netrashetty
Netra Shetty
Hasbro, Inc. (NYSE: HAS) is the second largest U.S. toy company, behind Mattel (MAT) by revenue, with a portfolio of brands and products in the toy market that target traditional trading card and board-game audiences, family game consumers, and educational/developmental toy consumers. Its core brands include the educational toy line Playskool, trading-card and role-playing games Magic: the Gathering and Dungeons and Dragons, traditional board and family games Monopoly, Battleship, and trademarked franchises such as Star Wars and Marvel action heroes. The company reported global net sales of $4.07 billion in 2009 and net earnings of $375 million.[1]
In an effort to expand its core product offerings and sustain its brand image of family and traditional games, Hasbro acquired Cranium to add to its board-game portfolio [2] and abandoned its tween electronic toy division beginning in 2009 due to low margins and strong competition from family-oriented hand-held electronic games on the Nintendo DS and Nintendo Wii. Instead the company has increased more of its focus on the entertainment industry and on its popular movie franchises Transformers, Iron Man, and G.I. Joe. Hasbro's Entertainment and Licensing segment and Boy's Toys segment grew by 44% and 9% respectively in 2009 due to the overwhelming success of the films. Transformers alone accounted for 14.5% of the revenue in 2009.[3]
As a toy company that focuses mainly on delivering traditional gaming experiences through board games and role-playing games, Hasbro faces increased pressures from age compression of its core demographic as children turn to more sophisticated gaming experiences offered by electronic media at an increasingly younger age. In addition, Hasbro will experience significant supply difficulties in its Indian market due to India's Jan 2009 ban on importing all toys originating from Chinese manufacturers, including Hasbro's main product portfolio.[4]
Company Overview
Hasbro's gaming products are delivered through different media, including traditional board and card, role-playing, hand-held electronic, and DVD games. In addition to products crafted purely for entertainment purposes, Hasbro also offers electronic learning aids and puzzles.
Business Segments[5]
Hasbro divides its business into three segments:
U.S. and Canada (60.2% of Revenue, 57.2% of Operating Profit)
Product offerings for this region (and international regions) in 2009 were divided into four major categories: [6][3]
Boy's Toys (36.2% of Revenue)
Core brands include GI Joe, Transformers, Star Wars, Marvel, etc. The continued popularity of these brands depend largely on their success as media-based entertainment, as main characters in these games and toys are featured in major motion picture releases. Since 2008, movies like GI Joe: The Rise of Cobra, Transformers, Transformers: Rise of the Fallen, and Iron Man have all had positive effects on Hasbro's sales of related toys and games. For the upcoming 2010 spring blockbuster Iron Man II, Hasbro began to release Iron Man II toys starting in January 2010 trying to reap in the benefits from all the hype the movie is getting. [7] The Boy's Toys segment increased by 10% of net sales to become the company's largest revenue generating segment.
Games and Puzzles (33.0% of Revenue)
Major brands included Trivial Pursuit, Monopoly, Battleship, Game of Life, Scrabble, Risk, and others. Core role-playing and trading card games include Magic: the Gathering and Dungeons & Dragons. In 2009, Hasbro extended its core brand portfolio by acquiring Cranium and continued its strategic alliance with Electronic Arts, Inc. (EA) to extend core brands to digital platforms. For these core brand games, Hasbro continues to push sustained marketing campaigns to extend its audience to the upcoming generations of children.
Girl's Toys (19.4% of Revenue)
Core brands include Littlest Pet Shop, Strawberry Shortcake, etc. Most products in this category seek to create a traditional and wholesome play experience focused on role-playing and character creation.
Preschool Toys (11.1% of Revenue)
Core brands focus on aiding growth and development of infant and preschoolers and are mainly marketed under the Playskool trademark. Examples of popular products in this category include Mr. Potato Head and the Ages & Stages system, which seek to help children and parents during each stage of infant and child development.
