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THE BACKDROP
The post pandemic performance of the Toy & Game business has been somewhat of a roller coaster: Supply chain/shipping disruption, cost of living driving a rare (virtually unprecedented in living memory) downturn in consumer demand and a broader geopolitical climate which has created a great degree of uncertainty.
As a career long market researcher, one of my frustrations with the Toy business is the paucity of data. So much of what people think in our industry is driven by subjective gossipy conversations from people who work for small and medium sized companies which do not always have strong corporate disciplines and data collection (even if they do have great people and great product development). Aside from the excellent timeless service of paid for data by Circana (NPD as was), formal published, public domain data is limited in our business.
And so, when the big stock market listed companies publish their results, it can give us significant insights into what is really happening with these companies, but also with the broader market. And we’re now at that time of the year where full year results for 2024 have been released, so let’s take a look at each set of results in turn and then draw some conclusions.
HASBRO:
Hasbro have had an interesting few years. Under the much loved and hugely successful previous CEO Brian Goldner, Hasbro seemed to have reached the zenith of their ‘Brand Blueprint’ strategy, which saw them embrace Hollywood and content production, and which drove them to record financials. I was in one meeting with Brian just before I left Hasbro, in which he outlined his thoughts about Hasbro’s future direction, from which it was clear to see at that stage that Hasbro needed to own/control more of their own content output in order to be more consistently successful versus only using other people’s platforms and other people’s brands in the Toy aisles.
The key insight into why Hasbro changed strategy so radically under current CEO Chris Cocks is in focusing on where the growth is. Under Goldner’s strategy, Hasbro focused on Toys, Games and entertainment content focused on kids and families. The issue with that strategy in terms of looking for future growth from where we are now is demographics. The birth rate is low and further dropping in most developed major Toy & Game markets. We’re not going into detail on that point here, but if you want to see the (somewhat depressing!) data on this, I wrote about this extensively in this article you can read here:
So, if you are the CEO of a major Toy, Game and entertainment company like Hasbro, and you have a relatively mature market position, the question is how do you find the future growth which the stock market will demand…? And the answer is you will struggle to find it in selling Toys for kids, because there will be fewer and fewer kids each year, so unless you find a way to sell more Toys per child than your competitors, revenues are likely to soften as the demographics worsen. Hasbro’s insight into this has led them to the clear shift in strategy towards older demographics which aren’t currently shrinking.
The Full Year 2024 results and strategy confirmation released by Hasbro points directly and overtly towards this in the strongest communication to date of this direction.
The following are direct quotes from Chris Cocks’ management remarks from the FY 2024 press releases:
“Hasbro generates nearly 70% of our revenue in categories outside traditional toys for kids – games, digital, licensing, compounds. While we have powerhouse brands for children, over 60% of our audience is 13 or older, representing the lifetime fandom we create with consumers of all ages – whether it’s collecting your first Spidey & Friends action figure to completing your collection of super rare Mox cards for MAGIC: THE GATHERING. Our audience diversity, the lifetime nature of our fandom, and the diversification of our brand portfolio gives us conviction to invest in the future of play.”
“Hasbro has a unique advantage in Aging Up, driving play experiences for fans of all ages whether it’s thru major retail partners like Amazon, Walmart, Smyths or Target, or via our growing direct initiatives including Hasbro Pulse, Magic Secret Lair and D&D Beyond.”
Hasbro’s strategy under Cocks is clearly to focus less on the traditional heartland of Toys for kids. The extended licensing program Hasbro have adopted in the last couple of years has allowed them to reap some big licensing royalties without the costly overhead required for extensive Toy product development programs. By licensing out their Tier 2 (and below) franchises they have generated ‘easy’ cashflow and enabled their organisation to pivot to serving older audiences.
One thing that I have been shocked by as someone who has been around the industry for a long time is the demand for their Kidult targeted offerings. Whenever I look at a product offered via Hasbro’s D2C platform – Hasbro Pulse – I look at a $200 GI Joe vehicle/ship, or a $150 Transformers product and ask myself how many people are really going to buy that. The answer quite often is 20,000 people. Imagine the margin on those sales of $3-4m items sold D2C, cash flowed in advance of production. That’s great business quite frankly!
