Hasbro, Inc. kicked off what could be an interesting second quarter toy industry earnings season amid inflation concerns and continued supply chain challenges.
The Rhode Island-based play and entertainment company reported a 1% spike in overall revenue to $1.34 billion for the quarter to power 3% revenue growth for the first half of the year. Hasbro’s Consumer Products segment grew 7% with toy and game growth seen across the Franchise Brands, Partner Brands, Hasbro Gaming, and Emerging Brands. Wizards of the Coast and Digital Gaming spiked 5%. An 18% decline across the Entertainment category (eOne) pulled down the total growth due to the sale of its music division last year and the delivery timetable for film and TV projects.
“The Hasbro team delivered strong second quarter results, driving mid-single digit revenue growth absent foreign exchange and 200 basis points of adjusted operating margin expansion,” says Hasbro CEO Chris Cocks. “Wizards of the Coast turned in its biggest quarter ever, led by 15% growth in tabletop gaming and 11% growth in Magic: The Gathering across platforms. We also significantly enhanced our digital play and direct-to-fan capabilities with the acquisition of D&D Beyond which will serve as an important growth driver for Hasbro’s industry-leading fantasy gaming portfolio.”
Cocks says that the company is in the process of a strategic plan review to identify and execute cost savings across Hasbro’s business. Additionally, more than 30 projects based on Hasbro properties are in development for screens at eOne, so the company expects synergies to begin paying off.
Mining the Archives, Collectibles, and D2C
Looking ahead, Hasbro plans to continue growing its toy business by looking into its own intellectual property (IP) portfolio while building on its Hasbro Pulse platform.
“Our teams are driving focus and scale in gaming, multi-generational brands, and direct-to-consumer (D2C),” Cocks says. “Backed by Hasbro’s unmatched portfolio of brands and brand-building capabilities, we have confidence in the strength of our initiatives for the second half and we are positioned to deliver profitable growth and long-term shareholder returns.”
On a call with investors and analysts this morning, Hasbro president and chief operating officer Eric Nyman said that the company estimates that the collectibles business is worth $4 billion to $5 billion globally, though he declined to comment on how big a piece of that pie Hasbro holds. Both Nyman and Cocks highlighted the collectibles business as being an area of increasing importance.
“We see the fan economy in general as a huge growth area for us,” Cocks says. “There are classic collectibles like plastic action figures, plus sports collectibles, and trading cards. For the past several years, it’s been a huge growth area … it’s resilient, and consumers have a high level of discretionary income.”
According to Nyman, the Hasbro Pulse D2C platform has grown more than 60% this year.
Inventory Levels, Retail Outlook
“In the first half of the year, we took significant steps to secure inventory to help ensure product availability for upcoming product launches, major entertainment releases and the holiday season,” says Deborah Thomas, Hasbro’s chief financial officer. “Foreign exchange is impacting our top line revenue growth, but our teams are executing well to meet demand and drive profit. We successfully closed an acquisition supporting a key growing brand [D&D Beyond], returned cash to shareholders through dividends and share repurchases, and anticipate higher operating cash generation in the second half of the year as our major new innovations and entertainment-driven initiatives come to market.”
At retail, Thomas expects to see a post-pandemic return to a “more traditional promotional calendar.” This means more promotions and sale events in Q4.
New Product Launches for Q3, Q4
According to Cocks, Hasbro’s new product innovation is very much weighted to the back half of the year. The recent launch of Wordle: The Party Game logged the most preorders in Hasbro Gaming history, and Magic: The Gathering has Dominaria United, Unfinity, and Universes Beyond: Warhammer 40,000 on the way.
NERF is expected to have a big second half of 2022 with several new product launches. Cocks believes that NERF Pro GelFire and the NERF Elite2.0 Motoblitz will drive excitement.
Additional major launches include the Starting Lineup relaunch with Hasbro Pulse and Fanatics; the Hasbro Selfie Series; preschool expansion across PJ Masks, Peppa Pig, and Marvel’s Spidey and His Amazing Friends; and new products inspired by Lucasfilm’s Obi-Wan Kenobi and Marvel Studios’ Black Panther: Wakanda Forever.
Future Outlook and Additional Notes
Hasbro expects cash flow generation to improve in the back half of the year and says that guidance is on track for 2022 with low single-digit revenue growth and increased profit margins.
- The Russia-Ukraine War has wiped out $115 million in revenue from 2021, 70% of which was earned in the second half of the year.
- Hasbro has invested in additional paper stock to meet demand for upcoming gaming releases amid higher demand and increased raw materials costs.
- Transport time and overall cost for freight is starting to decrease following the supply chain issues of the pandemic.
- Price increases continue to be enacted to counter increased raw materials costs.
- Dungeons & Dragons and Transformers are entering a big new era with reveals set to begin this week at Comic-Con International: San Diego (SDCC).
Additional information on Hasbro’s future outlook will be revealed during its investor day presentation in October.