International (35.9% of Revenue, 27.6% of Operating Profit)
Major representative brands from all categories of the US and Canada segment are distributed to retailers and wholesalers in Europe, Asia, and South America. In 2009, Hasbro expanded operations in developing markets such as Brazil, China, Russia, and Korea, pushing main brands such as Playskool and Littlest Pet Shop. Besides toy offerings that mainly focus on wholesome and traditional experiences, collectibles from popular franchsies such as Transformers, Star Wars, and Marvel are marketed as well.[8]
Entertainment and Licensing (3.8% of Revenue, 11.1% of Operating Profit)
Revenue from this segment represents growth in lifestyle licensing, digital licensing, movie, television, and online entertainment revenues.[9]
Distribution to Wholesalers
As the main channel through which Hasbro products are brought to market, distribution to wholesalers constitutes a significant portion of Hasbro's sales revenue. In 2009, its main three distributors, Wal-Mart (WMT), Target (TGT), and Toys 'R Us represented 25%, 13%, and 11%, respectively, of global sales. In the US and Canada segment alone, these top three retailers constituted 74% of net revenues. [10]
Venture into Children's TV Programming
Hasbro injecting $300 million for a 50% stake in a new cable television and online venture along with the Discovery Channel.[11] The channel, called th Hub, targets 6 to 11 year olds and will be run by TV veteran Loesch.[12] The channel launched in October 2010.
This Hub competes in the lucrative but competitive market of children's television and online entertainment, going head-to-head with the existing giants in the industry, including Disney Channel, Nickelodeon, and Cartoon Network, all of which have online components as well. Hasbro's venture into this industry is spurred by the large amount of revenues that channels such as Disney have brought in through subscription fees, advertising revenues, and merchandising revenues. To compete with the existing channels, Hasbro and Discovery have planned to deliver television programming that is more geared towards "children's entertainment and education", hoping to revive some of Hasbro's oldest brands.[11] The Hub targets 6 to 11 year olds specifically as it bridges the bag between children's networks and those that target older children. Another perk of the channel is that it will advertise less, allowing for more showtime.
Hasbro is also trying to expand Hub internationally. In November 2010, Hasbro reached an agreement with a Canadian TV broadcaster to broadcast some of its shows, like "Transformers Prime," "My Little Pony Friendship is Magic," and "G.I. Joe Renegades". Expansion into the Canadian market exposes Hasbro to a wider customer base and potentially more revenue.
Business Growth
FY 2009 (ended December 27, 2009)[1]
Net Income in FY2009 was $375 million, an increase of 22% from the previous fiscal year, during which net income was $307 million. The increase in earnings was mainly due to the growth in the the Entertainment and Licensing segment as a result of the success from the company's movie franchises Transformers and G.I. Joe.
In FY2009, revenue was $4.07 billion, an increase of 1.1% from $4.02 billion in FY2008. The increase in sales performance was mainly due to the success of trademarked collectible and toy sales, including the franchises Transformers and G.I. Joe, prompted by the commercial success of the movies released during the summer. The success of these movies and toy sales related to these movies was reflected in the company's Entertainment and Licensing segment and Boy's Toys which increased by 44% and 9 % respectively for the year. Regionally, the company's US and Canada segment grew by 2% while the International segment declined by 3%, but actually grew by 2% absent the negative $64.5 million impact of foreign exchange.
Operating margins were 14.5%, or $589 million, in FY2009. This was an 220 bp increase from FY2008, during which operating profit was $494 million, or 12.3% of net sales.
In 2009, Transformers accounted for 14.5% of net revenues.[3]
Q1 2010 (ended March 28, 2010)[13]
Net income for the quarter was $59 million, up nearly 200% from earnings of $19.7 million a year earlier. The substantial increase was driven by increases in revenue in all of the company's business segments as well as in all regional segments.
Hasbro's net revenue grew 8% to $672 million compared to $621 million a year earlier. All of the company's product lines grew in the quarter: the Boys product category increased 3% to $236.9 million; the Games and Puzzles category increased 7% to $227.0 million; the Girls category increased 16% to $129.4 million; and the Preschool category grew 18% to $78.9 million.
Sales in the US increased by 5% to $425 million and international sales grew 17% to $222 million.
Hasbro's Board of Directors authorized the company to repurchase an additional $625 million in common stock. This comes after Hasbro announced a $500 million repurchase in March 2009.
Q2 2010 (ended June 27, 2010)[14]
Net income increased 11% to $43.6 million.
