Going into Hasbro's (NASDAQ:HAS) second-quarter financial release, investors were bracing themselves for the worst. The industry is still recovering from the passing of Toys R Us, the last remaining toy-centric big-box retailer.
While the results were still lower than the same time last year, they weren't as bad as many had feared, and Hasbro stock soared on the company's better-than-expected earnings report.
Image source: Hasbro.
The raw numbers| Revenue | $904.5 million | $972.5 million | (7.0%) |
| Operating income | $87.6 million | $100.0 million | (12.4%) |
| Net income | $60.3 million | $67.7 billion | (10.9%) |
| Diluted earnings per share | $0.48 | $0.53 | (9.4%) |
Data source: Hasbro Second-Quarter Financial Release.
For the second quarter, Hasbro reported net revenue of $904.5 million, a decrease of 7% year over year, while earnings per share of $0.48 marked a 9% decline. While that may not seem like anything to write home about, the numbers crushed analysts' consensus estimates for revenue of $844.2 million and earnings per share of $0.29. It was also a vast improvement from the more significant drop that occurred�just last quarter.�
The decline was broad-based, hitting each of the company's major operating segments:
| Franchise brands | $506.5 million | $552.4 million | (8.3%) |
| Partner brands | $208.0 million | $230.0 million | (9.6%) |
| Hasbro gaming | $134.3 million | $133.9 million | 0.0% |
| Emerging brands | $55.6 million | $56.2 million | (1.1%) |
Data source: Hasbro Second-Quarter Financial Release.
Revenue from Hasbro's franchise brands fell 8% year over year -- the company had strong sales in Magic: The Gathering, Monopoly, and Baby Alive, but unfortunately, those were more than offset by declines in other brands like Transformers, which saw tough comps due to a movie launch in the year-ago quarter.
Partner brands also took a hit, declining almost 10% compared to the prior-year quarter. Increased sales of Beyblade and Marvel toys weren't enough to compensate for declines in the rest of the category.
One bright spot was Hasbro's gaming category, where sales increased just slightly year over year.
| U.S. and Canada | $459.3 million | $494.4 million | (7.1%) |
| International | $380.4 million | $426.6 million | (10.8%) |
| Entertainment and licensing | $64.7 million | $51.5 million | 25.6% |
Data source: Hasbro Second-Quarter Financial Release.
Hasbro said that efforts to work through inventory in Europe were ongoing, hampered not only by the bankruptcy of Toys R Us but also by that of a French retailer that went into receivership last quarter.
The company's entertainment and licensing segment was actually up 26%, but as such a small part of Hasbro's top line, it wasn't able to move the needle.�
Management signaled confidence in Hasbro's future, repurchasing over 820,000 shares of its stock during the quarter at an average price of $90.33 per share. Those purchases totaled just over $74 million. The company has been taking advantage of its sagging stock price, buying back 1.2 million shares so far this year.
"2018 is unfolding as expected as our teams manage the liquidation of Toys R Us in many markets and address the rapidly evolving European retail landscape," said Brian Goldner, Hasbro's chairman and chief executive officer. "We are investing in our business -- in innovation, entertainment and a modern global commercial organization, to drive profitable growth in 2019 and beyond."
Looking aheadFor the third quarter, analysts are expecting revenue of $1.71 billion, which would be a 4.5% decline year over year, and adjusted earnings per share of $2.34, a 12% increase.
On the conference call to discuss the earnings, Goldner said that it will likely take the rest of 2018 to work through the fallout caused by the demise of Toys R Us, but he doesn't see any ill effects lingering into 2019.
For now, however, investors appear to be relieved that Hasbro has been able to minimize the damage and are willing to give the company the benefit of the doubt that things will soon be back to normal.
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