Global toy and entertainment company Hasbro Inc. (NYSE: HAS) had a weak 2023 as shares fell 17.5% compared to the 24.8% gain for the S&P 500 index. It also underperformed rival Mattel Inc. (NYSE: MAT), whose Barbie movie was produced by Warner Bros. Discovery Inc. (NYSE: WBD), which had the highest box office in 2023.
As a member of the consumer discretionary sector, macroeconomic challenges leading to tighter personal spending habits were a key driver for its weakness. It prompted Hasbro to implement a cost reduction plan that will trim its workforce by 20% or 900 jobs over the next 18 to 24 months. The cost savings are expected to have an annual run-rate of $350 million to $400 million by the end of 2025. Investors wonder whether that will be enough for the company to thrive in 2024.
A leaner and meaner entertainment machine
Hasbro owns iconic franchises, including Playskool, Parker Brothers, Kenner, TSR, Wizards of the Coast, and Tiger Electronics. It has sold its eOne film and television company to focus on its core business of play. Management implemented a transformation plan that will focus on prioritizing its largest brands and growing operational efficiencies.
Hasbro suffered a 10% decline in revenues, while Mattel showed a 10% spike thanks to the Barbie movie. Check out the sector heatmap on MarketBeat.
Disappointing Q3 2023 miss
Hasbro reported Q3 2023 EPS of $1.64 per share, missing consensus analyst estimates for $1.72 by 8 cents. Revenues declined for the fifth quarter in a row, falling 10.3% YoY to $1.5 billion, falling short analyst estimates of $1.62 billion by $120 million.
Adjusted operating profit margin was 22.8%. Inventory was reduced by 27%, including a 34% decline in Consumer Products inventory. The company is on track to deliver $200 million in gross cost savings as part of its Operational Excellence initiative. The sale of its eOne Film and TV business is expected to be completed by year's end.
Segment metrics
Its Wizards of the Coast and Digital Gaming segment saw a 40% YoY revenue spike to $424 million due to the release of Baldur's Gate 3 and the success of Monopoly Go! The company collected over $63 million in incremental revenue. It generated the highest operating segment profit of $203 million.
Consumer Product revenues fell as a result of exited licenses and softer category trends. Franchise Brands rose 8% behind growth in Dungeons & Dragons, Magic: The Gathering, Hasbro Gaming and Transformers.
The Consumer Products segment sales fell 18% to $957 million, generating an operating profit of $96 million. Its entertainment segment saw revenues decline by 20%, which was attributed to industry strikes. The eOne sale is expected to close at the end of 2023.
Lowered guidance
Hasbro lowered its full-year 2023 revenue guidance to $4.97 billion to $5.09 billion, down from $5.51 billion to $4.46 billion, versus $5.5 billion consensus analyst estimates. Adjusted operating margins are expected to be between 13% and 13.5%. Adjusted EBITDA is expected to be between $900 million and $950 million.
Operating cash flow is expected to be between $500 million and $600 million, down $100 from earlier guidance.
Transformational strategy
Hasbro outlined its strategy to transform the company. It includes doubling down on a few but bigger brands like G.I. Joe, Transformers, and Furby. It seeks to enhance its gaming leaders for both tabletop and digital. The focus will be on driving new growth through direct-to-consumer (DTC) and licensing.
Operational efficiencies will be driven by cost savings, targeting a 20% adjusted operating profit margin by 2027. On Dec. 11, 2023, the company announced an additional layoff of 900 jobs for an additional $40 million in cost savings for a total annual run-rate cost savings of $350 million to $400 million by the end of 2025. Get AI-powered insights on MarketBeat.
CEO Insights
CEO Chris Cox commented, “We are taking action to address the tougher macro environment across Toys and Entertainment and are positioning the Company to return to profitable growth.
Building on the strategy we outlined a year ago, we're growing share behind our Franchise Brands in core categories, driving savings and investment capacity through operational excellence, and building new growth for the Company across games, direct to consumer and licensing.”
Hasbro analyst ratings and price targets are at MarketBeat. Hasbro peers and competitor stocks can be found with the MarketBeat stock screener.
Daily symmetrical triangle within the gap-fill channel
The daily candlestick chart for HAS illustrates how it's been chopping within the daily gap-fill channel between $49.50 and $52.93. A daily symmetrical triangle pattern forms as the trading range gets tighter, with lower highs and higher lows. The original gap channel formed on its Q3 2023 earnings release sell-off as shares gapped down from $52.93 to $49.50 and proceeded to sell off to $42.66 before staging a rally.
The daily market structure low (MSL) triggered the breakout above $46.01 as HAS nearly completed the gap fill back up to $52.93 but peaked at $52.57 on Dec. 19, 2023. The daily relative strength index (RSI) is chopping around the 60-band. Pullback support levels are at $49.50, $47.20, $46.01 and $44.39.
