Toymakers Stumble During the Holiday Quarter

toymakers stumble during the holiday quarter
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Kids these days have it so good that they're apparently too good for traditional toys.

Hasbro (HAS) reported quarterly results Monday. The numbers weren't all that impressive. Revenue clocked in flat at $1.28 billion with adjusted earnings declining to $1.12 a share. Analysts were holding out for a profit of $1.22 a share on $1.3 billion in net revenue.

Hasbro's performance gets worse if we turn our attention closer to home as sales in the U.S. and Canada fell 11 percent during the seasonally potent holiday quarter. There was strength in Hasbro's toys for girls as My Little Pony continued to excel and the revival of its Furby brand was a success with Furby Boom as a holiday bestseller. However, sales of its toys for boys suffered as declines at Beyblade and its Marvel-licensed playthings were too much to be overcome elsewhere. Hasbro's preschool toys also dipped slightly during the fourth quarter.

Hasbro's report was as ho-hum as it gets, but at least it wasn't it's biggest rival.

Mind Over Mattel

A few days earlier rival Mattel (MAT) also struggled as worldwide net sales declined 6 percent, with an even sharper 10 percent drop in North American gross sales.

Barbie has seemed timeless through the decades, but Mattel suffered a 13 percent drop in sales of the iconic doll category. Other core Mattel brands didn't exactly impress, with Hot Wheels down 8 percent and Fisher-Price off by a brutal 13 percent.

It isn't pretty. Mattel and Hasbro missed Wall Street's sales and profit expectations during the most important quarter of the year in a period when the economy is gradually improving.

Folks just aren't buying toys the way that they used to, and that's bad news for Hasbro, Mattel and most of its smaller competitors.

Death by Digital Delivery

It's against this bah humbug backdrop that some forms of tech gadgetry are thriving. Industry tracker IDC reported last month that tablet shipments climbed 28 percent during the holiday quarter -- and that was after a scorching 87 percent surge during the prior year's fourth quarter.

It's not just tablets. %VIRTUAL-article-sponsoredlinks%IDC also reported that global smartphone shipments rose 24 percent during the fourth quarter, topping a billion units for all of 2013.

This is a problem for toy companies, and not just because folks spending $200 to $500 on a tablet or investing in a smartphone with its costly data plan for their children won't have a lot of money left over to buy a Barbie doll or a Marvel action figure. Once children begin spending time on their tablets or phones they get exposed to the digital ecosystem of apps that either cost money or are free with incentives to enhance the game with virtual in-app purchases.

The money that used to go to board games or car racing sets is now going to iTunes and Google Play app developers. The playing field is level. Toymakers aren't just battling established peers that win shelf space at a neighborhood toy store. They now have to compete against the hundreds of millions of apps that are a tap away on a tablet or smartphone.

Toys in the Attic

It's not all bad. Sales are soaring for privately held Lego, and this past weekend's blockbuster movie is only going to help. Mattel's American Girl doll line bucked the negative trend elsewhere at the company. And Hasbro sold more Monopoly boards and Nerf products last year than it did in 2012.

However, the overall trend is problematic. Toys just aren't as popular as they used to be.

Motley Fool analyst Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Hasbro and Mattel. The Motley Fool owns shares of Hasbro and Mattel.