Commentary

Hasbro's 4Q Sales Were Down But Profits, Optimism Are Up

Hasbro’s sales were disappointing for the last three months of 2017 but its profits were better than expected and it sold more product over the year than chief rival Mattel for the first time since 1993.

“Hasbro’s results, announced Wednesday, underscore the challenges toy makers face. Parents are increasingly spending more of their money for toys online at sites like Amazon, and kids are more interested in mobile devices than traditional toys,” observes the AP’s Anne D’Innocenzio in the Denver Post.

Net revenues for the Pawtucket, R.I.-based toymaker fell 2% to $1.60 billion for the quarter, including a favorable $44.3 million impact of foreign exchange. Its operating profit margin was 17.0% for the quarter and 15.6% for the year. How do you sell less but make more?

“Profit during the quarter was boosted as sales at the company’s high-margin entertainment and licensing segment, which licenses out Hasbro characters to movie studios, more than tripled to $56.8 million,” reports  Reuters’s Uday Sampath Kumar.

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Net revenues for the full-year 2017 increased 4% to $5.21 billion versus $5.02 billion in 2016, including a favorable $79.2 million impact from foreign exchange.

“Company executives said the year-over-year revenue increase was supported by vigorous performances in what the company calls its ‘franchise brands' — among them, My Little Pony, Transformers and Monopoly,” writes G. Wayne Miller for the Providence Journal.

One problem, of course, is the ongoing decline of a channel that is still responsible for 20% of toy sales in the U.S., according to Jefferies LLC analyst Stephanie Wissink, as D’Innocenzio reports.

“Hasbro warned last October of weak holiday sales due to the Toys R Us filing, but the brand is confident it can overcome any headwinds by mid-2018 — especially in the wake of Toys R Us's announcement that it will shutter roughly 180 stores,” writes CNBC.com's Sarah Whitten

“‘We estimate less than half the stores in their announced closures directly affect our initial plans, but we also expect Toys R Us to streamline inventory at remaining stores,’ Goldner said during an earnings conference call Wednesday. ‘Much of this impact will be felt in the first two quarters of the year. We anticipate during 2018 that we will right-size our business with Toys R Us.’”

Meanwhile, the competition online gets increasingly stronger.

“As YouTube and Amazon have upended the business of selling toys, allowing independent products such as fidget spinners to usurp traditional big-budget rollouts, Hasbro has looked to shield itself through tie-ups with Hollywood films. In 2015, Hasbro began to develop Disney’s Princess dolls, snatching the business from Mattel, which had owned the licensing rights for two decades,” write Anna Nicolaou and Mamta Badkar for Financial Times.

“Analysts say the company’s growth has been pinned to its evolution from toy to entertainment company, helping Hasbro succeed as Mattel has stumbled,” Nicolaou and Badkar observe. “However, the latest results raise some questions about how much it can rely on this strategy. Hasbro’s sales in the quarter were weighed by a drop in partner brands including Star Wars and Disney’s Frozen.

“Hasbro has held the master licensing agreement for making of Star Wars toys for many years, In the fourth quarter, sales in its partner-brands segment, of which Star Wars toys are a part, fell 21%,” report Paul Ziobro and Cara Lombardo for the Wall Street Journal.

“Goldner noted that the intergalactic series’ return in 2015 came amid pent-up demand, and with a long window ahead of the movie’s release to sell toys. The latest installment, ‘The Last Jedi,’ hit U.S. theaters toward the end of the quarter, on Dec. 15, and toys sales didn’t pick up until then,” Ziobro and Lombardo write.

“He dismissed suggestions that fans are tiring of Star Wars products and said the property should provide a large and stable source of annual revenue. ‘I don’t see it as Star Wars fatigue,’ Goldner said. ‘I feel like there’s great vitality in Star Wars.’”

Lest you have any doubt that Hasbro knows its customers, consider this opening from NPR's “Morning Edition” Monday: 

“Good morning. I'm Rachel Martin. And seriously, what is the world coming to? I raise this question because Hasbro has announced a new version of Monopoly for cheaters. Apparently, so many people cheat at Monopoly, they just decided to make a version of the game where you get rewarded for doing bad stuff, like moving another player's token or stealing money from the bank, and bonus points if you don't get caught.”

Truly a game for our times.

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