Toy maker Hasbro Inc. said Monday that it is buying Galoob Toys Inc. for $220 million, locking in one of Hollywood's most profitable franchises, which includes the marketing draw of "Star Wars." But it also warned of weaker third-quarter results.
Hasbro--which makes Tonka toys, Parker Bros. and Milton Bradley games as well as Teletubbies--said a restructuring by retailer Toys R Us would reduce its third-quarter sales by $200 million and lead to weaker earnings.
Toys R Us said last week that it planned to close 59 stores, cut 3,000 jobs and change its inventory mix, moves that have roiled toy makers. The world's largest toy maker, El Segundo-based Mattel Inc., warned investors last week that its profits and earnings for the third quarter and full year would fall short of expectations.
Hasbro, the No. 2 U.S. toy maker, said it expects third-quarter earnings per share of about 55 cents, down from 57 cents a year earlier.
A number of analysts had lowered their earnings estimates for Pawtucket, R.I.-based Hasbro during the last two months as it became evident Toys R Us was becoming slow to write orders.
Standard & Poor's Corp. analyst Thomas Graves lowered his estimates for 1998 to $1.65 from $1.85 a share, cut his 1999 estimate to $1.95 from $2.25 and lowered his rating to a "hold" from "accumulate."
"There's not a whole lot of enthusiasm now for the Christmas season. I'm not convinced there's a particularly exciting product and strength in consumer spending in the toy industry in general doesn't look that robust," Graves said.
But Graves and others were enthusiastic about the purchase of South San Francisco-based Galoob Toys, which paid $140 million to Lucasfilm Ltd. for the right to create toys based on the re-release of the "Star Wars" trilogy. In addition, George Lucas received options to buy a 20% stake in Galoob, which also makes Micro Machines and Spice Girls dolls.
Hasbro also had a large piece of the "Star Wars" license and the purchase "puts the 'Star Wars' merchandise--at least for toys--under one umbrella," Graves said.
Hasbro shares fell $1 to close at $30 on the American Stock Exchange. Galoob shares rose $3.44 to $11.44 on the New York Stock Exchange.