Hasbro Sees Increasing Consumer Price Sensitivity and Reliance on Promotion

For a business that’s been selling toys and games for 99 years, Rhode Island-based Hasbro — which now calls itself a “branded entertainment” company — is feeling the pinch of a mix of external pressures not seen in decades.

While CEO Chris Cocks said the company expected Q3 would be its most challenging quarter, Hasbro’s 15% revenue decline saw retraction in all three of its now diversified business units, a reality that has positioned the brand to end the year — and its most important quarter — with flat sales.

“We've seen the average consumer become increasingly price sensitive as the year has progressed,” Cocks told investors on the company’s third-quarter earnings call Tuesday morning (Oct. 18). “Promotions and entertainment field demand have become increasingly important and will be key in the quarters ahead,” he added, before pointing to mid-double-digit sales volume

Increases during Prime Day last week as an indication that demand is still there for toys and games.

Not a Monopoly

While Hasbro may own the Monopoly brand, its real-life experience is anything but monopolistic, as reflected in the 10% decline of its consumer products business, which is its largest unit and accounts for 70% of total revenue. This, as retailers placed orders for seasonal stalwarts like Playskool, Tonka and Nerf earlier than usual in the second quarter on concerns that supply chain challenges and shipping challenges might leave them short for the holidays.

At the same time, Hasbro’s normally fast-growing Wizards of the Coast and Digital Gaming unit posted a 16% drop in sales for the three months ended Sept. 25, as higher product costs, royalty expenses and digital development investment weighed on results. 

But it was Hasbro’s smallest but newly formed Entertainment segment that posted the sharpest retreat of all, as its 35% decline in revenue reflected the choppiness of media releases and the absence of the year ago “My Little Pony” film which carried the category in Q3 2021.

Despite all the headwinds and challenges, Cocks told investors that Entertainment was on the cusp of a big quarter.

“We have a strong line up of new products in Q4 and into next year, with 7 new blockbuster films and 20+ streaming and TV shows that we are merchandising against starting with November’s Marvel Studios' Black Panther: Wakanda Forever and our Transformers: EarthSpark,” he said.

Focus and Strategy

While the company’s official Q4 outlook for “approximately flat” sales was unchanged from what it told analysts two weeks ago at its investor day event, the company shed fresh light on its strategic plans to accelerate growth and improved profitability via a focus on “fewer bigger brands with billion dollar potential” as well as high-profit digital games and continued reliance on its robust licensing and partner businesses to drive the turnaround.

While promising improvement going forward, Cocks made no attempt to defend the results of the past, or the fact that Hasbro’s stock has lost a third of its value this year.

“This management team isn't satisfied with our performance in Q3,” he said.

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