Q2 net revenue was $737.8 million, a decrease of 7% compared to $792.2 million in the prior year quarter. Revenue declined because in Q2 2009, the company benefited from the releases of movie blockbusters Transformers and G.I. Joe, which did not occur again in 2010.
Sales in the company's Games and Puzzle and Preschool categories grew by 22% and 32% respectively. However, sales in the Girls category were flat, and in the Boys category decreased by 34% (due to the lack of hype around movie action figures). Sales declined in both of the company's geographic segments.
The company repurchased 6.7 million shares of common stock at a total cost of $271.4 million during the quarter.
Q3 2010 (ended September 26, 2010)[15]
Hasbro posted revenue of $1.31 billion, a 2.7% increase compared to revenue in Q3 2009. The company attributes the growth to strong sales of its pre-school products, like the Mr. Potato Head doll, and board games like Monopoly. The increase in sales is encouraging for the company as it did not rely on movie tie-ins for growth, as it did in Q3 2009 with Transformers toys. As a result, sales in the company's preschool segment increased by 9%, while sales in the entertainment segment decreased by 34%.
Domestic and international sales increased by 3% and 4% respectively.
Operating profit composed of 18.1% of revenues, a slight improvement from the 18.0% in the previous year quarter.
Hasbro reported net income of $155.2 million, a 3% increase compared to Q3 2009.
In addition, Hasbro increased inventories because it is expecting a successful Holiday Season.[16]
Trends and Forces
Turning Toys into Movies Means an Expanded Market for Hasbro
The movie industry has proven to be extremely profitable for Hasbro. The company has reaped the benefits of its movie franchises Transformers, Iron Man, and G.I. Joe. The demand and popularity of movies based on toys and comic book characters has increased since the turn of the century [17] and Hasbro has been there to fill the need. Toys and comic book characters have the appeal that they have been in existence for so long that many generations of people, mainly males, can share a bonding experience over an ageless medium. The increased popularity of these movies means higher revenues for Hasbro: Transformers reaped in $700 million, Transformers 2 $835 million, G.I. Joe $302 million, and Iron Man $585 million. On top of that, Hasbro has the opportunity to cash in on toy sales based off of these movies; toy sales from Transformers were $413 million or 13% of the company's total revenue that year. [18] The market for toys based off these movies has proved to be so profitable that in January 2010 Hasbro began selling toys for the movie Iron Man 2 which released in May 2010.[19] Trasformers 3 is due to release on July 1, 2011.[20]
Ban on importing Chinese-manufactured Toys into India will create vacuum in 25% of Hasbro's toy portfolio in India
On January 23, 2009, the Directorate General of Foreign Trade (DGFT) banned imports of toys manufactured by Chinese vendors into India for six months, aimed to restrict the influx of Chinese toys into India. The ban applies to all toys that originated from China, regardless of the country of import of the marketing company and brand. The ban will have substantial impact on the profitability of Hasbro's indian division, Funskool India Ltd., which sources 25% of its toy portfolio, including staple infant and pre-school toys, from Chinese vendors. As Funskool India depletes its existing stock of these Chinese-manufactured toys in April-May of 2009, it will have to either substantially increase the manufacturing capacity of its two Indian plants to compensate for the shortage of toys caused by the ban or cease production of the toy categories affected by the ban altogether. Either way, Hasbro will see its market share in these toy categories diminish due to the ban as it experiences difficulties in producing adequate supplies. In addition to existing toy categories, Funskool India had planned to bring toy merchandise based on the movies Transformers II and GI Joe in the second half of 2009 but will have to abandon the India market for these toys, since they would be manufactured in China. [4]
Age Compression Forces Hasbro to Target the Lower-Margin Tween Demographic, but Face Competition with Popular Video Games
As a natural part of growing up, kids trade their traditional toys for more sophisticated forms of entertainment such as video games and electronics. However, each year it happens at a younger age, so that the age range to market toys is shrinking. Age compression is a major issue across the toy industry and is not specific to Hasbro. This forces Hasbro to target the "tween" 8-12-year-old demographic in order to maintain its market size through selling electronic-based games, which have a shorter lifespan and lower margin. [6] In 2005, Hasbro launched several new brands to attract tweens but has announced its abandonment of the division in fiscal year 2009.[21]
Despite Hasbro's efforts to target 'tweens, toy sales in the U.S. have been growing at a very low rate for the last five years. In fact, in 2009 and 2008 toy sales in the U.S. fell 1% and 3% respectively.[22][23] Part of this is due to the decrease in consumer spending in a weak economy. Also part of it is the shift from traditional toys towards video games. In 2009, video game sales were $20.2 billion.[24] The high popularity of the Nintendo DS and Wii console sales demonstrates the success of Nintendo's sales strategy of targeting wider audiences, including young girls and parents in addition to the traditional hand-held electronic demographic of tween and teenage boys. In 2009, the company had 6 of the top 7 selling console/portable software SKU's in the world.[24] The shift of the electronic gaming industry to target these traditional audiences is threatening the most profitable divisions of Hasbro's games as more traditional board-game demographics switch to electronic gaming products.[25]
Games and Puzzle Revenue Depend on Constant Demand of Classic Games
A third of Hasbro's revenue comes from the sale of games such as Monopoly, Battleship, and Scrabble. However, these popular classic games have been around for decades and by now millions of these games are sitting in homes all across the world. These games can be passed down from generation to generation without losing its appeal or fun. As a result, the demand for brand new sets of these games tends to fall. Thus it is up to Hasbro to be innovative in trying to keep up the demand for these classic games.
