What Strong Consumer: Hasbro Lays Off 20% Of Company On Plunging Toy Sales
There is the myth that the US consumer is strong (strip away inflation and you are at pre 2019-levels)...
... that holiday spending was stellar (online was indeed a record, foot-traffic however which is the bulk of retail sales declined again), and that spending - despite continued economic headwinds and record prices - is strong.
And then there is the reality that parents can no longer afford to buy presents for what is (or should be) most precious to them: their children. Take the news just out of the WSJ that toymaking giant Hasbro is laying off 1,100 workers, with CEO Chris Cocks citing weak toy sales and games that persisted into the critical holiday shopping period.
The layoffs, which account for nearly 20% of Hasbro's workforce, were noted in a Monday memo Cocks sent to employees, which was viewed by the Wall Street Journal. The slump in sales came after sales hit "historic, pandemic-driven highs" melted into holiday season challenges which are expected to continue into next year.
"The market headwinds we anticipated have proven to be stronger and more persistent than planned," reads the memo. "While we’re confident in the future of Hasbro, the current environment demands that we do more."
The cuts will be completed in the next 18-24 months.
Shares for Hasbro and Mattel fell 4% and 3%, respectively, in after-hours trading. Hasbro shares are down 20% this year, while Mattel stock is up 5.4%.
The announcement, just two weeks before Christmas, comes as toy companies enter their busiest time of the year. About half of toy companies’ yearly sales come in the weeks leading up to the holiday, according to analysts, making the period a make-or-break stretch for manufacturers. -WSJ
According to the report, Hasbro warned in October that they expected to see a 15% slump in sales this year, after previously forecasting a 3% to 5% decline. This came on the heels of posting its fourth-consecutive quarterly loss thanks to a 10% drop in Q3 sales.
Notable Hasbro brands include; Power Rangers, PJ Masks, GI Joe, Monopoly, Play-Doh, and Transformers.
Outlier Barbie
Mattel, maker of Barbie, had an understandably awesome Q3 thanks to the runaway success of the "Barbie" movie. The California-based toymaker which also owns the Hot Wheels brand and Polly Pocket toys expects 2023 sales to be flat vs. 2022, bucking forecasts for an industry-wide decline which has toymakers scrambling to manage bloated toy inventories and softer demand thanks to inflation.
Sales of Barbie toys surged in the third quarter after the Barbie movie roped in over $1.4 billion worldwide at cinemas, according to Box Office Mojo.
Hasbro unveiled over a year ago that it planned to cut costs across its business to grow its profit. An earlier round of layoffs and the departure of operating chief Eric Nyman followed shortly after. -WSJ
In August, Hasbro said it would sell its eOne film and entertainment wing to Lions Gate entertainment for around $500 million.
The layoffs are expected to save around $100 million in annual costs, while the company said it expects to incur $40 million in severance-related expenses. Hasbro also has plans to vacate its Providence, RI office at the end of January 2025 when its lease is up. Employees from that location will be transferred to the company's nearby Pawtucket RI headquarters.
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Finally, going back to the topic of just how healthy is the US consumer, he are sharing the following snapshot from Goldman's consumer specialist, Scott Feiler laying out what he views as a "slight sentiment change."
Quick Take: Most of my conversations with consumer specialists from the last 6 weeks have been from those more optimistic on the group (top-line in November and strong margins), with that view having been rewarded. However, there were the hints at a slight change this week, with a lot of inbounds asking if the trade will run out of steam, with trends post Black Friday likely to ease again (WOOF hinted trends have resumed to pre-holiday levels after a brief surge), valuations now at more normal levels (after having been cheap) and a view the next couple weeks of data could show more of a temporary lull.
Feiler notes that the bank's Prime Brokerage echo this more guarded tone when approaching the market, with 5th straight week of selling. However, consumer discretionary flows do not back up the more guarded tone from my inbounds, with the sector leading the buying at GS for the 2nd straight week.
A few quick points from the Goldman trader:
Is the consumer still fine? It seems like the answer is yes, as we heard from many corporates at the GS Fins conference this week. Some highlights about low-income underperformance, but the overall tone was quite strong.
However, there does seem like there could be interest in taking chips off the table. Mixed commentary as we moved past the peak “optimistic” data points from the start of the holiday season and those who were out of consensus positive are finally beginning to question if the trade slows from here. Trading and PB flows no not reflect that though.
While cyclicals continue to move to fresh positioning lows, consumer has seen a real uptick in buying (exhibit 1).
Single stocks were net sold on the GS PB book for a 5th straight week, with single stock short flow increasing for a record 17th week in a row. While this was led by cyclicals, this was Energy and Fins stocks, not consumer discretionary, which saw the largest buying of any sub-sector for a 2nd straight week (Exhibit 2).
More available to pro subs in the usual place.
