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Show Me the Money: Toycos Report Depressed Sales FY2018

With a few exceptions, every major publicly-traded toyco reported a drop in sales of licensed toys/games. TLL breaks down how the year went for Mattel, Hasbro, Jakks Pacific, Lego, and Funko.

The bankruptcy and subsequent liquidation of Toys”R”Us (TRU) stores (which immediately impacted the U.S., U.K., and Australia in 2017) remained a drag on 2018 performance thanks to store closures in multiple countries, unpaid accounts receivable, and bad debt.

To add insult to injury, currency conversions impacted most toycos on the list—almost as much as TRU’s unpaid invoices.

Writing off those losses, every toyco remained optimistic about regaining at least some of that volume in 2019, although most recognized that a good chunk of sales won’t be immediately recoverable in the next couple of years.

But 2018 just wasn’t a great year, and it’s wasn’t all TRU’s fault. Mattel’s licensed brands segment saw a 23% drop in 2018, while a similar segment at Hasbro was down 22%—dragging down growth by the company’s owned internal franchise properties.

When it comes to retail, the bigger concern is retail consolidation (there are less major buyers, and thus, more expenses related to getting toys stocked), and smaller buys as retailers increasingly rely on automated systems to replenish small amounts of stock quickly. That is, even if stores are buying toys, they don’t want to buy too much.

And in licensing-specific concerns, every toyco reports that their royalty rates, expected minimum guarantees, and other obligations have increased or are expected to increase as they begin to enter re-negotiations for major entertainment/character licenses.

Mattel: Barbie & Hot Wheels Up; Disney Cars Brings Licensed Sales Down Despite Jurassic World

In its full-year 2018 financial results, Mattel reported net sales of just under $4,511 million, down -8% from 2017. The company uses gross sales figures to compare brand revenue; total gross sales were also down -8% worldwide. Globally, gross sales for Mattel’s licensed Partner brands segment were down -23% in 2018. The shift was attributed to lower sales of Disney Cars-branded products, and partially offset by initial sales of Jurassic World products.

Overall North American gross sales were down by -4% in 2018 to just under $2.3 billion. The company’s owned brands were a bright spot: Barbie grew 19% ($537 million) and Hot Wheels by 12% ($380 million) from the previous year. Mattel’s Toy Box partner brands were down by 19% for 2018 to reach $406 million in gross sales.

Internationally, the full-year outcome was slightly worse. As reported, total gross sales were down -7% in 2018 to reach just over $1.9 billion. That dip was largely thanks to the global emerging markets segment (-17% attributed to China decline; segment includes APAC as well as Russia, Turkey, MEA) and changes in currency (in constant currency, the dip is closer to -5%). Europe was slightly down at -3% ($827 million) and LATAM was flat at -2% ($554 million). Internationally, the bright spots were once again owned-brands: Barbie was up 10% ($553 million) and Hot Wheels up 4% ($454 million). Partner brands were down -27% in gross sales to reach just under $331 million in 2018.

In 2018, Mattel recorded total loses stemming from the TRU liquidation at just under $62 million (combining $32 million in bad debt unpaid from the previous year and almost $30 million in new deemed-uncollectable receivables). Mattel also broke out how TRU disrupted brand sales: Barbie sales were bumped -7% globally (-14% in North America), Hot Wheels -5% (-9%), and partner brands were impacted -7% (-11%) as a result of the liquidation. Internationally, TRU’s impact was -3% in Europe, flat in LATAM, and -3% in the other global emerging markets segment.

Hasbro: Beyblade, Marvel Shine in Licensed Offerings; Monopoly and Magic: The Gathering Up

Full-year net revenues for 2018 reached just under $4,580, down 15% from 2017. In the U.S./Canada, revenues were down -10%, while internationally performance was down -17% from 2017. Broken out by region, internationally Europe had the biggest decline (-24%), followed by LATAM (-6%), APAC (-5%), and emerging markets (-12%).

