Lego Posts First Sales Decline in 13 Years but Remains a Big Dog in Toyland
Along with the underwhelming first-half results, Lego will slash about 8% of its workforce.

The toy business has had a rough go of it over the last few years as young kids gravitate toward electronics and application-based games and away from traditional toys. 

Through all the hubbub that has dragged down the stock of public toymaker Mattel Inc. (MAT) and ravaged private companies like Bain Capital and KKR & Co.-backed (KKR) Toys 'R' Us Inc., Danish toy maker Lego Group AS has stood tall.

That changed on Tuesday, Sept. 5, as the company reported revenue of 14.9 billion Danish kroner ($2.9 billion), a decline of 5% from the first half of 2016, its first revenue decline in 13 years. Profit for the quarter was 3.4 billion Danish kroner down from 3.5 billion kroner a year earlier.

Along with the underwhelming results, the company will slash about 8% of its workforce, or about 1,400 of its 18,200 jobs worldwide.

"We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this," Lego Group Chairman Jorgen Vig Knudstorp said in a statement.

But in a day when younger audiences are looking for experiences and parents are looking for ways to keep their kids away from the blue glow of a tablet or smartphone, Lego is still the king of toys, though Hasbro Inc. (HAS) is a close second and gaining ground.

Lego's revenue topped rival Mattel, which reported half-year sales of $1.71 billion in July, but Hasbro, which owns titles like Monopoly and Scrabble, still has more girth than Lego from a revenue perspective.

In July, Hasbro saw its stock dip about 10% after an earnings beat and in-line revenue result for its fiscal second quarter. The company has a lot of catalysts coming down the road, much of which will hit in the third quarter, said TheStreet's founder Jim Cramer, who also manages the Action Alerts PLUS charitable trust portfolio, at the time. 

Analysts from BMO Capital weren't quite so optimistic. BMO said even though "the quarter was strong, the results weren't quite enough to satisfy lofty expectations and a peak valuation."

Hasbro must contend with a notably challenging retail environment. The company will also have to deal with slowing blockbuster movie performance, which suggests difficulty for the toy programs Hasbro has tied to films.

Still, both Hasbro and Lego are honing in on the Chinese market which should prove lucrative. 

Hasbro's China revenue is up more than 20% in the first half of the year while Lego said its business in China grew by double-digits. Hasbro signed partnerships with Alibaba.com (BABA) and JD.com (JD) to help distribute its products in China. 

While Mattel has signed similar distribution deals for its Barbie-led stable of toy brands, it hasn't had the success in China that Hasbro has enjoyed. It also has attempted to set up learning centers in conjunction with Fosun and Chinese parenting website Babytree to penetrate the $30 billion early education and training market. Those efforts are still underway and have yet to bear fruit.

Still, all three of the major toymakers have had their struggles and with companies such as Alphabet Inc. (GOOGL) and Apple Inc.  (AAPL) getting into the space there may not be much hope for the traditional toymakers and the traditional retailers that hawk their products.

It may also not be long before we are again calling for consolidation of some kind in the space.

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