Shares of Hasbro (HAS 1.54%) soared Tuesday after the company delivered better-than-anticipated financial results for the second quarter. Revenue improved by an impressive 9% year over year and would have been up 11% if not for foreign currency exchange headwinds. Excluding one-time items, net income was similarly robust, increasing 65% compared to the prior-year quarter. This pushed the stock up more than 8% to a new record high.
The Q2 conference call offered a wealth of additional information for Hasbro shareholders, but these three nuggets, in particular, may help to illustrate both the opportunities and challenges that lie ahead.
Image source: Hasbro.
1. E-commerce growth continues to gain steam
In the wake of the Toys R Us demise in early 2018, the toy industry has been scrambling to beef up other sales channels for its products.
On the conference call, Hasbro CEO Brian Goldner noted that e-commerce sales have "accelerated substantially," and that both omnichannel and pure-play retailers were experiencing online sales growth that significantly outpaced the gains elsewhere in their businesses.
Hasbro, too, has enjoyed its share of e-commerce growth, as evidenced by the results of Amazon.com's Prime Day event, when brands such as Play-Doh and Nerf racked up solid sales.
2. Blockbuster movies will help drive a year-end sales surge
Hasbro has a strong, ongoing relationship with Disney (DIS 1.01%), as the primary maker of toys in the Disney Princess and Frozen lines, as well as a significant supplier of Star Wars merchandise.
Frozen, released in late 2013, became a mega-hit for the House of Mouse, booking more than $1.27 billion in box office receipts. Little girls everywhere broke out in endless choruses of "Let It Go," donned dresses inspired by Queen Elsa and Princess Anna, and induced their parents to snap up vast quantities of related merchandise.
The Star Wars film franchise has booked nearly $9.5 billion in ticket sales worldwide, and its complex universe (and devout fan base) make it a treasure house for lucrative toy tie-ins.
So the fact that Frozen 2 and Star Wars: The Rise of Skywalker -- the final chapter in the Star Wars sequel trilogy -- are both scheduled to be released late this year, present major opportunities, and Goldner said on the call Hasbro is well prepared to take advantage.
3. More trade war tariffs would have a "damaging impact"
As the trade war between the U.S. and China continues, the potential remains for President Trump to impose additional tariffs on imports if an accord isn't reached.
While there have been "no new material tariffs" imposed on Hasbro's products, the company has taken a number of steps to minimize any potential damage that such higher taxes might cause. "The team did an exhaustive amount of work and is extremely well prepared for what would be a very challenging and damaging impact if tariffs were implemented," Goldner said.
In particular, Hasbro has accelerated its ongoing plans to diversify manufacturing away from China. The company also incurred some expenses by bringing more inventory into the U.S. ahead of its normal schedule in an effort to stock up before a new set of tariffs might come down.
That said, any potential tariff increases imposed on Hasbro would ultimately be passed directly along to U.S. consumers in the form of higher prices.
