In many ways, the embattled life journey and ongoing evolution of G.I. Joe is symbolic of Hasbro’s own fight against the forces of evil.
Where the 80-year-old iconic military character has blossomed from comic book hero to plastic action figure to multimedia star of film and gaming in the new millennium, the Rhode Island-based toy and gaming company is two quarters into its own strategic transformation and is knee-deep in combat on several fronts.
Whereas Joe has squared off against a string of foreign enemies that changed from generation to generation, Hasbro’s second-quarter results reflect a company that it is involved in three major fights at once, namely, supply chain challenges, the growing impacts of a strong U.S. dollar and the ongoing shift to digital that’s changed how consumers play, shop and so much more.
“While the [strategic] review is still in process, it’s already clear we’re an organization with a bright future led by an unmatched brand portfolio that spans fans of all ages in an industry-leading gaming business,” Hasbro CEO Chris Cocks told investors on the Tuesday (July 19) earnings call, pointing to the company’s direct to consumer business and growing entertainment assets and digital creations as bright spots.
“We see big opportunities to scale our franchise brands,” Cocks added, noting that for the three months ended June 26, Hasbro’s digital unit — Wizards of the Coast — delivered its biggest quarter ever, exceeding the prior high-water mark set a year ago via 15% growth in tabletop gaming and 11% growth in Magic: The Gathering, which includes the Dungeons & Dragons tabletop and video games.
Holiday Preload
Like all multinational businesses, Hasbro is deeply exposed to the ongoing supply chain and logistics challenges that are putting cost and time pressures on retailers and manufacturers everywhere.
To that point, Hasbro CFO Deborah Thomas told investors that the company had taken significant steps in the first half of the year to secure inventory and ensure product availability for upcoming product launches, entertainment releases and the holiday season.
“We’re much better positioned to meet demand this year versus last year,” Thomas said, pointing to the out-of-stock problem that plagued the entire holiday season in 2021. “This action has resulted in higher than typical inventory levels at Hasbro for this time of the year,” she added. “So, we are well positioned this year on inventory, whereas last year we were short, and retailers were short,” Thomas said on the call.
While Thomas noted that product and freight costs were still up, she said Hasbro was beginning to see a reduction in port congestion delays, adding that while the long ordering lead-times have come down, they remain two times higher than historical levels.
That said, Thomas noted that price increases began to offer some offset on that front in the second quarter and would continue to be increasingly impactful in the third and fourth quarters.
The Growing Foreign Exchange Factor
Like G.I. Joe, the other foreign fight Hasbro is increasingly dealing with involves the strong U.S. dollar, which took a $33 million or 3% bite out of the company’s Q2 revenues, which rose just 1% instead of 4% due to currency adjustments.
“For the first time in 20 years, the euro and the U.S. dollar are now at parity and the euro is our largest international currency,” Thomas said, predicting a comparable negative impact will be present in the back half of the year as the forex headwind continues.
While the sale of Hasbro’s music business last year was reflected in an 18% decline in its entertainment segment revenues in Q2, Cocks told investors that the 2nd half and fourth quarter were set to see a heavy stream of new media launches.
“With over 200 projects in development across film, scripted and unscripted television, the E-One team is working on over 35 development projects for Hasbro brands, including content for Transformers, Magic, D&D, Peppa Pig, My Little Pony, Power Rangers and Play-Doh,” Cocks said of the Entertainment One production unit it acquired in 2019 for $3.8 billion.
In addition to receiving 7 Emmy nominations for its “Yellow Jackets” series on Showtime, Cocks said Hasbro was set to grow its TV business this quarter with the delivery of 32 half-hours of scripted programming.
“We have spoken with many of you over the past several months and have taken to heart your excitement and feedback and we remain laser focused on producing profitable growth,” Cocks concluded on the call, noting that the company’s updated vision went beyond sustainability, governance and shareholder returns.
“Simply put,” Cocks said, “our aim is to do good while we do well.”