Hasbro CEO Says Inflation Won’t Spoil Christmas But Wall Street Worries

New York
CNN Business

The holidays are right around the corner and for toy company Hasbro, a slowing economy could be the proverbial Grinch stealing Christmas.

Shares of Hasbro (HAS), which makes toy brands such as Play-Doh and Monopoly, are already down 40% this year. That’s more than double the decline in shares of competitor Mattel (MAT) and far worse than the 16% drop in the S&P 500 over the same period.

Then there is the fear that inflation could squeeze consumers’ budgets. One major retailer – Target (TGT) – has already noted a slowdown in overall toy sales.

That presents a challenge for Chris Cocks, who took over as CEO in February after longtime chief executive Brian Goldner passed away in October 2021. He’s optimistic Americans will still open their wallets this season.

“Consumers are definitely feeling the inflation,” Cocks said in an interview with CNN Business earlier this month. But he also noted that the labor market is healthy, wage growth is strong, and many people are still sitting on pandemic stimulus payment savings from 2020 and 2021.

With that in mind, he thinks parents will do all they can to create “a great holiday experience for the kids”.

Cocks also said pandemic-related supply chain issues that kept some toys stuck on overseas container ships or in California ports have largely diminished. It shouldn’t be like 2020 or last year, when some parents couldn’t get hot toys under the trees or in stock in time for the end of December.

“I think we’re going to see a kind of more normal holiday cadence where, you know, November, December, it’s going to really pick up speed and there’s going to be a lot of products and a lot of choice for consumers on the shelf,” he said.

Cocks previously headed Hasbro’s digital games division, which is home to the popular “Dungeons & Dragons” game, as well as the toymaker’s “Wizards of the Coast” role-playing game.

Before joining Hasbro, Cocks was an executive at Microsoft (MSFT) from 1999 to 2006 and from 2008 to 2016. He briefly left Microsoft (MSFT) for a two-year stint at interactive educational toy maker LeapFrog.

Cocks therefore understands the importance of technology for the toy industry in this increasingly digital world, especially for children who are more inclined to pick up a phone or tablet instead of a figurine, doll or of a board game.

Cocks said Hasbro invests “significantly” in digital toys, particularly digital versions of classic Hasbro board games like “Monopoly” and “Scrabble,” as well as D&D and the game “Magic: The Gathering.” society.

“We have digital experiences that help augment that core gaming experience, help you find new players, help bring the on-screen experience to life. And it’s been a fantastic addition to our portfolio,” Cocks said, adding that mobile games and desktop games can only boost the popularity of these brands.

Hasbro's Monopoly board game remains a popular holiday gift because families always want to skip Go and try to buy Boardwalk.

Cocks said the digital effort isn’t just about toy types. It’s also about selling more products online through Hasbro’s own sites so the company doesn’t rely exclusively on retail partners like Amazon (AMZN) and Walmart (WMT). Cocks said Hasbro is branching out in particular with digital sales of exclusive toys to adult collectors, a rapidly growing segment of the market.

And more is to come on the digital front, he said.

“We’ve launched more than half a dozen new studios to create successful video game experiences that extend those brands and help us as a company become what I think is a sweet spot for the future of entertainment,” Cocks said.

But the company isn’t shy about classic toys either. Hasbro has a lucrative baby and toddler toy franchise through its Playskool brand. He also owns Play-Doh, Mr. Potato Head, Nerf, My Little Pony, GI Joe, and Transformers.

Hasbro has close ties with Disney (DIS), selling toys related to the lucrative Star Wars, Marvel and Disney (DIS) Princess and Frozen brands. (Hasbro is losing the Princess and Frozen lines to Mattel next year.)

And Hasbro added more popular characters to its arsenal in 2019 with the acquisition of eOne, which brought the Peppa Pig and PJ Masks cartoon franchises into the fold.

Hasbro has since announced plans to put some of the nonessential parts of eOne up for sale, including the film and TV studio that produced the historic action flick. The female king with Viola Davis and Showtime TV show Yellow jackets.

Hasbro previously sold the Death Row music label that eOne also owned to private equity firm Blackstone, which then turned around and sold Death Row to rap star Snoop Dogg earlier this year.

Ultimately, Cocks wants Hasbro to be a toy-focused company that has entertainment assets that showcase its best brands, and doesn’t stretch itself too thin.

With that in mind, Cocks is optimistic that Peppa Pig toys, new merchandise tied to the hit Marvel movie “Black Panther: Wakanda Forever,” and the perennial winner that is Play-Doh will be big sellers this holiday season. .

Still, others in the industry are a bit more cautious.

Isaac Larian, CEO of MGA Entertainment, private owner of Bratz toys and LOL Surprise, said in an interview with CNN Business that he understands “inflation has had an effect” on consumers and that many parents may delay the purchase of toys until December. in order to wait for offers and promotions.

Larian is still confident toy sales will hold up this holiday season, but he admitted toys are a discretionary item and his company can’t aggressively raise prices due to inflation without risking lower prices. sales.

“Families are struggling with high gas prices. If we passed on large cost increases to consumers, we don’t think that would be feasible,” he said.

Cocks agrees. He told CNN Business that Hasbro is doing its best to keep costs stable and offer toys at different price points.

Still, Wall Street is worried, and it shows in the poor performance of Hasbro shares this year.

Bank of America Global Research analyst Jason Haas recently downgraded his rating on Hasbro for “underperforming,” citing concerns “that Hasbro has overproduced Magic cards, which has supported Hasbro’s recent results but destroyed the long-term value of the brand”.

Haas estimates that Magic: The Gathering accounts for approximately 15% of overall sales.

Cocks did not share these concerns and pointed out that demand for Magic and other role-playing card games continues to grow, especially among female gamers.

He also noted that Hasbro got a big boost in its Dungeons & Dragons role-playing game business thanks to significant exposure for the game during the final season of Nettflix’s “Stranger Things” (NFLX).

“We love our partnership with Netflix and Stranger Things. It’s definitely been a boon for the game,” Cocks said. “Nearly 50 years after the brand’s launch, it’s bigger than ever and in more places than ever.”

But BofA’s Haas said it was also becoming “increasingly cautious” about sales of Hasbro’s other consumer products “given negative reading from retailers.”

Target has previously warned that toy sales so far haven’t been as strong as hoped.

“We saw a significant deceleration in toys this quarter, particularly in October. This is a trend we will continue to watch closely throughout the holiday season,” said Christina Hennington, Chief Growth Officer of Target, during a call for results.

Cocks remains confident, however, that Hasbro can avoid having a blue Christmas.

“Toys have traditionally been a very resilient category economically,” he said. “If there are a few truisms in life, there is death, there are taxes and there are parents who want a good vacation for their children.”

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