Is it the Right Time to Play the Game?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Toy maker Hasbro (NASDAQ: HAS) affirmed the fact that no leisure product provider can enjoy good times until the overall economic conditions give reason enough to do so. Its second quarter performance was dull owing to the prevailing circumstances. Nevertheless, the company has not given in to the situation and is equipping itself to do better. Let’s understand how.
Low Demand – A Key Problem!
Affected by weak demand for products in most of its product categories, revenue plunged 11% to $811.5 million. The same was reflected in the boys, girls and games categories, where sales took hits of 16%, 13% and 8% respectively. Basically, consumers’ growing interests in smart phones, which offer a variety of games readily available, has eaten away the market share of toy makers. This has made the company restructure its games division and make plans to expand it in the coming year. Unfavorable currency translations have also impacted the company’s top line. Moreover, the second half of the year is stronger for the industry when sales are at its peak, especially because of the holiday season.
Hasbro’s quarter looked weak when compared to its arch-rival Mattel (NASDAQ: MAT), which posted stellar results last week. Its top line and bottom line grew by 14% and 20% respectively, driven largely by increases in prices and demand for its new launches. Its strategy of tying new products to highly awaited movies has been proving successful. Though we witness none of these in Hasbro, there are a host of favorable points to ponder.
A Whole Lot of Positives…
Though the top line was depressing, the bottom line brought some relief, almost flat at 33 cents per share. Its strategy of pumping up prices benefited the company, helping it to meet expectations on the bottom line. Also, cost control did what was necessary for the game manufacturer. This is appreciable since handling earnings is the most important thing for any company. Moreover, it has provided value to investors through share buybacks and the announcement of a cash dividend for the period.
The efforts of managing costs are commendable since there are peers, such as Jakks Pacific (NASDAQ: JAKK), that could not do the same in recent quarters. Jakks Pacific, though a small rival in terms of market share, posted weak results and failed to meet bottom line expectations. It also provided for a weak outlook for the year, which is in sharp contrast to what Hasbro predicted.
With three out of four categories performing poorly, Hasbro’s pre-school category was satisfying this time. It grew 6% to $103.4 million and is expected to do well in the coming quarters. This is mainly because of higher demand in the Playskool Heroes line.
Next is the entertainment and licensing division which registered growth of a whopping 59% to $43.2 million driven by the approval of television content on a global basis.
The company has revealed plans to expand globally and has indicated the launch of new products in the second half of the quarter. It has already been expanding its games into movies, which have done well overseas. In fact, there are some already in line for next year. Also awaited are a number of girls’ toys such as Baby Butterscotch and many others, which are to be released in the holiday season. Additionally, Hasbro has a “new event” coming up (to be announced in August) in partnership with LucasFilm. These initiatives are reason enough to have hopes of a bright future for the company.
A revenue drop should not be the sole reason to remove a company from your portfolio before going into the specifics. Though Hasbro has not shown great signs of overcoming economic pressures, its strategies are definitely an indication of its activeness. Moreover, it has a number of new product launches set for the coming months which will go hand in hand with plans for geographical expansion. Most importantly, there was no negative indication from the game manufacturer that might put the company’s growth in question. With Hasbro set for a bumper second semester, I believe the best time to get into the company is when it sets the holiday season on fire.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro and Mattel. Motley Fool newsletter services recommend Hasbro and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.