Hasbro Had A Great Spring, But Headwinds Could Hurt Holiday Sales
Hasbro’s Chairman and CEO, Brian Goldner, said that while the company faces “meaningful” supply chain and cost pressures, he is confident Hasbro will close out the year with double-digit revenue growth, and that the “holidays should be very good” due to new entertainment releases and toy launches.
But the playing field will be significantly rougher than previous holiday seasons.
Ocean freight shipping costs are expected to be four times higher than last year, as manufacturers in all industries vie for shipping containers, according to Deborah Thomas, Hasbro’s chief financial officer. That may hurt gross margins, but price increases Hasbro is instituting should ease the pressure on margins, Thomas said.
Analysts on a call with Goldner following the earnings release also questioned whether a return to in-person schooling would derail the strong sales the toy industry enjoyed while children were stuck at home.
For the moment, however, Hasbro is basking in the kind of results it called a sign it has returned to growth in key areas of its business.
Second quarter revenues soared by 54% to $1.32 billion, beating expectations for $1.17 billion in sales. Adjusted net earnings were $1.05 per diluted share, versus expectations of 47 cents per share.
Hasbro shares rose by more than 6% in pre-market trading in advance of the earnings release. The stock was up over 10% after the market opened, trading at 52-week high levels, with shares at $103 mid-morning.
Hasbro is reaping the rewards of a restructuring designed to better leverage its entertainment division to drive profits, and sales of toys related to entertainment properties.
It is also benefiting from a spike in sales across the entire industry. Research firm The NPD Group reports that U.S. toy sales jumped 27% during the first four months of this year.
One of the biggest winners for Hasbro during the quarter was its Wizards of the Coast and Digital Gaming division, which saw revenues more than double, to $406 million, driven by the Magic: The Gathering, and Dungeons and Dragons properties. Demand for Magic: The Gathering products was at record levels during the quarter, Goldner said.
Goldner and Thomas told investors that Hasbro has established price increases that are set to take effect during the third quarter and will address the expected production and shipping cost increases. They would not specify what the average price increase for their toys and games would be, but in response to an analyst’s question said that it would be less than 10%.
Goldner and Thomas said Hasbro’s size and industry clout will help it navigate the shipping and supply chain challenges of the second half of the year. Hasbro, they said, has lined up additional freight operators, is sourcing from more countries, and is working with retailers to get inventory stocked well in advance of the holiday rush.