Filed Under: , ,
Tickers in this Article: HAS, ERTS, RCRC, JAKK, MVL
Toymaker Hasbro (NYSE: HAS) reported an almost 50% first quarter earnings cut of $19.7 million, or 14 cents per share, down from $37.5 million, or 25 cents per share, during the same period last year. Sales revenues declined from $704.2 million to $621.3 million. The company asserted that the bleak quarter was expected. But on the heels of the Christmas quarter (Q4 2008), the toymaker has experienced struggles piled upon struggles. While the company predicted better things for the rest of the year, industry wide some investors are wondering just when the toys and games space will be ready to play in.

Eight Ways To Survive A Market Downturn

A Recession Proof Industry?
Much of the conventional wisdom of investing has been tested, if not exploded, over the last couple of years, with one of the most seriously tested concepts being recession-proof industries. Everybody buys toys for their kids, right? Even in a bad economy? Except nobody did last Christmas. Or consumers didn't purchase them like they did in days of old. Hasbro and the other toymakers suffered greatly from the smashing of the recession-proof theory. Despite that Q1 is always the weakest for toymakers, having income sliced in half as Hasbro has - considering the solid position and operations of the company - is not a great sign.

Others Players, Other Toys
The other toymakers are feeling the pain, too. Electronic Arts (Nasdaq:ERTS) was cited in a recent article as no longer being the gaming giant it once was - no longer ahead of the curve, but a bit fatigued despite its signature Madden Football and other well-known brands. Preschool specialist RC2 (Nasdaq:RCRC), with its captivating Thomas and Friends Wooden Railway and other infant and toddler products, reported nearly flat earnings for its Q1 and reported diluted earnings at 10 cents per share, although the company is pretty much under the radar to most investors.

Jakks Pacific (Nasdaq:JAKK), the maker of pets- and crafts-related toys, also noted a tidy cash sum and solid earnings flow. For investors who like to scour balance sheets and look at long-term earnings valuations, this appears to be another smaller toymaker that has a strong presence and is holding up well through the bad economy. Maybe the best of these is actually hybrid company Marvel Entertainment (NYSE:MVL), creator of iconic characters that also are made into toys by companies such as Hasbro. Marvel has cited strong insider ownership in the way that a company generates loyalty and excitement for its workers, not merely for stock options.

Earnings for all of these companies have flattened during this recession, although it's a positive sign that even the smaller players are positioned to bounce back if and when consumers start buying toys again en masse. Marvel, with its movies franchises, comic books and astute alliances in toys needs a little smoothing on its earnings between blockbuster films. But long-term, the company faces a formidable future. Even in the recession, Marvel racked up box office receipts and loyal comic book fans
continued to purchase comics.

So What About Hasbro?
Hasbro, with toys slated for the Marvel character Wolverine as a tie-in to the X-Men movie, and toys in production in advance of the release of the new Transformers film, should turn out a solid year, despite struggles to execute its business during the trough of a first quarter. In a positive report in January, the company looked ahead to rebounding and didn't foresee Q1 as being quite this bad. Or... maybe we didn't. (For a look at that January article, read Toymaker Hasbro Ahead Of The Game.)

With assurances from the company for recovery down the road, we don't doubt the long-term strength of Hasbro's brands and its nimble execution. However, investors need to see some of the company's moxie in Q2 and perhaps in Q3, in addition to a slight upswing in the overall economy and in the toy biz. Currently, the small niche players like RC2 and Jakks Pacific are looking less sluggish than Hasbro.

Don't play with Hasbro just yet. The company mentioned an upturn in March sales, but investors should wait until this information is confirmed with sustained activity. Long range, expect Hasbro to recover nicely and to post strong, if not superb, numbers. But tread lightly with Hasbro in this economy, at least until the rough ride for toys starts to abate.

comments powered by Disqus

Trading Center