Market Overview

Hasbro's Game the Closest it will get to a Monopoly

On Monday, toymaker Hasbro (NASDAQ: HAS) announced that its fourth-quarter profit had slipped 1 percent. Granted, that is not the biggest slide that this economy has seen, but it is still a situation better avoided.

The dip is due to softer-than-expected demand in the U.S. and Canada and, according to the Washington Post, “slow sales of games and puzzles during the key holiday selling season. Revenue rose 4 percent to $1.33 billion.”

Hasbro, which owns classic board games like Monopoly, Life and Scrabble, saw light sales on board games during the holiday season, as video games controlled the market.

Goldman Sachs said in its Monday research report that Hasbro's miss with the 4Q11 is worse than expected, saying that it had talked down its prior 2012 guidance, now saying it will grow revenues and EPS only on a forex-neutral basis.

“The Games division was down -11%, on top of last year's -22% 4Q decline.,” Goldman said in the report. “We see this as the primary incremental negative news as it lends credence to the bear case of a secular decline in this division. Elsewhere in the core, Girls came in at -16% and Preschool was +15% (though the division was likely negative on an underlying basis ex-Sesame Street). The lone bright spot was Boys at +29%, though this growth rate will be hard to maintain in 2012 as it was largely driven by Transformers. On a regional basis, organic sales declined -2% domestically in 4Q despite the Transformers lift. International organic sales growth was a robust +10%.”

In a conference call on Monday, Hasbro President and CEO Brian Goldner said that 2011 saw HAS continue to develop and execute its branded-play strategy and invest in creating new teams that deploy its brands around the world and in new, immersive experiences through entertainment, digital media and licensing.

“While these investments enabled us to deliver very strong growth in our international business during 2011 and overall solid revenue growth for the fourth quarter and full year, we did not meet our expectations for growth in the US and Canada, including in the Games and Puzzle business,” said Goldner. “When we look to our success in both mature and emerging markets internationally, we know and you can see that our innovation, marketing, and brands are very successful.”

He also talked numbers, saying that, “Revenue grew 7% reaching $4.29 billion for the year, ahead of our 5% compound annual growth rate target for revenue. As a result of our expanded global footprint, marketing, and brand innovation, the International segment grew 19%, or 16% without the benefit of the foreign exchange impact. Revenue grew in every major territory internationally in both mature and emerging markets and we gained share in nine of the 10 countries for which we have third-party data.”

Speaking of future plans, the CEO said, “We have a new team with a lot of talent from outside the traditional board game arena. We have invested in this team, establishing the new Gaming Center of Excellence, and they are innovating, creating new technologies, and inventing new brands. We continue to believe that through a combination of face-to-face, off-the-board, and digital gaming there is an opportunity to grow our gaming business. We had a good foundation upon which to build as Hasbro has eight of the top 10 game brands in the US last year. At Toy Fair we will unveil a number of new gaming initiatives which we are excited about and set the stage for the types of innovations we seek to bring to the market go-forward.”

Addressing the slide, Goldner said, “The decline in operating profit margin is primarily the result of lower revenues in the year, product mix, and at the impact from the sale of closeout inventory. In the International segment, net revenues for the full-year 2011 increased 19% to $1.86 billion versus $1.56 billion in 2010. As for the positive foreign exchange impact of $59.3 million, net revenues in the International segment grew 16%. The results in this segment reflect growth in all major geographic regions, including mature and emerging markets in Europe, Latin America, and Mexico, as well as Asia Pacific.”

Citi is not convinced, saying in its Monday report that, “In 2011, the company did not meet its expectations for growth in the U.S./Canada given weaker than expected demand particularly post- Thanksgiving. Also, the Games & Puzzles category remained challenging this holiday. In 2012, the co continues to expect sales and EPS growth excluding FX.”

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