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The Ratings Game: Hasbro’s holiday season was likely among ‘weakest in the North American toy industry’ amid ‘COVID hangover,’ analyst says

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Toy maker Hasbro Inc.’s holiday-season sales were likely among “the weakest in the North American toy industry,” an analyst said Wednesday, citing a lack of enthusiasm for things like Play-Doh, action figures, Nerf and My Little Pony that will put more pressure on the company’s performance this year.

That analyst, Gerrick Johnson at BMO, said a bump in toy sales during the last week of the holiday-shopping season wasn’t enough to counterbalance a “very slow” October and November for Hasbro
HAS,
+0.26%

and what were likely “minimal” shipments in December. He said the company’s cut to its outlook in October probably wasn’t enough.

“In particular, HAS is still feeling a COVID hangover in games and Play-Doh,” Johnson said in a research note Wednesday. “With most families having a fully stocked cupboard of games, especially the Hasbro classics, there was little demand for new ones.”

“Meanwhile, after two years of cleaning Play-Doh out of carpets and rugs, we think parents are done with modeling compounds for the time being,” he said.

Johnson lowered his price target on Hasbro to $66 from $74. But he kept his equivalent to a “hold” rating on the stock.

He also cut his earnings-per-share estimates on the company for 2022 and 2023 — to $4.15 from $4.50 for 2022, and $4.85 from $5.05 for this year. Shares of Hasbro finished the day 0.3% higher.

Johnson’s comments were made as Hasbro, Mattel Inc.
MAT,
+2.85%

and retailers gear up to report fourth-quarter earnings, as Wall Street will be focused on consumers’ enthusiasm for holiday shopping after higher prices forced them to cover spending on basics. In the process, retailers last year cut prices to clean out inventories of unwanted toys, clothing and appliances. However, few store chains are planning for a recession this year, analysts say.

Johnson said Hasbro’s action-figure offerings — from Transformers, Star Wars, G.I. Joe and Marvel — appeared “tired,” and said demand for Black Panther toys had slowed after a strong start. However, he said that “A strong movie slate for 2023 should help HAS and the figures business next year.”

Also “tired” was Hasbro’s Nerf category, where blasters and other items ran at a heavy discount at Target Corp.
TGT,
+0.65%
,
he said. Baby Alive toys, Johnson said, were being sold at a markdown for much of the season. He said there was “no meaningful growth” in My Little Pony toys.

“Magic: The Gathering,” the fantasy trading-card game that Hasbro owns, also appeared “saturated,” Johnson said. He added that “we also fear the softening adult collector market adversely impacted sales of collectible extensions like Secret Lair. This puts added pressure on HAS for a successful Dungeons & Dragons movie release and related toy line extension.”

BofA analysts in November said that Hasbro had made too many “Magic” cards, causing card prices to drop and damaging the brand overall.

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