Disney, Hasbro, Mattel report mixed bag of earnings; JCPenney drops appliances; Walmart debuts celeb jeans brand; Sears survives court hearings; plus other top brand licensing and retail news.
Licensing, marketing and retail expert/opinion leader Tony Lisanti provides insight and perspective for the top headlines of the week. “Licensing and Merchandising Report” is a must read for top execs who want objective, straightforward and authoritative analysis.
Disney Q1 Licensing Revenues Decline
The Walt Disney Company today reported first-quarter revenue was down slightly to $15,303 billion from $15,351 billion last year while diluted earnings per share for the quarter decreased 36% to $1.86 from $2.91 in the prior year.
“We look forward to the transformative year ahead, including the successful completion of our 21st Century Fox acquisition and the launch of our Disney+ streaming service,” said Robert A. Iger, chairman and CEO. “Building a robust direct-to-consumer business is our top priority, and we continue to invest in exceptional content and innovative technology to drive our success in this space.”
While Disney is focused on post-segment reorganization and post-acquisition initiatives and its major foray into streaming content, the company is poised for stronger box office and licensing performance with a powerful lineup of films that include Dumbo, Aladdin, The Lion King, Toy Story 4, Frozen 2, and Star Wars: Episode XI, plus the Marvel franchises Captain Marvel, Avengers: Endgame, X-Men: Dark Phoenix, and Spider-Man: Far From Home.
For the parks, experiences and consumer products segment, revenues for the quarter increased 5% to $6.8 billion and operating income increased 10% to $2.2 billion. The company stated that “operating income growth for the quarter was due to an increase at domestic theme parks and resorts, partially offset by a decrease from licensing activities. Lower income from licensing activities was driven by a decrease in revenue from products based on Star Wars and Cars and higher third-party royalty expense, partially offset by an increase from minimum guarantee shortfall recognition, higher revenues from products based on Spider-Man and an increase in licensee settlements.”
Hasbro Reports Revenues Drop 12% in 2018
Hasbro reported a decline in revenue for the full-year and Q4 2018 attributing it in part to lost revenues from Toys ‘R’ Us. Unfortunately, Hasbro may now feel the impact of the bankruptcy and store closings of Shopko. Despite it all, the company remains confident for a stronger 2019 based in part on the release of the new Power Rangers line. Here are the top line results:
- Net revenues for 2018 decreased 12% to$4.58 billionversus $5.21 billion in 2017.
- Net earnings for 2018 were$220.4 million, or$1.74 per diluted share, compared to $396.6 million, or $3.12 per diluted share, in 2017.
- Q4 net revenues decreased 13% to$1.39 billion.
- Q4 net earnings$8.8 million
- The entertainment and licensing segment net revenues increased 5% to$298.5 millioncompared to $285.6 million in 2017, due to changes in revenue recognition in 2018 and a multi-year digital streaming deal for Hasbro television programming.
“2018 was a very disruptive year, driven by the bankruptcy and liquidation of Toys ‘R’ Us across most of the world and a rapidly shifting consumer and retail landscape,” said Brian Goldner, Hasbro’s chairman and chief executive officer. “During 2018, we diversified our retailer base, meaningfully lowered retailer inventories and delivered innovative new offerings to our global consumers. We were not, however, able to recapture as much of the Toys ‘R’ Us business during the holiday period as we anticipated as the effect of its liquidated inventory in the market was more impactful than we and industry experts expected. It is an unprecedented yet finite event. In addition, as we discussed throughout the year, our European shipments declined as the teams successfully lowered retailer inventories amidst a declining toy and game market.
“Throughout 2018, we engaged in several major innovation initiatives and initiated significant organizational changes to enable us to stabilize our European business in 2019 and return Hasbro to profitable growth this year,” continued Goldner. “In 2019 we are entering the next innovation cycle for NERF and we will deliver break frame innovation across price points in the market this year. Hasbro’s Power Rangers line will hit the market in the second quarter, setting the stage for an all new era for this iconic brand. We are positioned to advance our gaming leadership, leveraging our investments, social relevance, innovative game play and the industry’s broadest games portfolio, including the launch of our digital game Magic: The Gathering Arena. We will deliver all new play experiences in support of a raft of compelling entertainment properties, including Marvel Studios’ Captain Marvel and Avengers: Endgame, Columbia Pictures’ Spider-Man: Far From Home, Disney Animation’s Frozen 2 and Lucasfilm’s Star Wars: Episode IX. Finally, to successfully deliver these and numerous other initiatives, we’ve re-imagined and re-designed our go-to-market strategy globally supported by compelling, digital-first marketing programs for our consumers and retailers.”