A good example of what Hasbro has done can be see through the game Monopoly. Hasbro has developed hundreds of editions of the classic game whether it be a special deluxe edition, a Red Sox edition, or world edition, all of which leave the basic premise of the game unchanged. In 2010, to celebrate the 75 anniversary of the game, Hasbro released a circular version of the game with an electronic calculator in the middle and eliminated the need to use paper money.[26] In addition, Hasbro has expanded the popular game to the internet and has teamed up with Google to create Monopoly City Streets where players can theoretically buy any street in the world.[27] By creating new editions and implementing creative ideas to these classic games, Hasbro can essentially continue to sell the same game and maintain a steady revenue source.
Competition
Hasbro's broad range of internationally recognized brands is rivaled only by Mattel (MAT). Mattel designs and manufactures and markets toy products worldwide through large retailers as well as directly to consumers.
Focus on Trademarked Franchises: Like Hasbro's royalty relationships with the Marvel, Star Wars, and Transformers franchises to market toys and collectibles based on these popular icons, Mattel has alliances with several profitable franchises, including Disney Classics, High School Musical, Batman, Kung Fu Panda, and Dora the Explorer.
Brand: Similar to Hasbro, Mattel also markets toys in Girls' and Boys' categories, including its renowned Barbie dolls and accessories for girls as well as its Hot Wheels and Tyco R/C.
Educational: Competing directly with Hasbro's Playskool core products, Mattel's Fisher-Price and Sesame Street brands focus on developmental and educational toys targeted toward parents of infant and preschool-aged children.
Latest Full Context Quarter Ending Date
2010/09
Gross Profit Margin
56.4%
EBIT Margin
15.6%
EBITDA Margin
27.5%
Pre-Tax Profit Margin
13.7%
Interest Coverage
8.3
Current Ratio
2.4
Quick Ratio
1.7
Leverage Ratio
2.8
Receivables Turnover
3.5
Inventory Turnover
4.1
Asset Turnover
1.0
Revenue to Assets
1.0
ROE from Total Operations
28.5%
Return on Invested Capital
14.6%
Return on Assets
10.0%
Debt/Common Equity Ratio
0.94
Price/Book Ratio (Price/Equity)
4.18
Book Value per Share
$10.92
Total Debt/ Equity
1.01
Long-Term Debt to Total Capital
0.49
SG&A as % of Revenue
24.1%
R&D as % of Revenue
4.8%
Receivables per Day Sales
$106.32
Days CGS in Inventory
87
Working Capital per Share
$10.05
Cash per Share
$3.66
Cash Flow per Share
$4.33
Free Cash Flow per Share
$1.83
Tangible Book Value per Share
$3.67
Price/Cash Flow Ratio
10.5
Price/Free Cash Flow Ratio
25.0
Price/Tangible Book Ratio
12.44
Most recent data
5-Year Averages
Return on Equity
19.1%
Return on Assets
8.7%
Return on Invested Capital
13.0%
Gross Profit Margin
60.8%
Pre-Tax Profit Margin
11.5%
Post-Tax Profit Margin
8.0%
Net Profit Margin (Total Operations)
8.0%
R&D as a % of Sales
4.7%
SG&A as a % of Sales
34.0%
Debt/Equity Ratio
0.46
Total Debt/Equity Ratio
0.49