Anyway, my greater knowledge of where Hasbro has come from has led me to meander on too long without commenting on their actual financial results from 2024. 2024 FY revenues declined by a massive but self-driven 17%, down to $4.1 billion (due to sale of E-One & less topline revenue as rights are licensed out instead of being exploited in house). The key positive figure though is adjusted operating profit at $838 million, which represents 20.4% of revenues, a massive profitability ratio.
Looking forward it is clear Hasbro will continue to focus on ‘Aging Up’, with Chris Cocks also highlighting activity and development of video Games. One question for me is for how long Magic: The Gathering can keep growing revenues versus the point where the brand almost needs to be ring fenced and consolidated. Historically, certainly in my time at Hasbro going back 2 decades, the company was often prone to over pushing strong brands and sometimes accidentally slaying the ‘golden goose’ by pushing sales growth too hard versus protecting the position. If Hasbro can avoid this with Magic, then I would say the short to medium term outlook looks fairly positive.
MATTEL:
Having spent all that time on the major Toy Co I know best, now onto the one I know least in Mattel. The historic backdrop for Mattel is that they have been more focused over time on fewer bigger franchises vs Hasbro, with the ongoing strength of Barbie, Hot Wheels and Fisher Price. Entering the digital era, Mattel were a little slow to embrace that brave new world and were behind the curve in embracing Hollywood and the world of content. In the past 7 years since Ynon Kreiz became CEO, Mattel have made huge strides in this space, culminating in the release of the Barbie movie in 2023 which grossed a whopping $1.447 billion at the global box office, making it the 14th highest grossing movie of all time!
Mattel just reported FY 2024 revenues of $5.38 billion, down 1% versus 2023. Frankly that’s a remarkable result since 2023 results included all the uplift from the Barbie movie, and also taking into account that market conditions in 2024 were not easy at all! Moreover, Mattel announced EBITDA for FY 2024 at $1.058 billion, up $110m versus 2023, and the El Segundo based firm also deployed a $400m share buyback, increasing shareholder value significantly.
FY 2024 Doll sales were $2.2 billion, down 8% due to an understandable decline on Barbie sales versus the movie driven performance of 2023. Vehicle sales seem to have made up the slack with growth of 10% (constant currency basis).
Mattel’s outlook for 2025 is conservative, but still creditable if they can deliver with sales projected to grow c. 2 to 3%, and similar yoy adjusted operating income.
Interestingly Mattel’s results highlight that: “Guidance includes the anticipated impact of new U.S. tariffs on China, Mexico and Canada imports announced on February 1st”
Mattel is different to the other companies included in this report in that they own and operate the factories that produce a significant portion of their products, especially on key brands i.e. Barbie/Hot Wheels. Mattel’s biggest factory is reportedly in Mexico, so there is clear risk of disruption/margin erosion there dependent on where tariffs end up, and whether they are applied across the board, or if Toys manage to miss the threatened tariffs.
The other interesting point came from Anthony DeSilvestro, Mattel’s CFO, who stated that: “in 2025, we expect China will represent less than 40% of global production for our toys and as compared to an industry average of about 80%” Clearly there is ongoing geopolitical tension between China & the USA, but Mattel seem well diversified geographically, and this partly because of their position of owning their own factories outside of China. This is important, because major retailers have been pushing suppliers hard to relocate significant chunks of production outside of China to reduce perceived risks of supply chain disruption.
SPIN MASTER:
To set the backdrop to Spin Master’s FY 2024 results, let’s do a quick review of where they are at in their development. Having been founded by 3 friends in the 1990s, they have grown over that time into one of the Top Toy & Entertainment companies in the world. Their position gives them some unique opportunities for acquisitions: they can make sense of smaller deals than Hasbro or Mattel, they are stock market listed, so accessing funds for acquisitions is relatively straightforward, and so the last ten years has seen Spin Master grow by: organic growth, launching/pushing owned or part owned franchises, diversifying into entertainment & digital gaming AND acquiring strong Toyetic brands. This culminated in the major acquisition of Melissa and Doug, an acquisition I really like because a). It’s incremental in spaces they weren’t b). Diversifies the material base away from being quite so reliant on fossil fuel based plastics as a manufacturing material (since so many M&D products are made from wood), and there is always a risk of consumer rejection of plastic derived from oil.
