Hasbro, Inc. — Q1 2023 Form 10-Q
Business context and period. Hasbro is a global play and entertainment company with Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment segments. The quarter ended April 2, 2023 was 14 weeks, versus 13 weeks in the prior-year quarter; results are not necessarily indicative of full-year performance. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $1,001.0 | $1,163.1 |
| Operating profit | $17.9 | $120.0 |
| Operating margin | 1.8% | 10.3% |
| Net income (loss) attributable to Hasbro | $(22.1) | $61.2 |
| Diluted earnings (loss) per share | $(0.16) | $0.44 |
| Cash provided by operating activities | $88.8 | $134.7 |
| Capital expenditures | $53.2 | $29.2 |
| Dividends paid | $96.7 | $94.5 |
Revenue fell 14% year over year (13% excluding $15.8 of unfavorable foreign exchange). Operating profit fell sharply as lower volumes, inventory closeouts and allowances, and higher development, advertising, and selling and administrative costs outweighed savings and lower royalties. The company recorded a $21.0 pretax loss and $0.7 income tax expense.
Segment and brand trends
- Consumer Products: revenue declined 23% to $520.4; operating result swung to a $46.0 loss from $8.6 profit. Management cited retailer inventory reductions, closeout sales, allowances and obsolescence charges.
- Wizards of the Coast and Digital Gaming: revenue rose 12% to $295.2, but operating profit declined 28% to $76.8. MAGIC: THE GATHERING and digital gaming, including D&D Beyond, supported revenue; investment and acquisition-related costs weighed on profit.
- Entertainment: revenue declined 19% to $185.4; operating result swung to an $8.7 loss from $12.2 profit, reflecting fewer and differently timed content deliveries and higher advertising.
- Brand portfolios: Franchise Brands revenue declined 6%, Partner Brands 36%, Portfolio Brands 18%, and Non-Hasbro Branded Film & TV 16%. Total Gaming revenue increased to $386.5 from $378.8; MAGIC: THE GATHERING revenue was $229.1 versus $197.2.
Financial position and liquidity
- Cash and cash equivalents, including restricted cash, were $386.2 at April 2, 2023, down 63% from $1,057.9 a year earlier. Accounts receivable were $685.2; inventory was $713.4, up 11% year over year.
- Balance-sheet debt included $134.5 of short-term borrowings, $109.0 current long-term debt and $3,682.4 long-term debt. The filing reports $3.8 billion of long-term debt principal, with maturities from 2024 through 2044. Production financing is included in debt balances; outstanding production financing was $183.5, and management expected repayment by Q1 2024.
- Operating cash flow declined to $88.8. Financing used $156.6, including $96.7 of dividends and debt repayments; cash declined by $126.9 during the quarter.
- The company reported approximately $1.5 billion available and unused under its revolving credit facility and said it was in compliance with applicable covenants. It stated available cash, expected operating cash flow, credit facilities and production financing were adequate for working capital and obligations through the remainder of 2023.
- The quarterly dividend was $0.70 per share. No shares were repurchased during the quarter; $241.6 remained under the repurchase authorization.
Outlook, management commentary and risks
- Blueprint 2.0 focuses investment on fewer, larger, more profitable brands and exits certain non-core activities. The Operational Excellence program targets $250–$300 million of annualized cost savings by the end of 2025; Hasbro reported an additional $35 million of run-rate savings in Q1.
- Hasbro announced plans to eliminate approximately 1,000 positions, about 15% of global full-time employees, during 2023. The company had $68.7 of remaining payments related to the Operational Excellence program at quarter-end.
- A process to explore a sale of parts of eOne’s film and television business remained ongoing; Hasbro cautioned there was no assurance a sale would occur. The family brands business, including PEPPA PIG and PJ MASKS, was not expected to be included.
- Management emphasized second-half seasonality and continued efforts to manage inventory through closeouts and monitoring demand. Risks include weaker consumer spending, retailer inventory actions, inflation and input costs, foreign exchange, supply-chain and China sourcing concentration, reliance on licensed brands and partners, and the timing/popularity of entertainment releases.
- The filing identifies potential production delays from labor actions, including the writers’ union strike in May 2023, as a risk to entertainment releases. It also notes that the company had paused shipments and new content distribution into Russia.
- Unusual items included eOne acquisition-related intangible amortization charges of $13.3 and Operational Excellence consultant/transformation costs (reported as $8.1 of net charges in the earnings discussion). The company also cited higher Consumer Products inventory obsolescence and closeout-related impacts. No formal revenue or earnings guidance is provided in the supplied filing text.
- After quarter-end, Hasbro announced CFO and business leadership appointments effective in May and April 2023, respectively. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification points
- Track whether consumer demand and retailer inventory levels improve, particularly in Consumer Products, and whether inventory reductions require further discounting or obsolescence charges.
- Assess whether Wizards’ revenue growth converts into operating profit as investment, advertising and D&D Beyond-related costs continue.
- Monitor cash generation, cash balances, dividend coverage, debt maturities and production-financing repayments.
- Verify progress against the $250–$300 million cost-savings target, workforce reductions and associated restructuring cash costs.
- Follow the eOne divestiture process and assess any resulting proceeds, retained obligations or effects on Hasbro’s entertainment strategy.
- Evaluate the impact of foreign exchange, inflation, licensed-brand changes, entertainment release timing and potential labor-related production delays.