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So it’s that time of year again – Q3 results were released for the stock market listed Toy & Game companies. This is the quarter in which we register the strength of sell in to retail for the year. Sell through will normally be measured on Q4 of course.
And it’s quite an interesting picture this time round. Just to recap, the short-term history of the Toy & Game business is a bizarre boom of certain categories during Covid-19, and then a downturn in consumer demand coming out of the pandemic with high inflation and heavily squeezed disposable income for consumers across developed economies. Heading into 2024, expectations were fairly low due to a tough couple of years prior, and due to a fairly weak movie slate.
Let’s take a look a look at the results for key companies just released, and see if we can reach any broader conclusions based on Q3 2024:
HASBRO
It’s quite hard to analyse Hasbro’s Q3/YTD 2024 performance from a traditional Toy market perspective due to the company’s significant change in strategy in recent times. As the company tries to do more with less, and to pursue more licensing out of their vast IP portfolio, it is to be expected that the company will see reduced inventories and potentially a downturn in topline revenue, which should in turn lead to an uptick in the bottom line,. That doesn’t however mean that the company is faring badly, in fact lower headline revenue and cost cutting is to be expected as a self-driven exercise via the current business strategy. YTD 2024 revenues are down 8% on a comparable basis (this excludes impact of the eOne divestiture). Adjusted operating profit YTD is at $726m, up $200 million on the previous year. So it looks like Hasbro's strategy is broadly speaking on track.
In terms of indications of the health of the overall Toy market, on the Q3 earnings call, Hasbro’s CEO Chris Cocks stated: “When you look at the toy industry ex-building blocks, it's effectively down 2% to down 5%. Our expectation is the holiday will probably continue that trend. It'll be down probably low single digits, maybe on the lower side of down mid-single digits.”
While this does not sound overly positive, from a historical perspective, before The Walt Disney company owned so much toyetic IP, and before one company had such a powerful role in movie slate scheduling, ‘fallow’ movie years were more common as rival studios did not necessarily co-ordinate their releases, and in these fallow years, it was not uncommon for the Toy market to be down c. 3-5%. So in effect, we could see 2024 as being on track to hit downgraded expectations. The expectation would then be a return to growth in 2025 with a stronger movie slate.
Before we move on from Hasbro, we should also recognise that Hasbro is not just a Toy company. The post Brian Goldner strategy focuses more on digital gaming, and as such, it’s hard to fully assess Hasbro’s performance from purely a Toy perspective these days. But my one concern for my ex-employers is that any Toy business veteran will tell you that in the Toy biz, if you try to focus on fewer bigger brands, you can inadvertently end up with fewer smaller brands. If you out license so many relatively strong brands to smaller competition, they can use your brands to grow big enough to threaten you more, as they get more quality time with mass market retail buyers due to having your established brands in their portfolio. The buyer who used to give you a full day, might now only give you half a day or an hour at a key event because you have a smaller product line. This can lead to less interaction overall and fewer listings on your remaining brands as opposed to more listings. Hopefully I am wrong on that point. But we must also balance this with the demographic trends - as birth rates are drastically low in so many strong Toy markets, Hasbro’s branching out from their traditional base of selling Toys for kids is strategically understandable, and most probably very prudent.
SPIN MASTER
Spin Master’s Q3 is up significantly versus the same period in 2023, largely due to the added revenues from the acquisition of Melissa & Doug which completed at the start of 2024. Q3 2024 revenues were $885.7m, up significantly from $710.2m for the same quarter in 2023. Of that increase, Melissa & Doug reportedly accounted for $155m of the revenue growth. Operating income was about the same with $203.2m for Q3 2024 versus $197.2m in 2023.
Spin Master’s acquisition of Melissa & Doug may go down as one of their best ever, as truly incremental revenue seems to be coming through. Additionally, as a mass market company, Spin Master’s reliance on Toys made from synthetic plastics would be seen as a potential risk by the markets and the bean counters at Spin Master due to the risk of consumer plastic rejection. As such, a financially successful acquisition of Melissa & Doug both grows sales, as well as diversifying away from plastics and diluting the risk of consumer plastic rejection (since M&D’s products contain a large number of wooden products).
Spin Master also confirmed that their FY 2024 expectations are still on track, which suggests again a company on track to hit budget in a tough market.
MATTEL
Across the other side of the USA, El Segundo based Mattel reported a small decline in revenues YTD with a decline of 2% in constant currency versus the same period in 2023. Reported operating income for the first three quarters of 2024 was $488m, up $14m. Mattel’s expectations for FY 2024 remain largely as per previous communications, which suggests a fairly modest budget in a tough market is on track.
JAKKS PACIFIC
Net sales for Jakks were $321.6 million, a year-over-year increase of 4%. With a heavy focus on Licensed products, for Jakks to achieve sales growth in a year with less strength in the movie slate suggests a well-balanced portfolio of licenses. As Jakks Pacific CEO Stephen Berman stated: “While theatrical IP is important, non-theatrical IP like Disney's Princess Style Collection also performs well. Our business with Disney is strong without heavy reliance on new IP. We focus on a portfolio management approach, leveraging both theatrical and non-theatrical IP, and exploring diverse distribution platforms beyond traditional toy trade.”
Q3 2024, CONCLUSIONS ON WHERE THE TOY BUSINESS IS AT
The Toy market appears to be performing ok in 2024 in the face of a couple of tough years prior, and with a weaker movie slate in 2024. Typically when there are fewer movies, revenues will be down, but profit will be up, as licensed Toys share tends to reduce and own IP brands and products which are more profitable get a stronger push. And when own IP gets a big push, the company tends to reap the benefits for a few years after, even when hot Licenses play a bigger part again in the market. Additionally, most of the bigger Toy companies have a heavily diversified strategy and portfolio today, with major plays in digital gaming and entertainment.
Of course at this stage, results largely reflect retail sell in for peak season trading, and consumer demand during the less critical periods of the year. Q4 results will reveal all. Our industry desperately needs consumers to show up and buy through until the end of peak season, so fingers crossed for that!
A recent review of all our Toy & Game business content output from the last decade and a half revealed that we had been severely under using YouTube. Partly that’s due to my having the ‘perfect face for radio’, but it’s something we’re currently working to remedy.
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