The liquidation of Toys \u2018R\u2019 Us stores in the United States will likely have a larger impact than originally anticipated on the shares of toy manufacturers, including Canada\u2019s Spin Master, according to a recent research note from BMO Capital Markets.<\/p>\n
In a report released last week, analyst Gerrick Johnson said the decision to liquidate the U.S. stores came as \u201ca shock, but not necessarily a surprise.\u201d<\/p>\n
BMO had originally modelled estimates based on the closure of 200 stores following the retailer\u2019s bankruptcy filing in September, and subsequently doubled that number to 400 stores.<\/p>\n
But the liquidation is now expected to involve 735 stores, according to media reports.<\/p>\n
In addition to Spin Master, Johnson also reduced his target prices for Hasbro and Mattel \u2014 all three, as well as JAKKS Pacific, could take hits due both to their outstanding accounts receivable with Toys \u2018R\u2019 Us and a potential loss of sales going forward.<\/p>\n
Johnson estimated Hasbro and Spin Master both had outstanding accounts receivable of around US$20 million, while Mattel\u2019s were US$37 million and JAKKS Pacific\u2019s were US$24 million.<\/p>\n
In an interview, Johnson said impulse purchases at other retailers such as Wal-Mart may not be as frequent as they were at Toys \u2018R\u2019 Us.<\/p>\n
\u201cIf you walked into Toys \u2018R\u2019 Us you pass thousands of products. You pass by Wal-Mart you\u2019ll walk by hundreds, not thousands,\u201d he said.<\/p>\n
For all four companies, Johnson assumed that by 2019, 75 per cent of any lost sales due to the Toys \u2018R\u2019 Us liquidation will have been accounted for elsewhere.<\/p>\n
For Spin Master, that led him to drop his target 2019 net revenues to $1.78-billion from $1.793 billion. He expects Spin Master to grow revenues by 5.3 per cent in 2018.<\/p>\n
Johnson said he expected the category of \u201cboys\u2019 action, high tech and construction\u201d to be the biggest contributor to Spin Master\u2019s increase in gross product sales heading into 2019.<\/p>\n
Johnson said a major contributor to this estimate is the anticipated release of the movie How to Train Your Dragon 3 in 2019.<\/p>\n
As a result of the Toys \u2018R’ Us liquidation, BMO reduced its target price for Spin Master to $56 from $63. The shares closed at $51.90 in Toronto Tuesday.<\/p>\n
The target price for Hasbro was also cut to US$83 from US$96 and for Mattel to US$17 from US$23.<\/p>\n
Liquidation is to begin immediately and be completed by July 31. Toys \u2018R\u2019 Us is looking for a potential buyer for its international locations, and a result is not expected until mid-April.<\/p>\n
Financial Post<\/p>\n","protected":false},"excerpt":{"rendered":"
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