Hasbro Inc. said Monday that its third-quarter profit rose more than 10 percent as international growth and sales of its boys' toys like Nerf dart blasters and Transformers helped offset weakness in the U.S.
Results fell short of Wall Street expectations, but Hasbro CEO Brian Goldner said that the Pawtucket, R.I.-based company is better positioned for the holidays compared with last year because it has kept inventories lean and has a strong product mix with several offerings that have made this year's "hot toy" lists.
Hasbro's results offer a glimpse at toy sales heading into the holiday shopping season, a period that runs from November through December when toy makers can make up to 40 percent of their annual revenue. Toy sales are expected to be flat or up slightly, and toy makers like Hasbro and Mattel remain cautiously optimistic. They are keeping inventories tight to avoid a repeat of last year, when toy sales slowed in December after a brisk November, and retailers were stuck with tons of excess inventory that had to be discounted heavily.
Finding the right balance of inventory is important for toy makers. If inventory levels are too high, as was the case last year, profit-busting markdowns and discounts are necessary to clear shelves. But if inventories are too low, a toy retailer runs the risk of running out of stock on a "hot" holiday toy.
Both Hasbro and Mattel Inc., which reported quarterly results on Friday, said retailers are positive about the holiday shopping season. And Hasbro COO David Hargreaves said merchants expect a "fairly robust" holiday season and feel good about inventory levels.
"They all plan that their business with us will be up this year and are starting with low inventory, which is good," said Hargreaves.
In the third quarter, Hasbro's net income rose to $171 million, or $1.27 per share. That compares with $155.2 million, or $1.09 per share, a year ago. That's below the $1.31 per share analysts polled by FactSet had been expecting.
Revenue rose 5 percent to $1.38 billion from $1.31 billion a year ago, down from the $1.45 billion analysts' forecasts. Sales of toys for boys rose 15 percent to $534.6 million, while the girls category fell 4 percent to $259.1 million. Revenue from sales of puzzles and games fell 6 percent to $364.7 million. International revenue was strong, rising 23 percent to $563.3 million.
One weak spot was revenue for the U.S. and Canada, which fell 7 percent during the quarter. The company said that's largely because some domestic orders were pushed into the fourth quarter rather than the third quarter this year _ a timing issue that the company does not expect to carry over into the next quarter.
"Three weeks into the fourth quarter, our shipments in the U.S. and Canada segment are off to a strong start, tracking ahead of last year and reaffirming our belief that the decline in the third quarter was substantially related to the timing of orders," Goldner said.
Hasbro's results were not as strong as its chief rival Mattel, the largest U.S. toy maker. The company, based in El Segundo, Calif., reported on Friday that its third-quarter net income rose 6 percent to $300.8 million, or 86 cents per share, while revenue rose 9 percent to $2 billion on Friday. Mattel said strong sales worldwide of its iconic Barbie dolls and "Cars 2" toys helped third-quarter net income rise nearly 6 percent.
Both companies have toys that have made some "hot toy" watch lists. Some of Hasbro's toys that have made lists include Let's Rock Elmo, an interactive singing doll; Beyblades, a spinning top game, and Nerf Vortex foam dart blasters. Mattel toys that have made "hot toy" lists include Barbie Designable Hair, a Barbie that comes with customizable hair extensions, and Fisher-Price Laugh and Learn Apptivity Case, a plastic case for iPhones that protect them from toddlers.
On the earnings news, Hasbro shares edged up 24 cents to close at $34.99 Monday after falling as low as $32.84 earlier in the session.