Hasbro Reports Full-Year, Q4 2018 Earnings
Hasbro’s net revenues for the full-year 2018 decreased 12 percent to $4.58 billion versus $5.21 billion in 2017, reflective of lost revenues from Toys “R” Us (TRU) throughout 2018 in the U.S., Europe and Asia Pacific and a more meaningful impact than expected from the liquidation of TRU inventory into these markets. Revenues also declined internationally, most notably in Europe where the company addressed changing consumer shopping behaviors, a rapidly evolving retail landscape and reduced retail inventory, amidst challenging economies in key markets. Notably the U.K. 2018 net revenues also include an unfavorable $43 million impact from foreign exchange.
As reported net earnings for the full-year 2018 were $220.4 million, or $1.74 per diluted share, compared to $396.6 million, or $3.12 per diluted share, in 2017. Adjusted 2018 net earnings were $488.8 million, or $3.85 per diluted share, excluding after-tax charges of $268.4 million, or $2.11 per diluted share. Adjusted 2017 net earnings were $693.1 million, or $5.46 per diluted share, excluding a $296.5 million, or $2.33 per diluted share, impact from U.S. tax reform.
In fourth quarter, Hasbro also saw a 13 percent decline in net revenues to $1.39 billion compared to $1.60 billion in 2017. Q4 2018 net revenues include an unfavorable $35.1 million impact from foreign exchange.
“2018 was a very disruptive year, driven by the bankruptcy and liquidation of Toys “R” Us across most of the world and a rapidly shifting consumer and retail landscape,” said Brian Goldner, Hasbro’s chairman and CEO. “During 2018, we diversified our retailer base, meaningfully lowered retailer inventories and delivered innovative new offerings to our global consumers. We were not, however, able to recapture as much of the Toys “R” Us business during the holiday period as we anticipated as the effect of its liquidated inventory in the market was more impactful than we and industry experts expected. It is an unprecedented yet finite event. In addition, as we discussed throughout the year, our European shipments declined as the teams successfully lowered retailer inventories amidst a declining toy and game market.
“Throughout 2018, we engaged in several major innovation initiatives and initiated significant organizational changes to enable us to stabilize our European business in 2019 and return Hasbro to profitable growth this year. In 2019, we are entering the next innovation cycle for NERF and we will deliver break frame innovation across price points in the market this year. Hasbro’s POWER RANGERS line will hit the market in the second quarter, setting the stage for an all new era for this iconic brand. We are positioned to advance our gaming leadership, leveraging our investments, social relevance, innovative game play and the industry’s broadest games portfolio, including the launch of our digital game Magic: The Gathering Arena. We will deliver all new play experiences in support of a raft of compelling entertainment properties, including Marvel Studios’ Captain Marvel and Avengers: Endgame, Columbia Pictures’ Spider-Man: Far From Home, Disney Animation’s Frozen 2 and Lucasfilm’s Star Wars: Episode IX. Finally, to successfully deliver these and numerous other initiatives, we’ve re-imagined and re-designed our go-to-market strategy globally supported by compelling, digital-first marketing programs for our consumers and retailers.”
“Despite the challenging year, Hasbro remains in a strong financial position with the ability to continue investing to drive profitable long-term growth and raise our quarterly dividend 8% in 2019,” said Deborah Thomas, Hasbro’s chief financial officer. “Given the rapid change in our business, our global teams are focused on identifying incremental opportunities to deliver top and bottom line returns. Investments to drive top line growth include the acquisition of POWER RANGERS, storytelling such as Bumblebee and new growth drivers including Magic: The Gathering Arena and the associated MAGIC eSports initiatives. We’ve also undertaken important operational programs—investing in the geographic diversification of our manufacturing locations and a new Midwest U.S. warehouse opening in 2019. In addition, the organizational actions we outlined are now expected to deliver $50 to $55 million in net pre-tax savings in 2019.”
In Q4 and full-year, all reporting brand segments were down except for emerging brands, which saw a full-year up tick of 1 percent and a 5 percent uptick in Q4, driven by the introduction of new collectible lines including Lost Kitties and Yellies as well as Power Rangers licensing revenues. These revenue gains were partially offset by declines in other brands including Furreal and Playskool. Emerging Brand net revenues also grew in the international and entertainment and licensing segments.
This year, even revenue gains in stronghold franchise brands including Magic :The Gathering and Monopoly were more than offset by the overall declines in all franchise brands. Partner brands and Hasbro Gaming were hit especially hard, both seeing a 20 and 22 percent decline in net revenues for Q4, respectively, and a 22 percent and 12 percent decline in full-year net revenues, respectively. All revenue growth of Beyblade and Marvel was offset by declines in Star Wars, Frozen, Disney Princess, and Trolls.