Toys R Us (Long Trickle-Down Effects): Mattel & Hasbro

Toy Suppliers Get Hammered by Toys R Us Bankruptcy

Callback to the Toys R Us bankruptcy whereMattel Inc. ($MAT) was listed as one of the toy behemoth's largest unsecured creditors, owed a staggering $135.6mm. Notably, that was a big enough loss for Mattel to agree to sit on the DOJ-appointed official committee of unsecured creditors. For the uninitiated, that's a committee with fiduciary responsibilities to similarly situated unsecured creditors: it's a time commitment. Why do we mention this? Well, Mattel reported earnings this week and...they...were...pretty, pretty, PRETTY brutal. Quick recap: 13% sales decline. 22% domestic sales decline (half of which they directly attributed to Toys R Us). Those creepy-a$$ American Girl dolls? Down 30%. Consequently, the company announced a dividend suspension and a $650mm expense reduction; it also announced that it will explore the capital markets for an asset-based loan and lever up its balance sheet. So, in summary, here is this "disruption" illustrated:

Boatload of LBO-based debt 💰 + "Amazon Effect" = 😱  Toys R Us Bankruptcy 😱  = Mattel Inc. $135mm claim + 22% ⬇️  in domestic sales (American Girl ⬇️ , Barbie ⬇️ , Hot Wheels ⬇️ ) = Mattel stockholder/dividend-seeker 💩 = Mattel employees & supply chain ⬇️❗️= ABL lender💰💰💰❗️ = Kids don't care because video games are 🔥🔥  = Toys R Us & Mattel death spiral❓ 

Suffice it to say, Jefferies is skeptical about the turnaround plan. Finally, we should note that Hasbro Inc. ($HAS) also reported a 5% hit because of Toys R Us; it was the third largest unsecured creditor in bankruptcy to the tune of $59mm. Despite this, the stock went up on revenue and profit beats (thank you, Luke Skywalker, you're they're only hope).