Game On: Hasbro Stock Spikes with EPS Win and Inventory Play

Key Points

• Hasbro reported a Q2 2024 EPS of 44 cents and a top-line beat despite revenues falling 17.7% YoY, primarily from the divestiture of eOne divestiture.
• Hasbro reported 20% YoY growth in its Wizards of the Coast and Digital Gaming segments, which were offset by the 20% YoY decline in its Consumer Products and Entertainment segment.
• Hasbro trimmed inventory by 51% YoY in Q2 2024.

Games and entertainment giant Hasbro Inc. NASDAQ: HAS reported an impressive Q2 2024 earnings report that helped it gap the following morning. However, the gap saw a lot of selling as shares fell from a peak of $65.12 to a low of $60.52. Shares stabilized the following morning as buyers pushed it to close near the highs of the day. Hasbro executed its cost-cutting initiatives well and did a great job shrinking its inventory by 51% YoY, which also included a 55% drop in Consumer Products inventory. Investors should take another look at this company as the turnaround shapes up.

Hasbro operates in the consumer discretionary sector, competing with toys, entertainment, and games companies like Mattel Inc. NASDAQ: MAT, JAKKS Pacific Inc. NASDAQ: JAKK, and Funko Inc. NASDAQ: FNKO.

Hasbro’s Portfolio of Iconic Games Spans Generations

Hasbro has a vast portfolio of iconic game, toy, and entertainment franchises, including Monopoly, Mr. Potato Head, My Little Pony, NERF, Dungeons & Dragons, Magic: The Gathering, Play-DOH, Peppa Pig, Transformers, and G.I. Joe. A crossover Transformers and G.I. Joe major motion picture has been confirmed for a 2025 or 2026 release with potential The Walt Disney Co. NYSE: DIS Marvel’s Thor star Chris Hemsworth rumored to star in it.

Hasbro’s Turnaround Requires it to be Lean and Mean

Hasbro has been selling businesses to regain agility. The company sold its eOne Film and TV business and reduced its Consumer Products division, making YoY comparisons appear weaker than they are. For example, in Q1 2024, revenues fell from $1 billion to $757.3 million due to the divestiture.

HAS Attempts an Ascending Triangle Breakout Pattern

The daily candlestick chart for HAS illustrates an ascending triangle breakout pattern. The pattern formed from a flat-top upper trendline resistance at $62.38 and a rising lower trendline from $55.90. HAS initially broke through the upper trendline on the post-earnings gap to $65.05 but fell back under it at the close at $62.38. The daily relative strength index (RSI) is rising to the 64-band. Pullback support levels are at $60.52, $58.25, $55.90, and $52.57.

Impressive Top and Bottom Line Beats

Hasbro reported Q2 2024 EPS of $1.22, beating consensus estimates of 78 cents by 44 cents. Revenues dropped 17.7% YoY to $995.3 million, firmly beating consensus analyst estimates of $941.38 million. The revenue drop was primarily due to the divestiture of its eOne business. When excluding the divestiture, revenues fell 6% YoY. Wizards of the Coast and Digital Gaming were the sweet spots as revenues rose 20% YoY, which was offset by a 20% decline in Consumer Products and Entertainment.

Hasbro reported that its owned inventory fell 51% YoY, including a 55% drop in Consumer Products inventory. Hasbro declared a 70-cent dividend payable on Sept. 4, 2024, to shareholders of record at the close of business on Aug. 21, 2024. Hasbro delivered $40 million of net cost savings and nearly $90 million year-to-date (YTD).

The Wizards of the Coast and Digital Gaming Stole the Show

The 20% revenue growth in its Wizards of the Coast segment was driven by the launch of MAGIC's Modern Horizons 3 set and continued strength in Licensed and Digital Gaming revenue. Popular games like Monopoly Go! and Baldur's Gate 3 spearheaded gains. Tabletop revenue rose 3% behind growth in Magic: The Gathering. Operating profit grew by 74%, and the operating profit margin was 54.7%, resulting from higher digital licensing revenue and lower royalty expenses.

Hasbro Updates its Full-Year 2024 Guidance

The company provided a specific full-year outlook by segment. While all the segments show negative growth, they actually raised overall guidance. The Consumer Products Segment revenue is expected to fall 7% to 11% YoY. Adjusted operating margin is expected to be between 4% and 6%. Wizards of the Coast Segment revenue will be down 1% to 3% YoY. The operating margin is expected to be around 42%. Pro-Forma Entertainment segment revenue will be down $15 million, and adjusted operating margin will be around 60%. Total Hasbro adjusted EBITDA will be $975 million to $1.025 billion. The gross savings target is $750 million by year's end.

Hasbro CEO Chris Cocks commented on the quarterly performance, "We delivered a solid performance in games and digital licensing and substantial margin improvement this quarter. Hasbro is emerging as a more profitable, agile, and operationally excellent company delighting fans of all ages through the magic of play."

Hasbro analyst ratings and price targets are at MarketBeat. There are 11 Wall Street analyst ratings on HAS stock, comprised of eight Buys and three Holds, with a 9.76% upside to the consensus average price target of $70.08.