In an effort to expand its core product offerings and sustain its brand image of family and traditional games, Hasbro acquired Cranium to add to its board-game portfolio [2] and abandoned its tween electronic toy division beginning in 2009 due to low margins and strong competition from family-oriented hand-held electronic games on the Nintendo DS and Nintendo Wii. Instead the company has increased more of its focus on the entertainment industry and on its popular movie franchises Transformers, Iron Man, and G.I. Joe. Hasbro's Entertainment and Licensing segment and Boy's Toys segment grew by 44% and 9% respectively in 2009 due to the overwhelming success of the films. Transformers alone accounted for 14.5% of the revenue in 2009.[3]
As a toy company that focuses mainly on delivering traditional gaming experiences through board games and role-playing games, Hasbro faces increased pressures from age compression of its core demographic as children turn to more sophisticated gaming experiences offered by electronic media at an increasingly younger age. In addition, Hasbro will experience significant supply difficulties in its Indian market due to India's Jan 2009 ban on importing all toys originating from Chinese manufacturers, including Hasbro's main product portfolio.[4]
Company Overview
Hasbro's gaming products are delivered through different media, including traditional board and card, role-playing, hand-held electronic, and DVD games. In addition to products crafted purely for entertainment purposes, Hasbro also offers electronic learning aids and puzzles.
Business Segments[5]
Hasbro divides its business into three segments:
U.S. and Canada (60.2% of Revenue, 57.2% of Operating Profit)
Product offerings for this region (and international regions) in 2009 were divided into four major categories: [6][3]
Boy's Toys (36.2% of Revenue)
Core brands include GI Joe, Transformers, Star Wars, Marvel, etc. The continued popularity of these brands depend largely on their success as media-based entertainment, as main characters in these games and toys are featured in major motion picture releases. Since 2008, movies like GI Joe: The Rise of Cobra, Transformers, Transformers: Rise of the Fallen, and Iron Man have all had positive effects on Hasbro's sales of related toys and games. For the upcoming 2010 spring blockbuster Iron Man II, Hasbro began to release Iron Man II toys starting in January 2010 trying to reap in the benefits from all the hype the movie is getting. [7] The Boy's Toys segment increased by 10% of net sales to become the company's largest revenue generating segment.
Games and Puzzles (33.0% of Revenue)
Major brands included Trivial Pursuit, Monopoly, Battleship, Game of Life, Scrabble, Risk, and others. Core role-playing and trading card games include Magic: the Gathering and Dungeons & Dragons. In 2009, Hasbro extended its core brand portfolio by acquiring Cranium and continued its strategic alliance with Electronic Arts, Inc. (EA) to extend core brands to digital platforms. For these core brand games, Hasbro continues to push sustained marketing campaigns to extend its audience to the upcoming generations of children.
Girl's Toys (19.4% of Revenue)
Core brands include Littlest Pet Shop, Strawberry Shortcake, etc. Most products in this category seek to create a traditional and wholesome play experience focused on role-playing and character creation.
Preschool Toys (11.1% of Revenue)
Core brands focus on aiding growth and development of infant and preschoolers and are mainly marketed under the Playskool trademark. Examples of popular products in this category include Mr. Potato Head and the Ages & Stages system, which seek to help children and parents during each stage of infant and child development.
