Hasbro Earnings: Profit Improvement Set to Ensue as Shipments Return to Normal Cadence in Late 2023

Weak holiday sales led to soft expectations for toy companies in the first quarter, but narrow-moat Hasbro was able to best a depressed outlook. First-quarter sales of $1 billion fell 14%, ahead of our 20% forecast decline. The outperformance stemmed from strong sales in the Wizards of the Coast and digital segment, which grew 12% thanks to a 16% increase in Magic: The Gathering and 13% tick up in Dungeons & Dragons. Like at narrow-moat peer Mattel, Hasbro’s consumer products sales struggled, with net revenue declining 23% (to $520 million) as retailers clear excess holiday inventory. Although entertainment segment sales fell 19%, we attribute some of the contraction to the timing of releases but fail to fret over category performance given the ongoing sale of the line, which we expect to conclude in short order. While the firm’s operating margin was depressed at 4% during the period, we are confident Hasbro will be able to better leverage fixed costs as sales rise over the rest of 2023.