The Hasbro turnaround is happening. The Rhode Island-based toymaker reported its first quarter financials this morning, beating expectations with an increase in revenue and operating profit driven by growth in several categories. Revenue for the first quarter increased 2 percent to $732.5 million compared to $716.3 million in 2018, while operating profit increased to $36.1 million versus a loss of $80 million last year. This is welcome news following a difficult year in which Hasbro faced losses in the wake of the Toys “R” Us closure in the U.S., along with some challenges in the international markets. With Q1 numbers in, the positive outlook reported ahead of Toy Fair New York seems to be taking shape, and a clearer picture of what will drive Hasbro growth has emerged.
“The global Hasbro team is executing very well and delivered a good start to the year,” says Brian Goldner, Hasbro’s chairman and chief executive officer. “Our long-term investments in new platforms provided a meaningful contribution from our digital and esports initiative, Magic: The Gathering Arena, as well as growth in Magic: The Gathering tabletop revenues. In addition, Monopoly, Play-Doh, and Transformers were among the brands posting revenue gains this quarter. We are beginning to see improvement in our commercial markets, notably in the U.S. and Europe, and operating profit was driven by high margin revenue growth and our cost savings activities. With most of the year ahead of us, we remain on track to deliver profitable growth for the full-year 2019.”
On the investor conference call this morning, Goldner expanded upon some of the initiatives and areas in which the company is finding success.
Esports & Digital-First:
Digital-first efforts are bringing new life into brands such as Magic: The Gathering. Goldner highlighted the success of the Mythic Invitational held at PAX East last month — a reflection of the rising importance of esports with competitive events pulling in seven-figure prize pools. Additionally, the early numbers for the digital Magic: The Gathering Arena are huge, with more than 700 million games played, and the average player spending more than eight hours per week in the game. A new Magic mobile game is currently being tested, and monetization of digital platforms will become a key revenue stream for future growth.
As Magic: The Gathering enters the digital realm, the tabletop business is growing as well. Like other legacy brands, the franchise has reached the “cross-generational” point in which players who grew up with the game in the 90s are now playing with their kids. Gamer culture crosses over into other areas of the business, with cross-pollination of franchises, licenses, and brands.
Overwatch Ultimates, in partnership with Blizzard Entertainment, launched this week, and the Nerf Fortnite collaboration with Epic Games is showing strong sales just a few weeks into its official launch phase.
Direct-to-Consumer, Hasbro Pulse:
Hasbro continues to seek new ways to reach its customer, and the collector market is growing. In addition to traditional retailers and fan channel markets, the company’s direct-to-consumer efforts are paying off. Goldner cites the February relaunch of Hasbro Pulse as a key driver in sales. The company-run e-commerce site offers fans the chance to purchase first-to-market or exclusive products on a regular basis. Several products unveiled at Toy Fair New York became available for pre-order immediately following announcement via Hasbro Pulse.
The recent Star Wars Celebration in Chicago was also noted. Goldner points out that Hasbro Pulse pre-sales are strong for the Star Wars The Black Series Emperor Palpatine 6-inch action figure, and Star Wars The Black Series Luke Skywalker Electronic X-Wing Helmet — both announced at the fan event. Additionally, the Hasbro booth at the show was selling product direct-to-consumer for five days. Direct sales can equal higher margins.
Monopoly — More Popular than You Think it Is:
“Monopoly is coming off of a record year,” says Goldner. The strength of the classic real estate trading game goes back to something that Hasbro has been doing with it for decades — licensing and constant reinvention. The Hasbro Gaming division is creating a steady stream of reimagined versions of the game to cross over fandoms and introduce Monopoly to players who may have otherwise not purchased the board game. Recent collaborations include Fortnite, an edition featuring Nintendo’s Mario Kart, MGA Entertainment’s L.O.L.! Surprise, and the recently released Game of Thrones edition. Looking ahead, the company has Monopoly: Marvel Avengers Edition, and a version based on The Lion King hitting retail now, with more licensed editions in the pipeline.
