By Gary Symons
TLL Editor in Chief
US toy and entertainment company Hasbro announced Jan. 26 that it would be restructuring, laying off 15% of its workforce.
The news rocked Wall Street analysts, as Hasbro shares dropped sharply in overnight trading after the late day announcement Thursday, and continued its fall on Friday.
Hasbro primarily blamed the decline in consumer spending for the move, pointing to disappointing results over the holiday season.
The layoffs will impact roughly 1,000 workers at Hasbro, with the company saying cost reductions will put it on track to meet its long-term cost saving goals.
“Despite strong growth in Wizards of the Coast and Digital Gaming, Hasbro Pulse, and our licensing business, our Consumer Products business underperformed in the fourth quarter against the backdrop of a challenging holiday consumer environment,” said CEO Chris Cocks. “We are focused on implementing transformational changes aimed at substantially reducing costs and increasing our growth rates and profitability.”
Hasbro says the staffing reductions will start to take effect within the next several weeks, and described the move essentially as short-term pain for long-term gain. Combined with ongoing investments in systems and supply chain improvements, Hasbro says the company is on track to achieve its goal of $250-300M in annual run-rate cost savings by year-end 2025, “to drive profitability and reinvestment in core brand growth.”
That said, the company’s preliminary financial results for Q4 painted an ugly picture for Hasbro among investors, resulting in a steep two-day drop in share value.
The company revealed fourth quarter revenue of $1.68 billion, which is down 17% year-over-year from the same quarter last year, or 14% in constant currency.
Coincidentally, the retail research firm NPD Group also revealed its analysis of toy sales in the US and Canada, putting some of the Hasbro results into perspective, particularly in the Consumer Products category.
The NPD Group says sales in the US were pretty much flat at $29.2 billion in 2022, a decrease of 0.2% or $49 million. However, NPD also pointed out that while sales remained flat this past year, the overall market saw extremely strong growth over the past three years, with 17% growth in 2020 and 14% growth in 2021.
The earnings results also point to specific strengths and weaknesses at Hasbro. While the Wizards of the Coast and the Digital Gaming segments saw increased revenue, the Consumer Products and Entertainment divisions dragged down the company’s overall results. By sector, Hasbro’s performance by division looks like this in Q4:
Wizards of the Coast & Digital Gaming: $339 million, increasing by 22% YOY.
Consumer Products: $1 billion, down by 26% YOY.
Entertainment: $335 million, down 12% YOY.
The Q4 results also paint a picture for the full year at Hasbro, with 2022 revenue down 9% to $5.86 billion.
Again, those results were largely due to declining revenue in the company’s critical Consumer Products division, which still produces most of Hasbro’s revenue. Consumer Products earned $3.57 billion, down 10% over 2021, while the Entertainment segment sank by 17% to $959 million.
Wizards of the Coast and Digital Gaming did see increases, but over the course of the full year that division only rose by 3% to $1.33%.
However, Cocks said Hasbro expected it would incur some declining returns as it completes its overall strategic restructuring, designed to position the company for a more robust future.
“While the full-year 2022, and particularly the fourth quarter, represented a challenging moment for Hasbro, we are confident in our Blueprint 2.0 strategy, unveiled in October, which includes a focus on fewer, bigger brands; gaming; digital; and our rapidly growing direct to consumer and licensing businesses,” Cocks said. “Through this strategy, we are putting the consumer at the center of everything we do, and our Operational Excellence program is on track to drive significant cost savings across the business and improve our overall competitiveness.
“These strategic pillars helped to improve our results, particularly operating profit margin and revenue growth in key categories, in a challenging fourth quarter, and lay the groundwork for continued progress in 2023.”
These changes were announced in October 2022, when Hasbro announced a goal of delivering $250-300 million in annualized run-rate cost savings by year-end 2025.
That goal is the reason Hasbro has eliminated 15% of its workforce, Cocks added.
“The elimination of these positions will impact many loyal Hasbro employees, and we do not undertake this process lightly. However, the changes are necessary to return our business to a competitive, industry-leading position and to provide the foundation for future success,” said Cocks, adding those cost cutting measures extend right up to the C-Suite.
As part of the operational changes, Eric Nyman, president and chief operating officer, is departing Hasbro, and the Consumer Products business will report directly to the CEO.
“We are grateful for Eric’s dedication to Hasbro over the last 18 years and the leadership he has provided,” said Cocks.