HasbroThe outlook for 2023 could look like deja vu. In the beginning, anyway.
The toymaker announced its fourth-quarter results on Thursday while issuing a cautious outlook for the year, mimicking the modest expectations it had as it entered 2022.
Hasbro remains optimistic, however, pointing to major positives from releases such as Transformers and its growing Wizards of the Coast games division, home to Dungeons & Dragons, as well as the turnaround plan announced in October.
Shares rose about 3% on Thursday.
Hasbro forecast full-year revenue to decline in 2023, but projected the majority of the squeeze will be felt in the first half of the year. Hasbro said it expects revenue for the year to decline in the low single digits, on a percentage basis, which fell short of Wall Street expectations. Analysts polled by Refinitiv were forecasting a 2.2% revenue increase.
The toy industry as a whole has felt a downturn. Mattel was more optimistic than Hasbro heading into 2022 and had hoped the holiday season would boost its declining sales. But despite its confidence, the company underperformed in consumer products sales for its fourth quarter.
CEO Chris Cocks said on a call with analysts that he expects the slowdown in consumer demand that has weighed on sales this year to continue through the first three quarters of 2023, but he hopes it will subside in the last quarter.
Cocks also said on the call that Hasbro would be looking to introduce a line of products priced between $20 and $30, a cheaper option to help target the inflation-weary consumer.
In the toy industry, “anything below $30 works pretty well. Anything above works pretty badly,” UBS chief executive Arpiné Kocharyan told CNBC.
Hasbro remains hopeful that new releases such as expansion packs for Dungeons & Dragons and Magic: The Gathering Games will pay off and offset lower product sales. “There’s a lot of entertainment coming in the second quarter that will have a nice halo effect in the third and fourth quarters,” Cocks said. The company announced Thursday that Magic: The Gathering is on track to become its first billion-dollar brand.
In general, for Wizards of the Coast, Cocks said, “You should expect Q1 up, Q2 down, Q3 up significantly, and Q4 up,” which is based on the release schedule. Game.
“Overall, the outlook for this business will be determined by the strength of Wizard,” Kocharyan told CNBC, noting the gaming segment was a boon to product sales declines.
“For this company, in terms of what makes it or breaks it, a strong 2023 will be determined by how it fixes part of the core brand portfolio led by Nerf,” Kocharyan added. Nerf lost market share in the fourth quarter due to low-cost competition.
The company, home to brands like Peppa Pig and Play-Doh, has taken several hits lately, leading it to proceed with caution through 2022.
Hasbro started the year losing the battle for Disney princess licensing rights to its rival Mattel in January. He also left other brand licenses, including Trolls. Then, in February, the company adjusted to new leadership with Cocks taking over from interim chief Rich Stoddart following the death of former CEO Brian Goldner in 2021. The pandemic disruption to its film productions also meant delaying a key source of revenue that had contributed to the decline in product sales. .
All of these factors, along with rising costs, slowing consumer demand and exit from markets like Russia, accounted for approximately $300 million in adverse revenue. Cocks said he expects the majority of these headwinds to weigh on revenue in the first two quarters of 2023.
Kocharyan said she has reservations about the company’s ability to reliably predict a recovery in the second half of 2023.
The company announced a disappointing holiday quarter for 2022, which it had anticipated due to oversized inventory without sufficient consumer demand to sell it. It posted $1.68 billion in revenue, in line with Wall Street expectations.
“As we previously announced, our fourth quarter and full year 2022 results are below our expectations,” Cocks said in the fourth quarter earnings release released Thursday. The toymaker cut 15% of its workforce in January in a bid to cut costs amid poor performance in its consumer products division.
This is the first full quarter since Hasbro announced its three-year turnaround plan in October. The company had said it would focus its priorities on its direct-to-consumer segment, licensing and entertainment. The company has set a goal of securing an operating profit margin of 20% by 2027.
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