Will Hasbro Recover?

As families deal with increased costs for staples like food and fuel, spending on discretionary items like toys has softened.

This negative trend persisted into last year, and was made worse by retailers reducing prices to offload excess inventory from the year prior. Hasbro, Inc. (NASDAQ:HAS) was not immune from the industry headwinds.

The figures for the toy maker indicate troubling times with sales falling notably in Q4 of FY 2023 and for the entire year when compared to the prior year. The top line fell by 23% to reach $1.28 billion in Q4 and for the full-year declined by 15% to slightly over $5 billion.

The results fell short of expectations, and even the adjusted earnings of $0.38 per share did not match analysts predictions.

Excess inventory was cited as a prime culprit by management but with that issue now digested will Hasbro share price bounce back?

Is Hasbro Poised for a Turnaround?

Although last year was bumpy for shareholders, Hasbro continues to stick with its long-term rejuvenation plan. CEO Chris Cocks pointed out that turnarounds need time, and in the world of toy business, Hasbro is still in its early innings.

Over the past year, Hasbro made a key shift to “refocus on play.” This included selling off its eOne unit for making entertainment and concentrating more on its best money-making core brands. The goal is to simplify operations and put into effect cost reduction measures, which resulted in the layoff of 1,000 workers.

The key idea for Hasbro’s recovery plan is “fewer, bigger, better.” This means that the company aims to lessen the number of product versions (SKUs) and focus on those that have more impact. It also wants to invest more into successful brands and product categories.

Some successes have already been evident. For example, the company has seen triumphs such as the revival of well-known brands like G.I. Joe and ongoing efforts to promote the Transformers franchise.

As part of the pivot, Hasbro has formed high-profit partnerships to leverage its intellectual property assets.

Some examples include making products like Monopoly Go alongside game publisher Scopely. This game has made over $2 billion in total income and been downloaded more than 150 million times, setting a record as the fastest-growing mobile game.

Management also recently revealed a new global partnership with Playmates Toys for the production and distribution of Power Rangers products worldwide. As part of this agreement, Playmates intends to launch its first-ever toy line for Power Rangers in 2025.

Playmates might possess licensing rights, but Hasbro keeps entertainment rights and plans to boost the brand through its direct-to-consumer channels as well as involvement in San Diego Comic-Con and other industry events.

What Do the Numbers Reveal?

In the first three months of 2024, Hasbro has reported substantial progress in its turnaround attempts.

Gina Goetter, the Chief Financial Officer at Hasbro, emphasized the gains made by saying, “We made solid progress in our turnaround efforts during the first quarter.”

The maker of Nerf toy guns had a decrease in quarterly revenue by 24.3%, making $757.30 million, which was below analysts’ estimates of $740.90 million but adjusted operating profit rose substantially to $148.6 million, a substantial year-over-year increase of 214.8%.

Earnings before income taxes came in at $81 million, compared to a loss of $21 million in the prior year’s period. and management reported a significant increase in adjusted EBITDA, which grew by 75.1% year-over-year to $172.80 million.

Net earnings attributable to Hasbro also saw a remarkable turnaround, reaching $58.20 million, along with net earnings per share of $0.42. This contrasted sharply with the prior year’s period, which incurred a net loss and loss per share of $22.10 million and $0.16, respectively.

Also, the company saw a strong increase in cash coming from its operating activities, rising by 100.2% from last year to $177.80 million.

On March 31, 2024, Hasbro had $570.20 million worth of cash and cash equivalents, again a big increase from the $386.20 million it reported on April 2, 2023.

Combined, these results highlight that Hasbro is making good strides as part of its financial turnaround and the path to steady growth is looking positive.

Hasbro KPIs

Hasbro is doing better than industry standards across several important measures. It has a trailing-12-month gross profit margin of 50.21%, which is higher than the industry average by 36.5%.

Similarly, Hasbro’s trailing-12-month EBITDA margin is 14.14%, which exceeds the industry average by 27.8%. Additionally, the trailing-12-month levered free cash flow margin is at 20.10%, which is much better than the industry’s average by a factor of over 3x.

Also, Hasbro’s cash from operations over the past year of $814.60 million is much more, outdoing the sector average by 190%. 

Will Hasbro Stock Recover?

Hasbro’s focus on fewer SKUs and investing more in iconic brands is already yielding results and should support a stock recovery long-term.

Hasbro’s shift to “Refocusing on Play,” along with its “Fewer, Bigger, Better” principles seem to be working well if the first quarter results are the start of a trend.

Hasbro is using a franchise-first mindset to get maximum value from its brands through licensing, especially in Digital and Consumer Products. At the same time, it is investing more heavily in innovation across toys and games to serve a wide variety of age groups and play styles.

Also, Hasbro appears committed to lowering its cost footprint by enhancing the supply chain and product design for every brand. This design-to-value tactic has produced considerable savings already.

The market has voted its approval of Hasbro’s performance with the company’s share price rising by more than 26% over the past 6 months.

Analysts foresee additional growth for Hasbro this year with EPS set to rise by 42.6% year over year to $3.58 for the fiscal year ending December 2024.

The company has also paid $97.2 million in cash dividends during the first quarter and the payout per share for the year is forecast to be $2.80. The company’s current annual dividend rate is $2.80 which results in an average yield per year of 4.69%. Over the past four years, the average annual dividend yield has been 3.84%.

Looking at the company through a valuation lens, 13 analysts have a price target of $72.54 per share on the stock, which would represent 25.5% upside opportunity.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.