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Toys ‘R’ Us comeback is met with skepticism by major toy makers

Brian Sozzi

You can’t blame toy maker executives for viewing reports of Toys ‘R’ Us potentially re-opening up U.S. retail stores with heavy skepticism — if not utter disdain at the prospect of trusting company bigwigs at the retailer again.

The bankruptcy of Toys ‘R’ Us in the fall of 2017 — and subsequent closing of hundreds of U.S. retail stores months later — was a punch to the face of toy companies that relied upon the chain as a key outlet for their latest toys. After years of mismanagement following a disastrous leveraged buyout in 2005, toy makers such as Hasbro and Mattel had to endure a painful 2018. It was headlined by terrible sales pressure and weak stock prices as Toys ‘R’ Us liquidated inventory and shuttered some 700 U.S. locations by the spring.

In turn, the lack of a national toy chain instantly put more buying power into the hands of discount chains such as Walmart and Target and of course, e-commerce beast Amazon.

But believe it or not, Toys ‘R’ Us may be eyeing a comeback of sorts. Former Toys ‘R’ Us executives have started a new firm dubbed Tru Kids. Led by former Toys ‘R’ Us Chief Merchandising Officer Richard Barry, Tru Kids owns the rights to mascot Geoffrey the Giraffe, Toys ‘R’ Us and Babies ‘R’ Us. The company plans to open 70 new stores overseas this year, but hasn’t made its intentions for the U.S. market clear.

Barry did not return a Linkedin request for comment on the company’s plans.

Funko, Hasbro react to Toys R Us comeback

“I think Toys ‘R’ Us is serious about opening up new retail stores — we have meetings scheduled with them for the toy fair,” Funko CEO Brian Mariotti told Yahoo Finance. “We will be great partners, we will listen to what they have to say and evaluate the opportunity. We wish them nothing but the best.”

The impact of Toys ‘R’ Us’s bust has been mild for Funko, a toy maker known for its collectible pop culture dolls. Unlike most toy companies, Funko has no one partner that accounts for more than 10% of its annual sales. That diversity has come in handy amid numerous retailers closing up stores.

Even still, Funko spent 2018 gaining more shelf space in Walmart and teaming up with Foot Locker to test a new retail store concept.

A man holds up a sign announcing the going out of business sale at a Toys R Us and Babies R Us store location, Friday, June 1, 2018, in Totowa, N.J. Politicians, including U.S. Sen. Bob Menendez and Sen. Cory Booker, held a news conference at the Totowa location to voice their concerns after it was announced that employees will not get severance packages once the stores are closed following the bankruptcy of the company. (AP Photo/Julio Cortez)

Hasbro CEO Brian Goldner was a bit more muted when asked about Toys ‘R’ Us’s possible comeback.

“We haven’t met with Toys ‘R’ Us yet — we remain open-minded, but no conversations yet,” Goldner told Yahoo Finance at the company’s annual toy fair presentation. Hasbro and its rival Mattel were hit hard by the disappearance of Toys ‘R’ Us in 2018.

Hasbro’s full year sales dropped 12% to $4.58 billion last year. Adjusted earnings fell to $1.33 a share from $2.30 a share in 2017. Mattel’s net sales decreased 8% from the prior year to $4.51 billion. The company’s adjusted loss tallied $1.14 a share versus a loss of $1.21 a share in 2017.

Long-time Hasbro chief Goldner said a strong slate of children’s movies and related toys this year — namely “Frozen 2” and “Star Wars 9” — will help get the company back on track following 2018’s challenges. Goldner expects Hasbro to return to mid-single digit revenue growth in 2019 and operating margin expansion.

“By 2020 if we can grow like we say we can, we will look like we did in 2017,” he said. Or in other words, pre-Toys ‘R’ Us bankruptcy.

A few new Toys ‘R’ Us stores wouldn’t hurt though.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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