Other key financials for 2018 include:
- Franchise Brand net revenues decreased 9% to$2.45 billion. Revenue gains in Monopoly and Magic: The Gathering was more than offset by declines in all otherFranchise Brands.
- Partner Brand net revenues decreased 22% to$987.3 million. Revenue growth in Beyblade and Marvel was more than offset by declines in Star Wars, Disney Princess, Frozen and Trolls.
- Hasbro Gaming net revenues declined 12% to$787.7 million. Dungeons and Dragons, Don’t Step In It, Connect 4 and Jenga revenues grew, but were more than offset by declines in Pie Face, Speak Out and other gaming properties.
- Emerging Brands net revenues increased 1% to$358.8 million, driven by the introduction of new collectible lines including Lost Kitties and Yellies and the contribution of Power Rangers licensing revenues. These revenue gains were partially offset by declines in other brands including Furreal Friends and Playskool.
Mattel Reports Ups and Downs
As its company’s turnaround and transition continue to take shape, Mattel reported a mixed bag of results for the full year and Q4. While the company said it is making progress overall, the numbers show a big decline in licensed products sales possibly raising concerns for 2019.
However, the company remains bullish on its new Mattel films and its partnership with Warner Bros. to take Barbie and Hot Wheels to the big screen as well as its strong market position with the Jurassic World franchise.
Ynon Kreiz, chairman and CEO, said: “Our fourth quarter results demonstrate meaningful progress in executing our strategy and significant improvement over last year. We remain focused on advancing our strategy to restore profitability and regain top-line growth in the short-to-mid-term and are laying the groundwork to capture the full value of our IP in the mid-to-long-term. After three consecutive quarters of solid, disciplined execution, we are well on our way to becoming an IP-driven, high-performing toy company and creating long-term value for our shareholders. Among all the achievements in 2018, I would like to applaud our team for regaining the #1 toy company position globally in a year full of challenges and headwinds. This is a great moment to celebrate, before we go back and continue the hard work of implementing our multi-year turnaround.”
- For 2018, net sales were down 8%, while operating loss was$237 million, an improvement of$103 million versus the prior year.
- For Q4, net sales were down 5%, while operating Income was$107 million, an improvement of$358 million over the same period last year.
- For theNorth Americasegment, net sales decreased 4%, while net sales in the International segment decreased by 7%.
- For Q4, net sales in theNorth Americasegment decreased by 6% and net sales in the International segment increased 2%.
- ForMattel Power Brands, annual gross sales were$3.45 billion, down 3%; Gross Sales for Hot Wheels were up 7%; Fisher-Price and Thomas & Friends down 13%; and American Girl down 28%.
- For the year, gross sales for Mattel Toy Box brands, which includes Owned Brands and Partner Brands, were$1.62 billion, down 16%; gross sales for Owned Brands were down 10% as reported primarily driven by lower sales of MEGA products. Gross sales for partner brands were down 23% primarily driven by lower sales of Cars products, partially offset by initial sales of Jurassic World products.
- For Q4, gross sales for Mattel Toy Box brands were$519 million, down 21%; gross sales for Owned Brands were down 17%; Partner Brands were down 25%.
JCPenney Dumps Appliances
As quick as it jumped back into the appliance business under former ceo Marvin Ellison, who headed to Lowe’s, JCPenney is discontinuing major appliances and well as furniture. The bold red sign that proclaimed, “NOW SELLING APPLIANCES” must come down.
The struggling retailer is once again immersed in a turnaround and a fight for survival, and will likely announce additional changes in the near future.
