance for the upcoming quarter, but there are reasons to believe that things are beginning to improve. Hasbro CEO Brian Goldner said in an interview that the "disruption" from the Toys R Us debacle would wind down in the first quarter of 2019 and wouldn't be mentioned thereafter. Additionally, a strong slate of blockbuster movies from Disney, including Captain Marvel, Avengers: Endgame, Frozen 2, and Star Wars: Episode IX, will help drive movie-related toy sales this year.

In the absence of specific guidance from the company, we can turn to Wall Street for its best guess, though we don't want to be drawn into its short-term mindset. Analysts' consensus estimates are calling for revenue of $665.3 million in the seasonally weak quarter, down 7% year over year, and earnings per share of $0.33, a decline of 70% compared to the prior-year quarter.

Investors will have much more information to work with when Hasbro reports earnings on April 23.

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