Sales of Hasbro Inc (HAS.O) games, including "Monopoly" and "Magic: The Gathering," jumped 19 percent in the second quarter, suggesting the No. 2 toymaker may be shoring up a weak area that could help offset a steady decline in demand for action figures.
The stronger-than-expected showing for its games business boosted Hasbro shares on Monday and helped offset a sharp decline in sales of toys aimed specifically at boys.
Notably, Hasbro's Beyblade spinning-top toys and playthings themed on Marvel comic characters fizzled during the quarter.
"They experienced double-digit growth in Games, which has been the perennial weak area," Needham analyst Sean McGowan said. "Overall, the report was a lot stronger than expected, despite the weakness in Boys."
Hasbro has sought to broaden the appeal of its classic brands like Twister, Monopoly and Jenga by giving them a digital makeover. It has also been investing in its mobile gaming business as children gravitate to games played on Apple Inc's (AAPL.O) iPad and other devices.
Hasbro recently bought 70 percent of Backflip Studios, a mobile game studio. It also signed a separate agreement with Electronic Arts Inc (EA.O) to make mobile games.
In the seasonally weak second quarter, Hasbro's net profit fell to $36.5 million, or 28 cents a share, from $43.4 million or 33 cents a share a year ago. Excluding a pension charge, it earned 29 cents a share, missing the analysts' average estimate of 34 cents, according to Thomson Reuters I/B/E/S.
Also on Monday, Hasbro said it had expanded its partnership with Walt Disney Co (DIS.N), obtaining the rights to make toys and games for Marvel characters such as Spider-Man, the Avengers and Iron Man through 2020. Hasbro's rights for the "Star Wars" franchise, which Disney bought recently, also run through 2020.
Hasbro shares ended 3.3 percent higher at $46.87 on the Nasdaq on Monday.
WEAK DEMAND FOR BOYS' TOYS
Overall sales in the second quarter fell 6 percent to $766.3 million, while analysts expected $794.7 million.
The second-largest U.S. toymaker, home to G.I. Joe, Nerf and Mr. Potato Head, said revenue in its boys' toy business fell 35 percent to $253.7 million in the second quarter, making it the fifth straight quarter of declines at the unit.
Unlike the second quarter of 2012, Hasbro this year had fewer movie franchises supporting its toys modeled on Marvel characters such as Spider-Man and the Avengers.
Also, its traditional action figures and other toys are competing for boys' attention with electronics, iPads and mobile devices, MKM Partners analyst Eric Handler said.
"Girls still have very much of a nurturing element and still play with dolls. Boys are gravitating toward electronics at an earlier age now," Handler said.
Revenue for the girls unit rose 43 percent in the quarter, topping analysts' expectations.
Last week, larger rival Mattel Inc (MAT.O) posted a much weaker than expected profit on sluggish Barbie doll sales [ID:nL4N0FN28G], and smaller toymaker Jakks Pacific Inc (JAKK.O) slashed its full-year forecast, saying several retailers in the United States and Europe had cut orders for its key products.
Mattel boosted its share of the international toy market by 6.3 percent from 2008 to 2012, while Hasbro lost its share by 4.7 percent, according to data from Euromonitor International.
(Reporting by Dhanya Skariachan in New York; editing by Alden Bentley, Jeffrey Benkoe, John Wallace and Matthew Lewis)