Transformers, Bumblebee, and the Rise of the Franchise Brands:
Hasbro’s in-house franchise brands are on the upswing, and a yellow Transformer is leading the charge. While Paramount Pictures’ Bumblebee may not have been quite the blockbuster it was expected to be, the well-reviewed Transformers spin-off still managed to score $470 million in U.S. box office, with a late December release fueling product demand at the start of 2019.
“Storytelling across platforms is key in building brands. Bumblebee is introducing Transformers to a new generation of kids,” Goldner says.
Again, its cross-generational appeal, and the combination of toys directly tied to the recent film and a series of Transformers Generation One (G1) reissues that are bridging the gap between kids and parents. With the in-home release of Bumblebee this month and the Transformers 35th Anniversary getting underway, the brand is expected to see continued strength throughout the year. Early reports show the in-home release of the film performing much stronger than initially expected.
Transformers will see another boom with the launch of a new series on Netflix, and a new project created for China (which marries Transformers to Chinese lore) may eventually see a global expansion.
Other franchise brands cited on the call include Play-Doh, Mr. Potato Head (soon to be featured in Disney•Pixar’s Toy Story 4), and Nerf — the latter of which will soon see what Goldner calls “an innovative line across price points.” While he declined to elaborate, some fall product for Nerf has already been announced, and the company has been vocal in recent months about facing competitors who have entered the blaster aisle with lower-priced offerings.
First Quarter 2019 Brand Portfolio Performance
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A Reset for Partner Brands:
Last year was a rough one for licensed partner brands, and that carried over into the first quarter with a 14% decline. Looking ahead, major franchise activities kick off this week with the theatrical release of Marvel Studios’ Avengers: Endgame, which will drive toy sales with its billion dollar box office draw. New products based on Spider-Man: Far From Home and a reimagined Disney Princess line inspired by Ralph Breaks the Internet are forthcoming, followed by a major launch for Frozen 2 product and the Star Wars franchise.
“We will be supporting Star Wars extensively,” adds Goldner, pointing to the October Triple Force Friday launch. Following disappointing sales on product tied to The Last Jedi and Solo: A Star Wars Story, Hasbro, Disney, and Lucasfilm have become more mindful of timing, plotting consumer product releases closer to the theatrical window. Many agree that previous launches have put too much product on shelves too early, leading to stagnation at retail. Hasbro will release product based on the new Disney+ series, The Mandalorian, along with Star Wars: Episode IX — The Rise of Skywalker, and continued offerings for the entry-level Galaxy of Adventures line.
Emerging Brands: Go, Go Power Rangers!
Citing just a small amount of Power Rangers product shipping to retail in the first quarter, Hasbro is looking at the launch of Power Rangers: Beast Morphers as an indicator of big success on the horizon. The series had a strong start on television in March, but the official street date for product wasn’t until this month. Impact on first quarter sales was minimal. This year marks the first year of Power Rangers product from Hasbro since acquiring the franchise from Saban Brands last year.
Strong sales of Super Soaker product (some of which is Fortnite-branded), Furreal Friends, and quick strike collectibles also contributed to the 22% increase in emerging brands.
Hasbro continues to make internal adjustments in staffing and cost-cutting measures as the company refocuses for the future. The loss of Toys “R” Us in the U.S. is still creating some challenges stateside, but the continued operation of the retailer in other countries under new ownership is a positive. Goldner says that “point-of-sale challenges will remain” for the immediate future, citing “global POS down 10%, in line with expectations.” With first quarter results in, it’s worth noting that the late Easter this year fell into second quarter, and retail resets for major initiatives such as Avengers: Endgame will also be reflected in Q2 results.
Despite the lack of a national toy retailer, Goldner points out that support from toy specialty retailers has grown in the past year, and that the company is seeing continued expansion in e-commerce, Amazon business, and additional channels such as convenience.
International markets, such as Europe, have been struggling, but China continues to be the fastest-rising global force.
“We have far more new initiatives coming in the second quarter this year than we did a year ago,” Goldner says. “Nerf Fortnite, the Avengers lineup, followed by Spider-Man — we’re also seeing great momentum in Baby Alive. We’re back to our focus on innovation, and insights, and storytelling for this year — demonstrating that we can grow in the absence of Toys ‘R’ Us.”