While many acknowledge the tailwind that a strong movie slate presents for companies like Disney (DIS) and Comcast (CMCSA) , the trickle down to retail may be overlooked.
Major movie releases garner serious revenue not only from box office sales, but from the numerous ancillary licensing schemes they give birth to, notably toy deals with companies like Hasbro (HAS) , Mattel (MAT) , and Funko (FNKO) .
"We're generally optimistic on the prospects for growth and profitability during the [first] quarter, and see this momentum continuing through '19, which features a "loaded" theatrical slate that the company is positioned to benefit from," Stifel analyst Drew Crum said in a recent note on Funko.
Still, the chain of benefit moves further along.
Those toy manufacturers must then bring toys and trinkets to market through retailers, many sold at low price points that let retailers like Real Money's 'Stock of the Day' Five Below (FIVE) seize upon the ensuing popularity of major franchises.
"Specifically talking about licenses, we showed on the last call and I reiterate this year, we talk about trends all the time. One of the three trends is licenses," FIVE CEO Joel Anderson told analysts on Wednesday evening. "We still continue to feel very positive about the license schedule for this year, specifically the movie releases."
He cited Avengers Endgame as a strong boost to the Q1 earnings results that beat analyst expectations and looked forward to Toy Story and Spiderman in the coming quarter, and especially Frozen 2 and Star Wars later in the year.
"On the license opportunity, management sees 2019 as potentially the best year since 2013," J.P. Morgan analyst Matthew Boss said after meeting with executives in April. "Looking to 4Q19 specifically, management plans to build upon last year's success in toys given more 'open doors' now for vendors (i.e., Hasbro) with potential plans to re-introduce 20ft of toys if the opportunity is there noting more normalized toy margins than last year's ~25bps margin drag as management proactively took chased toy availability to gain share and drive new customers to the store."
While the stock enjoyed a strong 2013 performance, there is a key difference in the toy business particularly. The key contrast is the lack of Toys R Us to clamp down on toy sales.
For reference, Toys R Us generated $12.5 billion in revenue in 2013 driven by strong toy sales drafting behind the major movie releases.
With that massive share of revenue now left in the air in a back half assumed to be similarly strong to that metric, Five Below could be a key retailer poised to seize on toy sales alongside more traditional retailers like Kohl's (KSS) and Target (TGT) . The added benefit for Five Below is its dominance in lower price point memorabilia, toys for holiday shopping, and the executive commentary surrounding "deepening relationships" with toy and licensing partners.
To be sure, this is not a completely clear toy market to tackle. Aside from the Amazon (AMZN) , Target, Kohl's, and more looking to plug the vacuum, Toys R' Us actually has a successor brand coming into the field following its 2018 bankruptcy.
Buried in the legal proceedings of Toys R' Us was the plan to kick start a new venture to house the former Toys R' Us and Babies R' Us brands under the name Tru Kids. So far, the company emerging from the ashes has agreements with Kroger (KR) to sell its wares and has plans to open tens of stores throughout the year.
"Despite unprecedented efforts to capture the U.S. market share this past holiday season, there is still a significant gap and huge consumer demand for the trusted experience that Toys R' Us and Babies R' Us delivers," said Richard Barry, President & CEO of the newly formed brand said in February.
He added that the company will launch an e-Commerce effort in order to address missteps made by its former company and plug the hole in the market, possibly tempering Five Below's bullishness.
"We have a once-in-a-lifetime opportunity to write the next chapter of Toys R' Us by launching a newly imagined omni channel retail experience for our beloved brands here in the U.S.," he said. "We have an incredible team focused on bringing Toys R' Us and Babies R' Us back in a completely new and reimagined way, so the U.S. doesn't have to go through another holiday without these beloved brands."
As such, while Five Below has a significant opportunity to capture what is expected to be a boom in toy sales through the end of the year as a major slate of kids movies come through, it may have more competitors to contend with than many realize.
(Comcast, Disney, Five Below, Kohl's and Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CMCSA, DIS, FIVE, KSS or AMZN? Learn more now.)
