As of early March, most of the major public toy companies have released their financial results for fiscal 2018. Here are some of the topline insights from each as they relate to licensing:
- Hasbro. Outbound entertainment and licensing revenues for the company’s proprietary brands increased 5%, attributable mostly to a digital streaming deal for Hasbro television programming and changes in revenue recognition. Sales for Hasbro’s licensed toys based on partner brands declined 22% in 2018 versus 2017, while sales for its proprietary brands dropped as well, but only 9%. Marvel and Beyblade were cited as licenses showing growth, while Star Wars, Disney Princess, Frozen, and Trolls all declined. Company-wide, net revenues decreased 12%, with the Toys ‘R’ Us liquidation cited as a key driver of the decline.
- Mattel. Total gross and net sales were both down 8%, but the company regained its position as the number one toy marketer globally (according to the NPD Group). Mattel attributed 6% of the decline to the TRU liquidation and 2% to a slowdown in China. Sales for Mattel Power Brands (comprising its key proprietary IP) were down 3%; gross sales for Barbie were up 14% and Hot Wheels 7%, while Fisher-Price, Thomas & Friends, and American Girl all declined, some significantly. Sales for Toy Box Brands, which include a mix of licensed products and owned brands, declined 16%, attributable mostly to Mega products (many of which are licensed). Sales of Partner Brands, the category where the company’s major licenses are housed, were down 23%, led by lower sales of Cars; conversely, initial sales of Jurassic World toys were cited as a bright spot.
- Lego. The company recovered from a tough year in 2017 with revenue increasing 4% in 2018 compared to the year before and global consumer sales up 3%. China accounted for much of the growth but Europe and North America rose as well. Unlike some other Star Wars licensees, which cited declines in the property, Lego said its Star Wars array was one of its five top-selling franchises during the year. The other four were its proprietary Lego City, Technic, Friends, and Ninjago assortments, with the company calling out the success of its homegrown themes as a particular accomplishment. The line item for “licence and royalty expenses paid” went up 4%, suggesting an increase in Lego’s inbound licensing business, while license income from outbound Lego licensing declined by almost 17% (on a comparatively small base).
- Spin Master. Total revenue increased 5.2% in 2018 compared to the previous year, while gross product sales were up 3.1%. Sales in North America, up 0.2%, lagged behind other regions. “Other revenue” increased 42.1%, driven by increased royalties from outbound licensing and entertainment activities tied to Spin Master’s own properties, as well as increased Toca Boca and Sago Mini app sales. The boys’ action and high-tech construction segment, where many of Spin Master’s inbound licenses reside, saw an increase of 18.7%, with the proprietary Boxer and Fugglers brands leading the way and initial shipments of DreamWorks Dragons, Bakugan, and Monster Jam positive. On the downside, Star Wars and Pirates of the Caribbean products saw sales declines, as did Meccano. Preschool and girls toys increased 5%, although there were declines in the proprietary PAW Patrol and licensed ZhuZhu Pets lines.
- Jakks Pacific. Year-on-year, net sales fell 7.4%, thanks primarily to TRU. The company pointed out that its business would be up 1% in 2018 if net sales to the bankrupt chain (which totaled just $16.6 million in 2018 versus $69.4 million in 2017) were excluded. Positive trends for the year included the fourth quarter performance of new licensed properties such as Incredibles 2, Harry Potter, and Fancy Nancy; sales of some newer proprietary brands; and increased international and online sales.
- Funko. The collectibles maker was the star of the group with a net sales increase of 33%. International sales grew 58%, versus 30% for domestic sales. The company had 583 active properties in the fourth quarter, up 34% from the same period in 2017, and saw growth of 3% in average sales per active property. The top 10 best performing properties in the quarter—Fortnite, Harry Potter, Avengers: Infinity Wars, Marvel Studios 10th Anniversary, Stranger Things, Overwatch, Star Wars Classic, Mickey Mouse, Dragon Ball Z, and The Nightmare Before Christmas—together accounted for 38% of sales; Fortnite alone accounted for 12% in the fourth quarter and 5% for the year. Forty-seven percent of sales in 2018, Funko’s first as a public company, were based on evergreen versus new properties. Funko cited its diversity and balance in licenses and distribution channels as drivers of its strong performance.
- Playmates. Global turnover for the Hong Kong-based company was down 37%. That was the result, it said, of planned limits on Teenage Mutant Ninja Turtles toy availability during the first three quarters of the year in anticipation of the fall release of the new TMNT TV show, Rise of the Teenage Mutant Ninja Turtles. New toys debuted in the fourth quarter. The company’s other licenses are Ben 10, which it says remains popular in the U.S. and many other markets, and Zag Heroes, for which it recently secured master toy rights for a 2020 launch.
- Jazwares. Investment company Alleghany Capital reported that Jazwares, one of the many companies in its diverse portfolio, saw increased sales, although it did not provide any details or discuss the performance of the company’s licensed products.
- Bandai Namco. This Japan-headquartered toy maker saw net sales for its first three quarters of the year (the time period of its most recent financial filing) rise 9.4% over same period of the previous year, with the Toys and Hobby segment growing 11.9%. It attributed much of the increase, both in Japan and around the world, to products for teens and adults, including models, collectibles, and card games, based on properties such as Mobile Suit Gundam, Dragon Ball, Kamen Rider, Pretty Cure, and Ultraman. In the Americas and Europe the company rolled out more products for older consumers, including collectible figures and card products for the Dragon Ball franchise.
While the financial performance and individual circumstances of each company vary widely, taken together the results suggest a relatively tough year for the licensed portion of the traditional toy industry, especially in North America, compared to the performance of proprietary brands. Most of the companies (not surprisingly) cited Toys ‘R’ Us’ liquidation in the U.S., and some other markets, as a key challenge, with success in 2018 often correlating with how well the company was able to replace that business by adding new distribution channels and/or expanding with existing partners. Other challenges cited by multiple companies included changing consumer shopping behaviors and unfavorable foreign exchange rates. Finally, companies specializing in collectibles outperformed those focusing mostly on traditional children’s toy categories.
In case you missed it, we recently published a summary of toy industry trends noted at February’s New York Toy Fair, which you can read here.
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