Mattel ‘in much better health’ than Hasbro, analyst says

D.A. Davidson Sr. Research Analyst Linda Bolton Weiser joins Yahoo Finance Live to discuss quarterly earnings for Hasbro and Mattel, what’s next for Hasbro’s digital gaming business, job cuts, consumer spending, and the outlook for the toy sector.

Video transcript

- Hasbro announced layoffs yesterday. The Rhode-Island-based company will cut as many as 1,000 jobs. It's a sign of uncertainty, of course, outside of tech.

For more on what this means for the toy sector ahead of Hasbro's fourth quarter report, let's get to DA Davidson's Managing Director and Senior Research Analyst Linda Bolton Weiser. Linda, it is good to see you.

So Hasbro, of course, the layoffs are only part of the story. They also gave a pretty dismal forecast for the fourth quarter. And it seems like, bottom line, they're just not selling as many toys. What's going on here?

LINDA BOLTON WEISER: Well, in fact, the toy demand in the United States is actually pretty strong. Through the first nine months, point of sale at retail was up in the low single digits against a really strong year last year.

So the problem is more with inventory reductions by retailers. So when there were shortages of toys last Christmas and 2021, the retailers really stocked up a lot in the first part of 2022. And then by the time the summer rolled around and consumer demand was a little bit pinched because of inflation, then they had too much inventory.

So it's not so much the health of consumers buying toys. It's more the retailer inventory reductions that has caused the low sales performance, the sales declines from the toy companies.

- Linda, what role is Mattel playing in just the disappointing results over at Hasbro? Mattel has been doing better, I would say, at least the past three quarters fundamentally compared to Hasbro.

LINDA BOLTON WEISER: Yeah, Mattel went through a turnaround and restructuring a few years ago and is generally in much better health right now. But Mattel is well will have down sales in the fourth quarter. So they're not immune to the retailer inventory reductions. But in general, Mattel has been healthier.

And, of course, Hasbro now is not really so much a toy company. 60% of Hasbro's profit comes from their Wizards and Digital Gaming business.

- Is Wizards and Digital, frankly, Dungeons & Dragons, is that enough to really kind of be the bridge for Hasbro here?

LINDA BOLTON WEISER: Well, in the fourth quarter, their Wizards and Digital Gaming segment was actually up 22% year-over-year. So they did have a very favorable comparison. They had some launches. So it was the toy division that had the biggest decline, which was down over 25% in the quarter.

- Linda, Hasbro has really been dragged on various YouTube toy channels and on social media on how it's been operating that Wizards business. Do you think they have permanently ruined it?

LINDA BOLTON WEISER: Well, no, we're still optimistic about the long-term growth of the Wizards business, which is Magic-- The Gathering and Dungeons and Dragons. And they did exhibit really strong growth of over 20% in the fourth quarter, which, I think, is evidence of the long-term health of that business.

- Is there a continued shift right now in kind of a consumer spending pullback, if you will, of some of those discretionary dollars? Is there more of a shift from toys to tablet? And what I mean by that is kind of this tabletop playing to playing on a tablet and digital gaming instead. And how does that impact a company in Hasbro and perhaps the broader toy segment?

LINDA BOLTON WEISER: Well, in terms of their Wizards and Digital Gaming business, in terms of that whole segment, actually, about 80% of the revenue is still tabletop. So that really shows you that Magic-- The Gathering, for example, is largely still played with actual physical cards. So that's still a very important part of it.

And really little children, little infant babies don't play with tablets and electronic devices as much. And the consumption curve for toys by age has already shifted down to a very low age. That occurred 10 or 15 years ago. So that's not really a negative impact on the toy industry at this point.

- Linda, what does this tell us about anything about how Mattel is going to do or is doing?

LINDA BOLTON WEISER: Well, both companies, Hasbro and Mattel, had lowered their guidance previously for the fourth quarter. Mattel has announced their reporting date. And they haven't preannounced a disappointment.

So we're hopeful that Mattel can actually do better. They've exhibited a lot more control over being able to forecast their financial results than Hasbro has recently. So we're optimistic they can at least come within the range, sort of, of what the Street is expecting. But that is for the declines in the fourth quarter. So it's really affecting Mattel as well. But you can see that the Mattel share price is not even down so much today because I think people recognize the difference a little bit between Hasbro and Mattel.

- All right, DA Davidson Analyst Linda Bolton Weiser joining us this morning. Thanks so much. We'll see if some of the movie and entertainment content is enough to move some more of those toys as well here this year. We appreciate your time this morning.