International (35.9% of Revenue, 27.6% of Operating Profit)
Major representative brands from all categories of the US and Canada segment are distributed to retailers and wholesalers in Europe, Asia, and South America. In 2009, Hasbro expanded operations in developing markets such as Brazil, China, Russia, and Korea, pushing main brands such as Playskool and Littlest Pet Shop. Besides toy offerings that mainly focus on wholesome and traditional experiences, collectibles from popular franchsies such as Transformers, Star Wars, and Marvel are marketed as well.[8]
Entertainment and Licensing (3.8% of Revenue, 11.1% of Operating Profit)
Revenue from this segment represents growth in lifestyle licensing, digital licensing, movie, television, and online entertainment revenues.[9]
Distribution to Wholesalers
As the main channel through which Hasbro products are brought to market, distribution to wholesalers constitutes a significant portion of Hasbro's sales revenue. In 2009, its main three distributors, Wal-Mart (WMT), Target (TGT), and Toys 'R Us represented 25%, 13%, and 11%, respectively, of global sales. In the US and Canada segment alone, these top three retailers constituted 74% of net revenues. [10]
Venture into Children's TV Programming
Hasbro injecting $300 million for a 50% stake in a new cable television and online venture along with the Discovery Channel.[11] The channel, called th Hub, targets 6 to 11 year olds and will be run by TV veteran Loesch.[12] The channel launched in October 2010.
This Hub competes in the lucrative but competitive market of children's television and online entertainment, going head-to-head with the existing giants in the industry, including Disney Channel, Nickelodeon, and Cartoon Network, all of which have online components as well. Hasbro's venture into this industry is spurred by the large amount of revenues that channels such as Disney have brought in through subscription fees, advertising revenues, and merchandising revenues. To compete with the existing channels, Hasbro and Discovery have planned to deliver television programming that is more geared towards "children's entertainment and education", hoping to revive some of Hasbro's oldest brands.[11] The Hub targets 6 to 11 year olds specifically as it bridges the bag between children's networks and those that target older children. Another perk of the channel is that it will advertise less, allowing for more showtime.
Hasbro is also trying to expand Hub internationally. In November 2010, Hasbro reached an agreement with a Canadian TV broadcaster to broadcast some of its shows, like "Transformers Prime," "My Little Pony Friendship is Magic," and "G.I. Joe Renegades". Expansion into the Canadian market exposes Hasbro to a wider customer base and potentially more revenue.
Business Growth
FY 2009 (ended December 27, 2009)[1]
Net Income in FY2009 was $375 million, an increase of 22% from the previous fiscal year, during which net income was $307 million. The increase in earnings was mainly due to the growth in the the Entertainment and Licensing segment as a result of the success from the company's movie franchises Transformers and G.I. Joe.
In FY2009, revenue was $4.07 billion, an increase of 1.1% from $4.02 billion in FY2008. The increase in sales performance was mainly due to the success of trademarked collectible and toy sales, including the franchises Transformers and G.I. Joe, prompted by the commercial success of the movies released during the summer. The success of these movies and toy sales related to these movies was reflected in the company's Entertainment and Licensing segment and Boy's Toys which increased by 44% and 9 % respectively for the year. Regionally, the company's US and Canada segment grew by 2% while the International segment declined by 3%, but actually grew by 2% absent the negative $64.5 million impact of foreign exchange.
Operating margins were 14.5%, or $589 million, in FY2009. This was an 220 bp increase from FY2008, during which operating profit was $494 million, or 12.3% of net sales.
In 2009, Transformers accounted for 14.5% of net revenues.[3]
Q1 2010 (ended March 28, 2010)[13]
Net income for the quarter was $59 million, up nearly 200% from earnings of $19.7 million a year earlier. The substantial increase was driven by increases in revenue in all of the company's business segments as well as in all regional segments.
Hasbro's net revenue grew 8% to $672 million compared to $621 million a year earlier. All of the company's product lines grew in the quarter: the Boys product category increased 3% to $236.9 million; the Games and Puzzles category increased 7% to $227.0 million; the Girls category increased 16% to $129.4 million; and the Preschool category grew 18% to $78.9 million.
Sales in the US increased by 5% to $425 million and international sales grew 17% to $222 million.
Hasbro's Board of Directors authorized the company to repurchase an additional $625 million in common stock. This comes after Hasbro announced a $500 million repurchase in March 2009.
Q2 2010 (ended June 27, 2010)[14]
Net income increased 11% to $43.6 million.
Q2 net revenue was $737.8 million, a decrease of 7% compared to $792.2 million in the prior year quarter. Revenue declined because in Q2 2009, the company benefited from the releases of movie blockbusters Transformers and G.I. Joe, which did not occur again in 2010.
Sales in the company's Games and Puzzle and Preschool categories grew by 22% and 32% respectively. However, sales in the Girls category were flat, and in the Boys category decreased by 34% (due to the lack of hype around movie action figures). Sales declined in both of the company's geographic segments.