The FY 2024 show total revenues of $2.263 billion (USD), vs $1.904 billion in 2023, up 18.8%. Most of this growth is attributable to M&D revenues, but growth is growth whether it increased organically or via acquisition. Operating income was down - $165.5 million in 2024 vs $188.9 million the previous year.
Spin Master reported their expectation that Toy sales would increase by 4 to 5% in 2025. This is broadly in line with my projections for the overall market due to a much stronger movie slate this year.
CONCLUSIONS
In what felt like a tough trading environment in 2024, these big three stock market listed giants had comparatively good years. Aside from the fact that diversified large businesses have more options for growth vs smaller perhaps single category companies, there are some other clear takeaways from this analysis:
1). Diversification of consumer demographic is probably a good thing if you haven’t already started working on that already.
2). Toys & Entertainment - as ever the worlds of Toys, Games and Entertainment remain intertwined, despite all the media changes we have seen in our working lifetimes.
3). Brands are SO important in this industry. If you are not building and nurturing your own Brands in this industry you are destined to either have a hard to sell product range or be on the hamster wheel of new product development and licensing in brands to sell.
4). As bigger companies continue to diversify away from relying solely on Kids Toys that should leave more opportunities for those companies who are still solely focused on producing and selling Toys for kids.
GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE
The area of our Consulting promoted the least is Recruitment Consultancy, and the reasons for this lack of promotion should be fairly obvious – sorry Recruiters, but this is not where fun and glamour are at in our business. Nevertheless, this has become one our most in demand services and our primary mission is servicing the needs of Toy & Games companies. We have a social and owned media platform which allows us to directly access c. 25k people in the world of Toys & Games from across the planet, aside from which after 25 years I know many people in this business.
So when a company asks for help in finding their next key hires, it’s normally easy and quick for us to get interested applicants, but then our clients also know that applicants are screened by someone who understands the business intimately, and can spot obvious B.S. – for example, on a recent screening interview I asked a candidate to talk me through how he managed a sales meeting with retailers, and having sat in those meetings myself I assessed his responses not from what sounded good, but from what I knew would work most effectively having been grilled by the same retailers myself.
We just placed a senior Sales guy in an international role, in a geography where good, experienced sales people are very in demand and hard to find/difficult to entice. It's a cliché, but people are your most important asset in our industry. So if you have key senior roles to fill or if you just can’t find someone qualified for a key role you need to fill, just drop me a DM and I’ll explain how we work/can help…
FACTORIES WE REPRESENT
We represent the following factories both in and outside of China. All of these factories have the necessary certifications, have capacity, have a history of successfully supplying other Toy & Game companies:
Games factory in India – supplying major Toy & Game companies with cardboard & plastic games.
Games factory in Vietnam – supplying cardboard, wood & plastic Games, all sourced from Vietnam and Thailand, not reliant on China for supply chain.
Plastic & Electronic Toy Factory in India – major supplier, having supplied 4 out of 5 of the world’s biggest Toy Cos.
Plush factory in India - leading Plush factory with strong R&D skills.
Plastic Toy Factory in China (managed from Hong Kong) – strong track record of decades of supplying Toy companies around the world.
Board Games supplier in China – I have worked with this vendor for 20 years, they have supplied dozens of major & minor customers of mine.
If you would like more information on any of these factories or if you need help with a strategic approach to Sourcing or want to find specific factory types, please feel free to drop me a message.
TOY & GAME BUSINESS CONSULTANCY
In the nearly 15 years I have been Consulting for, we have advised hundreds of companies, set up distribution into most major markets and helped to accelerate our client’s growth. For more information on how we can help, check out our services here: www.KidsBrandInsight.com/services
Sign up to our Free Toy Industry Journal e-newsletter for the latest articles, podcasts, trends and insights into what’s going on in the Global Toy & Games business, just click here to sign up: https://forms.aweber.com/form/54/1325077854.htm
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