Why Hasbro’s Toy Business Took A Major Hit
Following multiple quarters of record sales, Hasbro's revenue has plunged to due inflation's economy-permeating effects.
This article is more than 2 years old
Hasbro stock took a hit after the toy maker revealed its third-quarter earnings earlier this week. The company missed profit estimates as its decision to raise prices to offset surging commodity costs caused weary customers to buy fewer toys and games. While these items have done better than other discretionary categories, the firm previously warned that demand was starting to drop ahead of the holiday season due to high inflation.
As a result, Hasbro cut its annual sales forecast while contending with high levels of inventory. The toy maker also faced tough comparisons from 2021 when it benefitted from multiple film releases like My Little Pony: A New Generation, which led to a spike in sales. “As expected, the third quarter is our most difficult comparison and was further impacted by increasing price sensitivity for the average consumer,” CEO Chris Cocks said in a press release.
The Hasbro CEO expanded on this point during a conference call via CNBC, noting that promotions have become increasingly important in driving sales. The company said expects to see more promotional activity heading into the holiday season as shoppers get more conscious about spending their gift budgets wisely at a time of decades-high inflation. “Promotions and entertainment field demand have become increasingly important and will be key in the quarters ahead,” Cocks explained.
He added that Amazon Prime Day saw Hasbro’s sales volume rise in mid-double digits from a year earlier. Despite the minor sales spike, the toy maker still reported high inventory levels, which is currently afflicting several retailers across the country. However, the Rhode Island-based firm said that its excess stock should help it meet the anticipated holiday demand.
Following the earnings report, Hasbro shares closed almost 3% down after hitting a new 52-week low. Compared with Wall Street estimates, the toy maker’s earnings per share came in at $1.42 vs. the $1.52 expectation. Although revenue for the period held steady at $1.68 billion, it was still a 15% drop compared to last year. This was caused by a 35% decrease in entertainment revenue as its Wizards of the Coast unit saw revenues decline by 16%.
Meanwhile, Hasbro expects fourth-quarter revenue growth to be flat on a constant currency basis. It will be driven by key brands like Peppa Pig, My Little Pony, and Marvel’s Black Panther: Wakanda Forever. There’s also the toy makers’ own Transformers: EarthSpark, which the company will produce merchandise for well beyond the fourth quarter. “There are still indications of fairly strong demand for toys,” Linda Bolton Weiser, Analyst at D.A. Davidson, told Reuters. Even though analysts were expecting an almost 2% decline.
With the holidays approaching, Hasbro says it plans to “sell through inventory” in the fourth quarter as it seeks to stick to its plan of focusing on fewer, bigger brands and more licensing. Remaining optimistic, the company CEO told Closing Bell that the toy market remains resilient even through bad times. The toy manufacturer also has merchandise releases tied to six additional blockbuster films and 20 scripted and unscripted television shows in 2023.