The company repurchased 6.7 million shares of common stock at a total cost of $271.4 million during the quarter.
Q3 2010 (ended September 26, 2010)[15]
Hasbro posted revenue of $1.31 billion, a 2.7% increase compared to revenue in Q3 2009. The company attributes the growth to strong sales of its pre-school products, like the Mr. Potato Head doll, and board games like Monopoly. The increase in sales is encouraging for the company as it did not rely on movie tie-ins for growth, as it did in Q3 2009 with Transformers toys. As a result, sales in the company's preschool segment increased by 9%, while sales in the entertainment segment decreased by 34%.
Domestic and international sales increased by 3% and 4% respectively.
Operating profit composed of 18.1% of revenues, a slight improvement from the 18.0% in the previous year quarter.
Hasbro reported net income of $155.2 million, a 3% increase compared to Q3 2009.
In addition, Hasbro increased inventories because it is expecting a successful Holiday Season.[16]
Trends and Forces
Turning Toys into Movies Means an Expanded Market for Hasbro
The movie industry has proven to be extremely profitable for Hasbro. The company has reaped the benefits of its movie franchises Transformers, Iron Man, and G.I. Joe. The demand and popularity of movies based on toys and comic book characters has increased since the turn of the century [17] and Hasbro has been there to fill the need. Toys and comic book characters have the appeal that they have been in existence for so long that many generations of people, mainly males, can share a bonding experience over an ageless medium. The increased popularity of these movies means higher revenues for Hasbro: Transformers reaped in $700 million, Transformers 2 $835 million, G.I. Joe $302 million, and Iron Man $585 million. On top of that, Hasbro has the opportunity to cash in on toy sales based off of these movies; toy sales from Transformers were $413 million or 13% of the company's total revenue that year. [18] The market for toys based off these movies has proved to be so profitable that in January 2010 Hasbro began selling toys for the movie Iron Man 2 which released in May 2010.[19] Trasformers 3 is due to release on July 1, 2011.[20]
Ban on importing Chinese-manufactured Toys into India will create vacuum in 25% of Hasbro's toy portfolio in India
On January 23, 2009, the Directorate General of Foreign Trade (DGFT) banned imports of toys manufactured by Chinese vendors into India for six months, aimed to restrict the influx of Chinese toys into India. The ban applies to all toys that originated from China, regardless of the country of import of the marketing company and brand. The ban will have substantial impact on the profitability of Hasbro's indian division, Funskool India Ltd., which sources 25% of its toy portfolio, including staple infant and pre-school toys, from Chinese vendors. As Funskool India depletes its existing stock of these Chinese-manufactured toys in April-May of 2009, it will have to either substantially increase the manufacturing capacity of its two Indian plants to compensate for the shortage of toys caused by the ban or cease production of the toy categories affected by the ban altogether. Either way, Hasbro will see its market share in these toy categories diminish due to the ban as it experiences difficulties in producing adequate supplies. In addition to existing toy categories, Funskool India had planned to bring toy merchandise based on the movies Transformers II and GI Joe in the second half of 2009 but will have to abandon the India market for these toys, since they would be manufactured in China. [4]
Age Compression Forces Hasbro to Target the Lower-Margin Tween Demographic, but Face Competition with Popular Video Games
As a natural part of growing up, kids trade their traditional toys for more sophisticated forms of entertainment such as video games and electronics. However, each year it happens at a younger age, so that the age range to market toys is shrinking. Age compression is a major issue across the toy industry and is not specific to Hasbro. This forces Hasbro to target the "tween" 8-12-year-old demographic in order to maintain its market size through selling electronic-based games, which have a shorter lifespan and lower margin. [6] In 2005, Hasbro launched several new brands to attract tweens but has announced its abandonment of the division in fiscal year 2009.[21]
Despite Hasbro's efforts to target 'tweens, toy sales in the U.S. have been growing at a very low rate for the last five years. In fact, in 2009 and 2008 toy sales in the U.S. fell 1% and 3% respectively.[22][23] Part of this is due to the decrease in consumer spending in a weak economy. Also part of it is the shift from traditional toys towards video games. In 2009, video game sales were $20.2 billion.[24] The high popularity of the Nintendo DS and Wii console sales demonstrates the success of Nintendo's sales strategy of targeting wider audiences, including young girls and parents in addition to the traditional hand-held electronic demographic of tween and teenage boys. In 2009, the company had 6 of the top 7 selling console/portable software SKU's in the world.[24] The shift of the electronic gaming industry to target these traditional audiences is threatening the most profitable divisions of Hasbro's games as more traditional board-game demographics switch to electronic gaming products.[25]
Games and Puzzle Revenue Depend on Constant Demand of Classic Games
A third of Hasbro's revenue comes from the sale of games such as Monopoly, Battleship, and Scrabble. However, these popular classic games have been around for decades and by now millions of these games are sitting in homes all across the world. These games can be passed down from generation to generation without losing its appeal or fun. As a result, the demand for brand new sets of these games tends to fall. Thus it is up to Hasbro to be innovative in trying to keep up the demand for these classic games.
