What Toys R Us Store Closures Could Mean For Mattel, Hasbro

Toy investors have plenty of reasons to be nervous about their investments, including a reduction in store footprints, mostly from Toys R Us closures.

The Analyst

UBS' Arpine Kocharyan.

The Thesis

Toy investors continue to face significant uncertainty as Toys R Us has consistently been an important partner for the toymakers, Kocharyan said in a note. (See the analyst's track record here.) 

Under a "bear case" scenario, the retailer could reduce its store count by over 40 to 50 percent, but a "worst-case" scenario would see the closure of 63 percent, or 556, stores, Kocharyan said. A more favorable "base case" scenario would involve the closure of 21 percent of Toys R Us stores, he said. 

Impact To Mattel and Hasbro

If Toys R Us closes 21 percent of its stores, the sales impact would be negative 1.3 percent for Mattel, Inc. MAT and negative 1.1 percent for Hasbro, Inc. HAS in fiscal 2018, the analyst said. Under the worst-case scenario, Mattel would see a 4-percent negative sales impact and a negative 3-to-4-percent sales impact for Hasbro.

"While 21 percent of store count reduction for TRU is not as bad as bears would fear, low single digit sales impact for MAT/HAS is not necessarily priced in yet," Kocharyan said. 

Department stores, including Target Corporation TGT and Wal-Mart Stores Inc WMT, are well-positioned to take market share as Toys R Us stores continue to close, according to UBS. A total of 630 Toys R Us stores are located within a 15-minute drive of a Target store, and Wal-Mart has a similar positioning.

Price Action

Shares of Mattel have lost more than 45 percent since the start of 2017, while shares of Hasbro are up 17 percent over the same time period.

Related Links:

Mattel's Bad Holiday Guidance Plunges Credit Rating To 'Junk'

There's Rationale For A Hasbro And Mattel Deal

Photo from Wikimedia.