Hasbro continues to beat expectations as it rolls into the third quarter, reaffirming plans to invest in the long-term profitable growth of the company, with a goal to return excess cash to shareholders.

The Rhode Island-based toymaker reported its second quarter financials this morning, boasting yet another increase in both revenue and operating profit. Revenue for the second quarter increased 9% to $984.5 million compared to $904.5 million in 2018, while operating profit increased 47% to $128.3 million versus $87.6 million last year. The second quarter growth follows the groundwork laid in the first half of the year, when the company reported a positive outlook ahead of Toy Fair New York that was followed by strong results in the first quarter.

“We delivered a high quality second quarter, with positive consumer trends at retail and profitable growth led by several geographies and brand categories,” says Brian Goldner, Hasbro chairman and chief executive officer. “Our investments are differentiating Hasbro’s portfolio and delivering profitable revenue streams, including continued Magic: The Gathering revenue growth in tabletop and digital. We grew revenues in the U.S. and Europe, and we believe we are well-positioned to deliver against our target of profitable growth for the full-year 2019.”

On this morning’s quarterly investment call, the Hasbro team further detailed the areas of growth and concern.

Hasbro Q2 2019 Earnings Infographic

Franchise, Partner, and Emerging Brands:

Franchise Brands, including Nerf, Play-Doh, and Monopoly increased 14%, while Partner Brands saw a 3% bump due to the success of Marvel product based on Marvel Studios’ Avengers: Endgame and Spider-Man: Far From Home. Emerging Brands such as furReal Friends and Mr. Potato Head saw a 28% increase, driven in part by the addition of the Power Rangers franchise, which shipped its first waves of product in the first half of this year.

Second Quarter 2019 Brand Portfolio Performance

Net Revenues ($ Millions)

Q2 2019

Q2 2018

% Change

Franchise Brands

$576.7

$506.5

+14%

Partner Brands

$213.4

$208.0

+3%

Hasbro Gaming

$123.4

$134.3

-8%

Emerging Brands

$71

$55.6

+28%

Sights Set on Savings, the Holidays:

Deborah Thomas, Hasbro’s chief financial officer, cites net savings and big partner brands with product on the horizon as adding to the strong outlook for the future. “Hasbro’s overall inventory position declined, and we generated healthy operating cash flow. We are generating cost savings from our plan and are on track to deliver approximately $50 million in net savings this year. Importantly, we are well positioned for the holiday season with major brand initiatives across categories, including Walt Disney Animation Studios’ Frozen 2 and Lucasfilm’s Star Wars: The Rise of Skywalker which do not launch until the fourth quarter,” she says.

Holiday initiatives include the aforementioned Frozen and Star Wars launches, combined with new products from Sesame Street, furReal Friends, Magic the Gathering: Arena, Baby Alive, Beyblade, Play-Doh Kitchen Creations, Nerf, and Monopoly.

Hasbro 2019 Holiday Initiatives

The Threat of Tariffs Still Looms

While we continue to be in a holding pattern on the threatened 25% tariffs on products imported from China, Hasbro continues to prepare for a world where such tariffs may eventually exist.

“The U.S. team navigated a dynamic trade and inventory environment during the quarter,” explains Goldner. “While no new material tariffs have been enacted on our products, we did incur incremental expenses to prepare for the potentiality of tariffs in the U.S. The team did an exhaustive amount of work and is extremely well prepared for what would be a very challenging and damaging impact if tariffs were implemented.”

Currently, Hasbro says that 67% of its product sold in the U.S. is imported from China, but they believe they can get it to 50% by the end of next year. The company also sources 20% of products sold in the U.S. from U.S. manufacturers.

Despite the threatened tariffs not being enacted, Hasbro did incur additional cost for shipping and warehousing due to some retailers putting Direct Import — where they take possession of product from the factories in China — orders on hold.

Should tariffs be enacted, the additional cost will be passed onto consumers.

“A tariff increases the price to bring our product into the country. This would be born by the importer, which is primarily Hasbro,” explains Thomas. “We would pass this increase on to the customer through higher prices on the tariffed items. We notified our retailers of this plan during the quarter. Given the status of tariff implementation, no price changes were enacted.