Hasbro, the nation's #2 toymaker, posted a net loss of $3.7 million for the first quarter of 2005, which contrasts with $6.5 million profit for the same period in 2004.  Hasbro's profits declined in spite of a 9% gain in U.S. toy sales spurred by the initial shipments of licensed Star Wars playthings.  Buoyed by the high margin Star Wars offerings, operating profits in the toy sector soared some 665% from just over a million dollars in Q1 2004 to almost $8 million for the most recent quarter.

Hasbro also managed to lower the losses from its international operations from $10 million in Q1 2004 to $8.7 million this year, but the gains in the toy and international sectors were more than wiped out by a precipitous drop in the games category, where operating profits plummeted from $19.58 million in Q1 2004 to just $1.2 million for the first three months of this year.  In its quarterly report Hasbro didn't comment on which game properties were responsible for the drop, but given the fact that game sales only dropped 22% (from $127. 598 million to $99.037 million) the inescapable conclusion is that a decline in sales of high profit trading card games was behind the precipitous drop in operating profits in the game sector. 

Since TCG sales are release-driven, one quarter's poor performance doesn't necessarily mean much in the grand scheme of things, but if TCG sales continue to slump it could be very troublesome for Hasbro, which thanks to its ownership of Wizards of the Coast, is dependent to a far greater degree on high margin TCG sales than its chief competitor Mattel.  

Both major U.S. toymakers face other challenges in 2005.  The retail environment for toys is undergoing change due to the sale of Toys 'R Us and continuing bankruptcy problems at the KB chain.  And on the cost side, rising oil prices are raising prices for plastic, the biggest component material in most toy products.