For full-year 2018, Hasbro’s owned Franchise brands were down -9%; despite gains from Monopoly and Magic: The Gathering, TRU-related Nerf declines sank the category. Its Gaming brands declined 12%, and other Emerging brands were flat with 1% growth.

The licensed Partner brands segment was down 22% in 2018 despite gains in Beyblade and Marvel products, as well as new additional revenue from Top Wing and Super Monsters. The decline was attributed to lower net revenues from Star Wars, Disney Princess, and DreamWork’s Trolls as well as net revenue declines for Frozen and Disney’s Decendants. In 2017, the segment declined 10% thanks to Star Wars, Yo-Kai Watch, and to a lesser extent, Frozen.

Hasbro also noted lower consumer product licensing revenues in 2018, although its Entertainment & Licensing net revenues were up 5% overall thanks to higher TV programming and movie revenues, as well as a digital streaming licensing agreement signed in Q3 (the last time such a deal was signed was in 2015).

In its annual report, Hasbro revealed that, globally, Walmart and Target accounted for approximately 20% and 9%, respectively, of Hasbro’s consolidated net revenues in 2018. Within the U.S./Canada, approximately 60% of net revenues were derived from its top three customers. In its Q3 release, Hasbro noted that Sears represents less than 1% of its revenue.

In addition to the impact of the TRU bankruptcy, Hasbro also cited lower revenues as a result of retailers’ continuing efforts to reduce the amount of overall inventory they carry and minimize carry-forward inventory coming out of the holiday season.

Jakks Pacific: Halloween Sales Flat (And That’s the Good News)

In its full-year financial results, Jakks Pacific shared that its annual net sales were down just over 7% to reach $132.3 million in 2018. Excluding TRU-related sales ($1.3 million and $19.6 million in 2018 and 2017, respectively), the toyco’s 2018 net sales increased 1% year-over-year (and up 12% in Q4). Jakks expects to grow sales by 5% this year.

While Jakks didn’t break out Q4 sales, per its latest filings, in the first nine months of 2018 sales were down -11% in the U.S./Canada, down -12% internationally, and up 1% in its Halloween business segment. Jakks also revealed in its Q3 release that its various character and product licenses carry royalties ranging from 1–21% payable on its net sales (not final retail sales). While the toyco didn’t reveal sales trends by brand or territory, Jakk’s profits stemming from its joint venture with Meisheng Culture & Creative Corp., which distributes both licensed and non-licensed toys and goods in China, were down -70% in the first nine months of 2018.

Lego: Star Wars, Harry Potter & Jurassic World Remain Strong Sellers

Bucking the trend, Lego reported that sales grew 4% worldwide to reach DKK 35,882 million, or just under $5,550 million. It’s also the only non-American toyco TLL features on this list.

Broken out by territory, Lego saw a 2% jump in sales of goods in the Americas, 5% in EMEA, and 9% in APAC.

Lego’s top-selling themes in 2018 were LEGO City, LEGO Technic, LEGO Star Wars, LEGO Friends, and LEGO NINJAGO. The company also identified its Harry Potter, Jurassic World, and Creator lines as strong performers.

The company’s license and royalty expenses also jumped 4% in 2018—a growth rate just 0.3 percentage points lower than actual sales growth.

Funko: Disney, Star Wars, Marvel-based Collectibles Helped Drive Growth

Funko tersely revealed that it had $686 million in net sales in 2018, up 33% from the previous year. The collectibles company expects to net sales to jump 18-20% in full-year 2019 to reach a range of $810 million to $825 million.

In its Q3 filings, Funko revealed that its top 10 licensors collectively accounted for approximately 72% of its sales for the nine months ended Sept. 30, 2018. Disney, LucasFilm, and Marvel collectively accounted for approximately 35% of sales alone. The number of active licenses the company held jumped to 600 in the first nine months of 2018, and average net sales for each property jumped 1.9% in the same time period.

Also from its Q3 filings, the collectibles company revealed that in the U.S., net sales grew 21% in the first nine months of 2018 to reach $307 million. Thanks to growth in Europe, international sales jumped 57% to $146 million in the same time period.


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