Hasbro (NASDAQ:HAS) reported second-quarter 2016 earnings on Monday July 18, 2016. The toymaker posted solid revenue and strong earnings growth, thanks largely to its tightening ties with Walt Disney (NYSE:DIS).
While Hasbro beat analysts' expectations on both the top and bottom lines, the market sent its shares tumbling 6.6% on Monday. This was due to concern about slow revenue growth in the boys-toys category, and a large increase in inventory levels.
My purpose isn't to rehash the earnings results -- you can read my take here -- but to supplement the earnings-release data with color from Hasbro's conference call with analysts. Here are five key things investors should know.
1. Seven of the top-10 brands are franchise brands
From CEO Brian Goldner's remarks:
[S]even of the top-10 revenue contributors in the quarter were Hasbro brands and the remainder were our Partner Brands, so a great balanced portfolio of our owned and operated brands plus our Partner Brands. And both Nerf and Play-Doh were the top-two brands in terms of overall revenues.
This is a great reminder for investors that Hasbro has bench strength across its portfolio. Its ties to Disney are lucrative, with partner brands of Star Wars, Marvel, Disney Princess, and Disney Frozen garnering much attention. So it might come as a surprise to many investors that seven of the toymaker's top-10 brands – and in fact, its very two top brands – in the quarter by revenue were internal-franchise brands.
2. The toy industry is growing, plus Hasbro is gaining market share
From Goldner's remarks:
In most markets around the world it's [the toy industry] growing from mid-to-high single digits. In a few markets, it's growing as high as double digits, including Spain, Italy, Russia, and Mexico. Our business continues to grow around the world. We've gained market share in 10 of the 11 markets that we ... have measurement[s] [for] in the quarter...
Hasbro's revenue growth continues to come from a combination of the toy market's expansion and the company gaining market share – or taking business from other toy companies. This is a preferred scenario for investors. It's not a notable accomplishment for a company to simply grow in line with its industry -- a rising tide tends to lift all boats. However, it's a positive reflection of Hasbro's strategy and execution that it's growing faster than the overall toy industry.
3. Star Wars revenue in 2016 should be in line with its 2015 revenue
From Goldner's remarks:
We continue to believe that Star Wars [revenue this] year should be roughly equal to last year. ... A number of our product initiatives are selling incredibly well, and Hasbro's share of the Star Wars business has improved, as well. ... [I]f you look overall quarter by quarter, there have been [and will be] shifts. [B]ut as I said for the full year, we would expect to achieve around the $500 million we saw last year.
It's great news that Hasbro continues to project that sales of Star Wars toys will bring in about the same revenue -- a half a billion dollars! -- in 2016, as they did in 2015.
In late September, Hasbro will begin rolling out to retailers toys based on Rogue One, the stand-alone Star Wars film slated for a Dec. 19 domestic release.
4. Leveraging Pie Face
From Goldner's remarks:
Pie Face remains a top-selling game in many markets, and point of sale is extremely strong. Pie Face Showdown, which brings the Pie Face gameplay to a whole new level, will be at select retailers in August, and will be widely available in Q4. In addition, as we deliver gaming for all platforms, Pie Face is being developed as a stand-alone mobile game for play on Apple and Android devices, and for living-room play on Apple TV.
This is just one example of Hasbro's leveraging chops. By bringing extensions of this "hot" product to market so quickly, the company should be able to continue to capitalize on the excitement created by social media for the original face-to-face game.
Hasbro hopes to have another hit with Speak Out, its newest game identified through social media, which will be available this fall. The game captures the excitement around mouthpiece challenge videos, according to Hasbro.
5. No negative impact from Brexit
From Goldner's remarks: "While the U.K. Brexit vote has created some near-term uncertainty and negatively impacted its currency, we have positive momentum in both the U.K. and in Europe heading into the second half of the year. To date, we have not seen a negative impact on our business."
It's obviously a positive that Hasbro hasn't seen any negative affects from Brexit, so far. Given it's early in the game -- the British just voted on June 24 to leave the EU -- it's still possible that Hasbro could experience a negative impact in the future. Consumer economic uncertainty could affect Hasbro, because it sells consumer-discretionary products. Most parents and other adults, however, would likely cut back on spending for themselves before they pared back their spending on toys for the kids in their lives.