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Key takeaways
- Hasbro has doubled down on its Magic card game, upsetting many fans.
- Both net revenue and earnings are down year-over-year.
- To help ease higher inventory levels, the toymaker is planning multiple promotions during the holiday season.
Hasbro has been a household name in the toy industry for decades, successfully shifting strategies over the years as new trends in toys develop. However, the stock has recently been up against some headwinds due to the company’s strategy and the economy’s overall weakness.
Here is what investors need to know moving forward.
Hasbro in the news
Shares of Hasbro lost significant value after it reported a steep drop in earnings for the third quarter, reaching their lowest level since 2015.
The company released its revenue and earnings statement on October 18, 2022, but that was only the beginning of its troubles. A decision to print more Magic: The Gathering cards put it at risk of destroying the brand.
The stock saw a high of $82.47 in September 2022, about a month before Hasbro released its earnings statement. However, the decline in the stock price had already begun as it became apparent that inflation was eating into retailers’ profits.
In addition, anticipation that the upcoming holiday season wouldn’t bring about the annual surge in revenues also impacted stock prices.
Hasbro’s stock price closed at $65.76 on October 18, 2022. One month later, on November 18, 2022, the stock was trading at $59.52. The stock price has seen a couple of spikes but has a definite downward trend.
On November 14, 2022, Bank of America’s
The increase in production caused retailers to pull back on orders while small game stores were losing money on their inventory. Card collectors also flooded the market by selling their cards before they lost too much value.
Hasbro’s decision to print more cards has resulted in a temporary increase in revenue for the company, but it has alienated both distributors and the player base that relied on card scarcity to drive sales and value.
Many Twitch streamers held regular pack opening sessions in search of rare or highly desirable cards. The secondary market drives initial sales of the card, and Hasbro effectively diluted the secondary market, made it more difficult for players to keep up with the new cards, and caused them to go back to older rules to play the game.
The card game is in a segment that makes up about 34% of Hasbro’s sales, but this revenue stream is in jeopardy as retailers and buyers pull back on their purchases. National retailers are holding onto their Magic inventory for longer and not ordering as frequently.
Meanwhile, analysts found that even though growth for the game has come in the form of existing players buying more sets, the user base has not kept up.
Hasbro Income Statement review
The net revenues for Hasbro totaled $1.6 billion for the third quarter of the 2022 fiscal year, down from $1.9 billion for the same period last year. It reported an operating profit of $194.3 million, down from $367.9 million year-over-year.
Its net earnings totaled $129.2 million, down from $253.2 million the previous year. The net earnings per common share were $0.93 basic and diluted, and it declared $0.70 in cash dividends.
Net cash from operating activities was $262.2 million, down from $685.6 million for the same period in the previous year. It reported a loss of $265.8 million due to investing activities versus a gain of $277.5 million during the previous year’s third quarter.
Hasbro Balance Sheet review
Hasbro had $551.6 million in cash at the end of the period, down from $1.1 billion in 2021. It has $1.1 billion in accounts receivables, $844.5 million in inventory, and $5.9 billion in other assets for a total of $9.6 billion in assets.
The company reported $10.2 billion in assets for the same quarter in 2021.
It has liabilities of $122.3 million in short-term borrowings, up from $0.9 million in 2021. Hasbro reduced its long-term debt to $122.6 million from $187.6 million in 2021 and has total current liabilities of $2.3 billion.
Holiday season outlook
The holiday season is not looking good for Hasbro since consumers are buying less of everything due to inflation’s impact on their daily purchases and fears of a recession.
This has left consumers with less discretionary income. If they saved up to buy Christmas presents, these savings are likely to buy less in the way of toys than in previous years.
Unfortunately, this increases the odds that more inventory will remain unsold as parents cannot buy as much as they’d like. Hasbro intends to increase the number of promotions it offers to help sell merchandise, but it may not be enough to overcome these obstacles.
Longer term outlook
Hasbro is looking to increase the number of promotions it offers over the next year to move merchandise and boost sales. This could be an issue, especially if they need to mark down merchandise drastically.
This means that even though inventory levels will be reduced, revenue will be lower due to the lower sales volume.
Hasbro also states that the demand for entertainment has increased in importance and will play a key role in profitability over the next few quarters. The company noted that Amazon‘s
It’s also seeing ongoing growth in its Peppa Pig and My Little Pony properties. Furthermore, it is releasing toys in conjunction with Marvel Studios’ Black Panther: Wakanda Forever property.
The bottom line
The outlook for the toymaker is uncertain as it seems to be making rash decisions with its Magic: The Gathering game and relying on promotions as well as discounts to move inventory.
This suggests that Hasbro is focused on keeping prices higher and restricting the number of products that can be sold in a given period. Pairing this with the fact that analysts are marking the stock as a hold or sell signals an uncertain period for the toymaker for the next few quarters.
Parents will always buy toys for their children. However, they aren’t willing to go broke, which is something Hasbro doesn’t seem to recognize.
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Source: https://www.forbes.com/sites/qai/2022/11/23/hasbro-stock-revenue-and-profit-trends-at-the-toy-making-giant/