Hasbro's Holiday Projections


The only people who look forward to Christmas more than kids themselves are investors who eagerly await the earnings reports for retail companies that make most of their annual revenue during the last three months of the year.  It's starting to look a lot like Christmas these days as the summer heat fades away while more and more advertisements clog up our television screens for toys and games.  The largest toy and game company in the world, Hasbro (HAS on the NASDAQ, trading for $77.78 a share) released its third-quarter sales report with a lot of good news backed up by a strong performance.  Are the numbers to be trusted for a nice Christmas bonus?

Lies, Damn Lies, and Statistics

It's hard to be unhappy with the raw data coming in from Hasbro even if all investors should remember that financial data exists by and large to serve a company's needs, rather than the other way around.  Their earnings per share jumped by $1.53, a year-over-year change of an impressive 4.8%, a small but not insignificant improvement over the Dow Jones and S+P rolling averages.  Revenue climbed by .4% to just under $1.5 billion in Hasbro's third quarter, leading to estimates of $4.36 billion in total for yearly revenue, or 1.9% growth compared to the 2014 fiscal year.  The Christmas spending splurge will power a lot of the company's estimated improvements -- Hasbro stock hasn't had a net negative Q4 since 2011 -- with most economists agreeing that this holiday season will see an increase in spending between three and four percent.  The declining unemployment rate should boost toy and game spending even though relative wages (still) haven't improved in the US.  Some companies wouldn't be happy with Hasbro's underlying stats of .4% growth per quarter, but toys need to compete with both an ultra-bullish computer and video game market when it comes time for parents to buy Christmas presents.  Given the success of Hasbro on the international market, furthermore, with about 50% of their total sales coming outside North America, the foreign exchange currencies fighting an uphill battle make the raw numbers look all the more impressive.

Rabbits and Hats

No one product coming out this holiday season will define the success of Hasbro this year quite like the new Star Wars film.  There's no brand in the industry that moves toys off of shelves quite like Star Wars and Hasbro has signed a proverbial deal with a golden goose to produce and distribute toys for the franchise.  Their launch on September 4th, "Force Friday", saw a marketing blitz picked up by producer and retailer alike.  A large part of the 3rd quarter success stems from the Star Wars angle: while it's not clear what exact percent of Hasbro's bottom line has been boosted by launch of these toys, there's no question that it's quite significant.  The film opens in theaters in mid-December, but investors need not wait to reap the benefits of the franchise for another two months.  Not only are the toys flying off the shelves, but introduction of new products and characters between now and the end of 2016 will provide ample returns for Hasbro, as well as for Star Wars' parent company Disney (DIS on the NYSE, trading for $108.23 a share). 

Movers and Shakers

There's ample success for Hasbro at all age ranges and genders, but the company has done particularly well with youngest-age boys.  Preschool-age toy products enjoyed 14% growth from Q2 to Q3, headlined by strong Play-Doh sales, while boy-themed products enjoyed a 6% growth spike while girl-themed products had no change.  The company lacks products that appeal to older-age girls, as their biggest girl-oriented product My Little Pony does the best at age ranges 5-9.  Older-age boys, by contrast, get the Nerf series of air-powered dart and foam guns.  Movie-based toys, furthermore, such as the Marvel series of superheroes and Jurassic World dinosaurs, do significantly better with boys than with girls.  While the lack of older-age girl-themed products appears to be something of a concern, the overall toy and game spending threshold for girls drops at age ten and up, as parents shift their expenses towards clothing and electronics.  Boys, by comparison, remain relatively lucrative up until their teenage years, when they too follow the trend.

Going Long

Investors have a lot to like about Hasbro's Q3 earnings report, especially as it suggests a very good performance heading into the holiday season, especially as the most-anticipated movie of the year comes out with a bevy of spending to go with it.  Come 2016, furthermore, Hasbro will almost certainly capitalize on the trend further with the release of the sequel to Frozen -- at which time their sales among older-age girls will drastically improve.

  • The Takeaway: the holiday spending season has already began in earnest and it appears to be the most lucrative spending session in the better part of a decade.  A slow-but-steady improvement to the economy in tandem with a slight bump in birth rates will make Hasbro the main beneficiary of a Christmas boom.  Nor is Hasbro a one-off investment: the toy company will continue to grow more and more through at least the next twelve months and into the 2016 holiday season as well.  Investors looking for good growth should add it to their portfolio and reap the benefits going forward.
  • There's not as many other toy companies to be optimistic about.  Mattel, chief rival to Hasbro's toy empire, has seen declining stock value for the past thirty-six months.  In fact, investors can short-sell Mattel at the same time as they invest in Hasbro due to the success of one directly affecting the success of the other.  Mattel lacks the ties to the big entertainment options, making them unlikely to turn their ship around in time for the holiday spending session.

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