A Hasbro Monopoly board game arranged in Dobbs Ferry, New York on February 6, 2022.
Tiffany Hagler Gear | Bloomberg | Getty Images
Hasbro’s outlook for 2023 might feel like déjà vu. At first anyway.
The toymaker announced its fourth-quarter results on Thursday, while also issuing conservative guidance for the year that mimicked the modest expectations it had at the start of 2022.
However, Hasbro maintains some optimism, pointing to key bright spots from releases like Transformers and its growing gaming division Wizards of the Coast, which is home to Dungeons & Dragons, as well as the turnaround plan announced in October.
Shares rose about 3% on Thursday.
Hasbro forecasts full-year sales to decline in 2023, but predicts most of the pressure 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 as a percentage, missing Wall Street expectations. Analysts polled by Refinitiv were forecasting a 2.2% increase in sales.
The toy industry as a whole has felt a slowdown. Mattel had been more optimistic about 2022 than Hasbro, hoping the holiday season would boost its dive sales. But despite its confidence, the company underperformed on consumer staples sales in the fourth quarter.
Speaking to analysts, CEO Chris Cocks said he expects the slowing consumer demand that has weighed on this year’s sales to continue into the first three quarters of 2023, but hopes it will pick up in the last quarter .
Cocks also said on the call that Hasbro would look to introduce a product line priced between $20 and $30, a cheaper option to appeal to the inflation-weary consumer.
In the toy industry, “anything under $30 is doing pretty well. Everything about it is pretty bad,” UBS chief executive Arpiné Kocharyan told CNBC.
Hasbro remains hopeful that new releases, such as expansion packs for the Dungeons & Dragons and Magic: The Gathering games, will pay off and offset the decline in product sales. “There’s a lot of entertainment in Q2 that will have a nice halo effect in Q3 and Q4,” said Cocks. The company announced Thursday that Magic: The Gathering is on track to become its first billion-dollar brand.
In general, Cocks said for Wizards of the Coast, “You should expect a Q1 with a rise, a Q2 with a fall, a Q3 with a significant rise, and a Q4 with a fair rise,” based on the timing of the game’s new releases .
“Broadly speaking, this company’s outlook is driven by how strong Wizard is,” Kocharyan told CNBC, noting that the gaming segment is a boon for dips in product sales.
“For this company, a strong 2023 in terms of what makes or breaks it will be defined by how it fixes some of Nerf’s core brand portfolio,” added Kocharyan. Nerf lost some market share in the fourth quarter due to lower-priced competition.
The company, which houses brands like Peppa Pig and Play-Doh, has taken several hits recently, leading it to take a cautious approach into 2022.
Hasbro started the year by losing the Disney princess licensing battle to rival Mattel in January. It also ended other brand licenses, including trolls. Then, in February, the company adjusted to new leadership when Cocks took over from interim chief Rich Stoddart after former CEO Brian Goldner died in 2021. The pandemic disruption to its film productions also meant the delay of a key revenue stream that had helped boost product sales.
All of these factors, along with rising costs, slowing consumer demand, and exits from markets like Russia, amounted to about $300 million in sales headwinds. Cocks said he expects the majority of these headwinds to weigh on sales in the first two quarters of 2023.
Kocharyan said she has some reservations about how reliably the company can predict an upturn in the second half of 2023.
The company reported a disappointing 2022 holiday quarter, which it expected to sell off due to overstocked inventories without enough consumer demand. It grossed $1.68 billion, matching Wall Street expectations.
“As we previously announced, our results for the fourth quarter and full year 2022 fell short of our expectations,” Cocks said in the fourth-quarter earnings report released on Thursday. The toymaker shed 15% of its workforce in January to cut costs amid the sluggish performance of its consumer goods division.
This is the first full quarter since Hasbro announced its three-year turnaround plan in October. The company had announced that it would focus its priorities on its direct-to-consumer segment, licensing and entertainment. The company aims to achieve an operating profit margin of 20% by 2027.