Why Mattel and Hasbro’s Stocks Aren’t Tanking Because of the Toys ‘R’ Us Bankruptcy

Lucinda Shen

Though <a href="https://fortune.com/company/mattel/" target="_blank">Mattel</a> and <a href="https://fortune.com/company/hasbro/" target="_blank">Hasbro</a> could potentially lose quite a lot if Toys &#8216;R&#8217; Us&#8217; bankruptcy goes sideways, investors weren&#8217;t too worried about either company.<div class="paywall-selector"></div><div class="paywall">
Shares of Mattel and Hasbro fell slightly after rumors broke Monday that their second-biggest customer, Toys &#8216;R&#8217; Us would soon be filing for Chapter 11 bankruptcy. But after the deed was done with a filing in a Richmond, Va. bankruptcy court, the initial fears appeared to abate. Shares of the two toymakers rebounded in trading Tuesday, with Hasbro erasing all of its losses from the day earlier, up about 2% and Mattel up 1.3%.
That&#8217;s likely because even going into the all-important holiday season, investors aren&#8217;t expecting demand for Mattel&#8217;s UNO card games or Hasbro&#8217;s Transformer sets to fall much — if at all. Not only do consumers have other channels to purchase those brands, Toys &#8216;R&#8217; Us has also signaled that it plans to keep its shelves stocked through the holiday season. Already, the company has received $3 billion in debtor-in-possession financing to continue operations as it puts together a plan to restructure the company, and pay its creditors back as part of its Chapter 11 filing.
&#8220;We believe a top priority of the filing was to continue access to product from key vendors such as Mattel and Hasbro during the critical Christmas/holiday season while reducing real estate related debt,&#8221; <a href="https://fortune.com/company/wells-fargo/" target="_blank">Wells Fargo</a> Senior Analyst Timonthy Conder wrote in a Tuesday note.
Another upside for Mattel and Hasbro: Toys &#8216;R&#8217; Us&#8217; bankruptcy filing, in which it revealed debt of $4.9 billion, also comes at a time when the two companies have already gradually lowered their dependence on the brick and mortar retailer.
While in 2000, Toys &#8216;R&#8217; Us represented 22% of Mattel&#8217;s $4.7 billion in sales and 13% of Hasbro&#8217;s $3.8 billion in sales, by 2016, toys shown at Toys &#8216;R&#8217; Us represented about 11% of Mattel&#8217;s $5.5 billion sales and 9% of Hasbro&#8217;s $5 billion, according to Morningstar.
In recent years, the two toymakers have instead partnered increasingly with <a href="https://fortune.com/company/target/" target="_blank">Target</a> and <a href="https://fortune.com/company/walmart/" target="_blank">Walmart</a> as Toys &#8216;R&#8217; Us&#8217; ability to successfully sell those toys appeared to have stalled. Wal-Mart is now Mattel&#8217;s and Hasbro&#8217;s largest customer, while Target is the third largest for both, just behind Toys &#8216;R&#8217; Us.
&#8220;With Toys &#8216;R&#8217; Us stabilized for now,&#8221; said Morningstar Senior Equity Analyst Jaime Katz in a note Tuesday referring to the $3 billion debtor-in-possession financing, &#8220;we think Mattel and Hasbro have some time to find alternate channels to distribute their products (through other vendors, e-commerce, or others) and prevent future sales shortages that may stem from degradation of the Toys &#8216;R&#8217; Us channel.&#8221;
But investors are still uncertain about how Toys &#8216;R&#8217; Us plans to restructure. Notably, Mattel and Hasbro are Toys &#8216;R&#8217;Us&#8217; second, and third largest unsecured creditors, holding some $135.7 million and $59.1 million of the retailer&#8217;s debt.
That could hurt Mattel and Hasbro&#8217;s cash flow should they fail to be paid for those past debts, says Katz.
Still, while investors seem to think Mattel and Hasbro can shake off its Toys &#8216;R&#8217; Us woes, another company, Spin Master, has fallen another 1% on the Toronto Stock Exchange Tuesday. According to Jefferies, Toys &#8216;R&#8217; Us accounts for about 17% of its sales.</div>

Toys R Us filed for bankruptcy protection, yet Hasbro and Mattel Stocks rebounded. Star Wars and Barbies are still in demand.

Toys R Us Bankruptcy: Why Hasbro and Mattel Stocks Aren't Tanking

legacy

Toys R Us

Finance

Retail

Star Wars and Barbies are still in demand.

Why Mattel and Hasbro Aren’t Tanking on the Toys ‘R' Us Bankruptcy

Toys R Us Bankruptcy: Why Hasbro and Mattel Stocks Aren't Tanking | Fortune

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