Toy Industry, Not Recession-Proof, Also Hit In Holiday Season
15 Gennaio 2009 - 10:41PM
Dow Jones News
By Matt Andrejczak
The U.S. toy business got its first aftershock of the dismal
holiday retail season Thursday when RC2 Corp. (RCRC) warned its
sales and profit for the fourth quarter would fall short of
expectations.
RC2, which sells Bob the Builder, Thomas & Friends and
Sesame Street toys, said sales were $121 million for the quarter
ended Dec. 31, 10% below last year's figure, excluding recalled
toys and discontinued product lines.
The Chicago-area toy maker said its fourth-quarter profit would
be 35 cents to 40 cents a share, compared to its previous target of
45 cents to 60 cents a share. RC2 also plans to cut jobs. RC2
shares dropped 6% in late afternoon trading.
Thought to be the most recession-proof among consumer retailers,
toy makers have been known to sidestep harsh economic times as
parents buy kids toys in both good times and bad. This time, toy
companies had trouble avoiding the broad economic downturn,
analysts said.
"It wasn't fun anywhere," said Jonathan Samet, publisher of
buying guide Toy Insider. "But, clearly it was not as bad as the
[retail] apparel industry."
Even though Wal-Mart Stores Inc. (WMT) and Toys R Us Inc.
promoted low-priced toys below $20 and cut prices on more expensive
items, "it was the worst fourth quarter ever" for U.S. toy sales,
said industry consultant Lutz Muller, who runs Klosters Trading
Corp.
When final fourth-quarter numbers are delivered, U.S. toy sales
will show a decline of 6%, Muller projects. Toy analyst Sean
McGowan at Needham Co. is estimating toy sales fell 5% or possibly
more, outpacing 2005 when sales fell 4% in the fourth quarter.
Jakks Pacific Inc. (JAKK), maker of Hannah Montana dolls and WWE
wrestling figures, said sell-through was good and industry unit
sales were likely in line to slightly above 2007 levels, according
to broker Sterne Agee, which held a conference call with management
Wednesday.
Weak year-end sales could curb shipments for spring toy
merchandise as retailers get rid of excess toys. This is in spite
of cautious attempts by retailers to avoid overstocking their
shelves.
"They have an inventory overhang," Muller said.
Jakks Pacific admitted that retailers will be conservative toy
buyers in the first quarter, Sterne Agee analyst Arvind Bhatia
wrote.
The holiday sales season got off to a slow start and never
really recovered. Consumers, hit by stock-market losses, rising
unemployment and home foreclosures, weren't anxious to spend.
Amazon.com Inc. (AMZN) said top-selling toys on its Website were
Jakks Pacific's Eyeclops night-vision stealth goggles, Blokus
classic board game and Wild Planet's Hyper Dash. The online
retailer called the 2008 holiday season "its best ever."
Toys R Us said popular toys included Mattel Inc.'s (MAT) Barbie,
Elmo Live and Imaginext Spike the Ultra Dinosaur, while Hasbro
Inc.'s (HAS) Star Wars products all sold well. Other in-demand
items were Jakks' Eyeclops goggles, Spin Master's Bakugan products,
and Lego toys.
Toys R Us said sales picked up in December but not enough to
offset a weak November. For the nine-week holiday sales period that
ended Jan. 3, Toys R Us said U.S. comparable-store sales fell 3.4%
from the year-earlier period.
Due to inventory at retailers and weak fourth-quarter industry
sales, analyst McGowan last week pared his 2008 and 2009 profit and
sales targets for Mattel and Hasbro, the world's largest toy
manufacturers.
He also cut his projections due to the rebound in the U.S.
dollar against global currencies. Mattel gets more than 50% of its
sales from outside the U.S., while Hasbro books more than 40%.
Toy stocks rallied in late November through year-end 2008 as
investors bet toy makers could again buck a recession. In the last
six weeks of 2008, Mattel shares shot up 35%, helped in part by a
favorable court ruling in the Bratz doll case. Hasbro and Jakks
both surged 20%.
By comparison, the S&P 500 Index rose 10%. But toy stocks
have lost momentum since the start of the year, declining with the
broader stock market.
In a recent research note, analyst Gerrick Johnson at BMO
Capital Markets suggested investors may wish to "lighten up on
their toy stock holdings" before the companies report earnings in
February. He surmises toy makers won't match most investor
expectations.
Mattel is the first to report on Feb. 2, followed by Hasbro on
Feb. 9 and RC2 on Feb. 18. Jakks Pacific hasn't set a date yet for
its earnings release, but is also expected to report next
month.
Analysts anticipate Mattel will show its Barbie and Fisher-Price
franchises did better than a year ago when the company was reeling
from a massive product recall. Hasbro is expected to post solid
sales gains for its board games, Nerf and Star Wars toys.
-By Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com
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