Toymakers are under pressure as their sales tilt increasingly to discount chains, but their shares may still offer good value to investors. Discounters accounted for more than a third of all toy sales in the United States last year. Wal-Mart's share alone was 21 percent, and it continued to grow this year, said Sean P. McGowan, an analyst at Harris Nesbitt Gerard.
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For the toymakers, "it's tough to find any good news in the growth of Wal-Mart," Mr. McGowan said. When dealing with discount chains, manufacturers must contend with price cuts, a growing array of private-label versions of their toys and uncertain support in promoting their products. The discounters also have relatively little shelf space for toys, which make up just one of many departments in the stores.
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These are tough times in toyland. Early this month, FAO Inc., owner of the F.A.O. Schwarz chain, filed for bankruptcy court protection for the second time this year; it plans to close its Zany Brainy chain. Last month, Toys "R" Us, the second-largest toy seller, after Wal-Mart, said it would shut its free-standing Imaginarium and Kids "R" Us stores.
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Nonetheless, Mr. McGowan is among analysts who say the stocks of several toymakers still offer good value for investors. Big companies like Hasbro and more specialized ones like LeapFrog and Mega Bloks can prosper, he said, with a stable of perennially popular offerings like board games and with products in growing categories like educational toys.
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Shares of Hasbro, in particular, have performed spectacularly this year. They are up 85.08 percent, compared with 1.40 percent for Mattel's. "Hasbro has probably had its best year in a decade," Mr. McGowan said. Despite the stock's climb, Mr. McGowan predicted banner years in 2004 and 2005 for several Hasbro products, including "Star Wars"- licensed toys and action figures like G.I. Joe.
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Discount chains often use popular, name-brand toys as loss leaders. Although manufacturers receive their wholesale price for the products, such moves still harm them, analysts said. Some other stores may simply decline to carry the product, figuring they cannot match the discounted retail price. "A lot of the specialty stores will not take the product at all if Wal-Mart has it," Mr. McGowan said.
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For the toymakers, "it's tough to find any good news in the growth of Wal-Mart," Mr. McGowan said. When dealing with discount chains, manufacturers must contend with price cuts, a growing array of private-label versions of their toys and uncertain support in promoting their products. The discounters also have relatively little shelf space for toys, which make up just one of many departments in the stores.
«
These are tough times in toyland. Early this month, FAO Inc., owner of the F.A.O. Schwarz chain, filed for bankruptcy court protection for the second time this year; it plans to close its Zany Brainy chain. Last month, Toys "R" Us, the second-largest toy seller, after Wal-Mart, said it would shut its free-standing Imaginarium and Kids "R" Us stores.
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Nonetheless, Mr. McGowan is among analysts who say the stocks of several toymakers still offer good value for investors. Big companies like Hasbro and more specialized ones like LeapFrog and Mega Bloks can prosper, he said, with a stable of perennially popular offerings like board games and with products in growing categories like educational toys.
«
Shares of Hasbro, in particular, have performed spectacularly this year. They are up 85.08 percent, compared with 1.40 percent for Mattel's. "Hasbro has probably had its best year in a decade," Mr. McGowan said. Despite the stock's climb, Mr. McGowan predicted banner years in 2004 and 2005 for several Hasbro products, including "Star Wars"- licensed toys and action figures like G.I. Joe.
«
Discount chains often use popular, name-brand toys as loss leaders. Although manufacturers receive their wholesale price for the products, such moves still harm them, analysts said. Some other stores may simply decline to carry the product, figuring they cannot match the discounted retail price. "A lot of the specialty stores will not take the product at all if Wal-Mart has it," Mr. McGowan said.
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Read the full story here