The decision by new CEO Jill Soltau, who joined JCPenney in October, is the first of numerous changes she is planning. The company stated that the decision was made “in order to better meet customer expectations, improve financial performance and drive profitable growth.” The elimination of appliances and downsizing of furniture will clear valuable space for home products, including bed and bath, and on-trend fashion apparel and accessories.
The company also stated, “While configurations vary by store, we are finalizing new layout options, including the reduction of store space previously dedicated to appliance and furniture showrooms to maximize efficiencies, reduce inventory and create an enhanced shopping experience that inspires repeat shopping trips. Optimizing the allocation of store space will enable us to prioritize and focus on the Company’s legacy strengths in apparel and soft home furnishings, which represent higher margin opportunities.”
It once again sounds like the standard turnaround litany that so many retailers have put forth over the past several years. JCPenney, like other venerable retailers, does some I impressive marketing and brand merchandising, but just can’t seem to put it all together in a truly positive performance.
As the company looks ahead to reporting financial results later this month, let’s wait and see what additional initiatives the retailer will implement and how it might add to the turnaround litany.
Walmart Adds Celebrity Jeans Brand
As one of the stars of the popular long-running series Modern Family, Sofía Vergara is joining the Walmart family of brands.
Vergara’s new denim brand, Sofia Jeans by Sofia Vergara, launched this week as part of Walmart’s ecommerce business. The brand represents a huge opportunity for Walmart in the jeans category and further expands its fashion apparel assortment.
“Along with Sofía, we wanted to design a line that makes women feel and look great, inspiring them to ‘work what they’ve got,’” said Denise Incandela, Head of Fashion, Walmart U.S. eCommerce. “The jeans, which are the heart of the line, include a wide variety of fits–from skinny and straight-leg styles to joggers and flares–so that every woman can feel as confident as Sofía. The denim styles are designed and named after Sofía and the women in her family, featuring details like raw edges and studs.”
The initial collection, which features 100 items ranging from jeans and denim jackets to fashion tops and graphic tees, will be updated seasonally.
“Last year, we introduced our new fashion destination on Walmart.com,” said Incandela, “and I’m very excited to continue to build on that experience. Sofía Jeans by Sofía Vergara joins our growing lineup of brands, which includes nearly 150 premium brands through our Premium Shop with Lord & Taylor as well as exclusive lines such as EV1 with Ellen DeGeneres.”
Surprise of the Week: Sears Survives
Following three days of hearings, U.S. Bankruptcy court approved the sale of Sears to Eddie Lampert’s ESL Investments. The $5.2 billion deal, according to reports, will save 425 stores and 45,000 jobs. So, for now, once again, Sears survives, but for how long as the same fundamental questions about the viability of its business remain.
Deal of the Week: Whitney Houston
Greenlight, the merchandise licensing and rights division of Branded Entertainment Network (BEN), will represent the Whitney Houston Estate.
“We are honored to be working with such a legendary icon, who was a superstar in both music and film, as well as a true humanitarian,” said Tamra Knepfer, SVP of Greenlight. “We look forward to extending her legacy by connecting Whitney with the most fitting, authentic brands, and will be working closely with Sony Music for additional licensing of her music and lyrics for other marketing and commercial uses.”
“Whitney is one of music’s greatest icons and was a singer’s singer who has influenced countless other artists that followed her,” said Pat Houston of the Whitney Houston Estate. “Representing other notable musical icons including Ella Fitzgerald, Elvis Presley and Marvin Gaye, Greenlight is the ideal partner to help us continue sharing Whitney’s incredible legacy.”
Stat of the Week: NRF Retail Sales 2019
The National Retail Federation forecasts that retail sales for 2019 will increase between 3.8 percent and 4.4 percent to more than $3.8 trillion “despite threats from an ongoing trade war, the volatile stock market and the effects of the government shutdown.”
“We believe the underlying state of the economy is sound,” NRF president and CEO Matthew Shay said. “More people are working, they’re making more money, their taxes are lower and their confidence remains high. The biggest priority is to ensure that our economy continues to grow and to avoid self-inflicted wounds. It’s time for artificial problems like trade wars and shutdowns to end, and to focus on prosperity not politics.”