A good example of what Hasbro has done can be see through the game Monopoly. Hasbro has developed hundreds of editions of the classic game whether it be a special deluxe edition, a Red Sox edition, or world edition, all of which leave the basic premise of the game unchanged. In 2010, to celebrate the 75 anniversary of the game, Hasbro released a circular version of the game with an electronic calculator in the middle and eliminated the need to use paper money.[26] In addition, Hasbro has expanded the popular game to the internet and has teamed up with Google to create Monopoly City Streets where players can theoretically buy any street in the world.[27] By creating new editions and implementing creative ideas to these classic games, Hasbro can essentially continue to sell the same game and maintain a steady revenue source.
Competition
Hasbro's broad range of internationally recognized brands is rivaled only by Mattel (MAT). Mattel designs and manufactures and markets toy products worldwide through large retailers as well as directly to consumers.
Focus on Trademarked Franchises: Like Hasbro's royalty relationships with the Marvel, Star Wars, and Transformers franchises to market toys and collectibles based on these popular icons, Mattel has alliances with several profitable franchises, including Disney Classics, High School Musical, Batman, Kung Fu Panda, and Dora the Explorer.
Brand: Similar to Hasbro, Mattel also markets toys in Girls' and Boys' categories, including its renowned Barbie dolls and accessories for girls as well as its Hot Wheels and Tyco R/C.
Educational: Competing directly with Hasbro's Playskool core products, Mattel's Fisher-Price and Sesame Street brands focus on developmental and educational toys targeted toward parents of infant and preschool-aged children.
Latest Full Context Quarter Ending Date
2010/09
Gross Profit Margin
56.4%
EBIT Margin
15.6%
EBITDA Margin
27.5%
Pre-Tax Profit Margin
13.7%
Interest Coverage
8.3
Current Ratio
2.4
Quick Ratio
1.7
Leverage Ratio
2.8
Receivables Turnover
3.5
Inventory Turnover
4.1
Asset Turnover
1.0
Revenue to Assets
1.0
ROE from Total Operations
28.5%
Return on Invested Capital
14.6%
Return on Assets
10.0%
Debt/Common Equity Ratio
0.94
Price/Book Ratio (Price/Equity)
4.18
Book Value per Share
$10.92
Total Debt/ Equity
1.01
Long-Term Debt to Total Capital
0.49
SG&A as % of Revenue
24.1%
R&D as % of Revenue
4.8%
Receivables per Day Sales
$106.32
Days CGS in Inventory
87
Working Capital per Share
$10.05
Cash per Share
$3.66
Cash Flow per Share
$4.33
Free Cash Flow per Share
$1.83
Tangible Book Value per Share
$3.67
Price/Cash Flow Ratio
10.5
Price/Free Cash Flow Ratio
25.0
Price/Tangible Book Ratio
12.44
Most recent data
5-Year Averages
Return on Equity
19.1%
Return on Assets
8.7%
Return on Invested Capital
13.0%
Gross Profit Margin
60.8%
Pre-Tax Profit Margin
11.5%
Post-Tax Profit Margin
8.0%
Net Profit Margin (Total Operations)
8.0%
R&D as a % of Sales
4.7%
SG&A as a % of Sales
34.0%
Debt/Equity Ratio
0.46
Total Debt/Equity Ratio
0.49