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Sales-Boosting Initiatives Aid Hasbro (HAS), High Costs Hurt

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Hasbro, Inc. (HAS - Free Report) is benefiting from its focus on various sales-boosting initiatives, solid demand of its gaming category and opportunities in the emerging markets. Aided by these tailwinds, the company remains optimistic on its long-term growth trajectory (next three years) across its crucial growth defining metrics.

Shares of this designer, manufacturer and marketer of games and toys rose 10.5% in the year-to-date period against the Zacks Toys - Games - Hobbies industry’s 2.9% decline. The uptrend can be attributable to the company’s intent focus on enhancing and diversifying its product portfolio, inventory optimization and resetting the cost structure.

The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s 2024 earnings is pegged at $3.23 per share, depicting 28.7% growth from the prior year’s reported levels. Furthermore, the earnings estimate for first-quarter 2024 showcases a whopping 2,900% growth rate compared with the year-ago reported figure. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and the chances of an outperformance in the near term.

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However, the aforementioned tailwinds are partially offset by declining trends from Hasbro’s Consumer Products and Entertainment segments and increasing cost scenario. These headwinds are hindering the company’s growth prospects to some extent.

Growth Drivers

Sales Boosting Strategies: Hasbro continues to invest in several sales boosting initiatives to increase growth prospects across its existing and new markets. The initiatives include investments in innovation, strategic partnerships or collaborations and focus on diversifying its product portfolio. The company’s partnership with Paramount, investment in Boulder Media and focus on various product franchisees are examples of its accretive investments undertaken to boost growth prospects.

HAS continues to release the Transformers Franchise in all forms of entertainment, including movies, television and digital expressions. The TRANSFORMERS franchise experienced robust growth in 2023, with a 35% increase in point of sale driven by the success of the movie ‘Transformers Rise of the Beasts’ in partnership with Paramount.

Furthermore, the company launched FURBY, which emerged as a top new toy in 2023, thus paving the way for continued growth in 2024.  The launch of the mobile game MONOPOLY GO! from its partners Scopely also added to the uptrend for 2023.

Gaming Category Bodes Well: Hasbro has been witnessing strong gaming demand on the back of its supreme gaming portfolio. The company is refining gaming experiences across a multitude of platforms like face-to-face gaming, tabletop gaming and digital gaming experiences in mobile. The company's gaming category, which includes Magic: The Gathering, NERF, Peppa Pig, My Little Pony, Transformers, Play-Doh as well as Hasbro products for the Marvel portfolio, are performing well.

In 2024, HAS is planning to introduce new innovations into the gaming category, which will feature a new performance start technology, pop off-the-shelf design and attractive pricing across the range. Given the company’s intentions on investing in longer-term larger game play, management remains optimistic that 2024 will be a big year for gaming, including adult party games, family card games, casual strategy and extending mega hits like Monopoly.

Focus on Emerging Markets: Hasbro is actively seeking growth opportunities through its international business by expanding into emerging markets in Eastern Europe, Asia and Latin and South America. Emerging markets offer greater opportunities for revenue growth than developed markets and have been contributing to a significant share of Hasbro's revenues, given its investments in advertising and other brand-building efforts.

Over the next few years, Hasbro anticipates emerging markets to grow in double digits, backed by innovation in products, entertainment and market share gains. The company reinforced its five-year plan (2018 to 2023-24) to double its Wizards business.

Factors Hindering Growth

Dismal Consumer Products & Entertainment Performances: The growth prospect of Hasbro has been deteriorating due to soft contributions from its Consumer Products and Entertainment segments. The declining trend can be attributable to planned license exits and a decline in toy and game volume, given the broad category trends and unfavorable pricing and mix.

For fiscal 2024, segment-wise, the company envisions revenues in Consumer Products and Pro-Forma Entertainment segments to decline year over year in the range of 7-12% (at cc) and to $15 million, respectively.

High Costs: Hasbro's initiatives, including product launches and a shift toward more technology-driven toys for reviving its brands and boosting sales, are likely to drive profits in the long term. However, costs related to those initiatives might prove detrimental in the near term. It is shouldering high expenses with respect to freight, product costs, sales allowances and various toy and gaming products closeouts.

In the fourth quarter of 2023, Hasbro’s cost of sales (as percentages of net revenues) was 44.5% compared with 34.6% in the year-ago quarter.

Key Picks

Here are some better-ranked stocks from the Consumer Discretionary sector.

Strategic Education, Inc. (STRA - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

STRA has a trailing four-quarter earnings surprise of 17.2%, on average. The stock has gained 12.4% in the past year. The Zacks Consensus Estimate for STRA’s 2024 sales and earnings per share (EPS) indicates an increase of 5% and 24.5%, respectively, from the year-ago levels.

Adtalem Global Education Inc. (ATGE - Free Report) currently sports a Zacks Rank of 1. ATGE has a trailing four-quarter earnings surprise of 16.9%, on average. The stock has increased 32.5% in the past year.

The Zacks Consensus Estimate for ATGE’s fiscal 2024 sales and EPS implies growth of 6.4% and 10.2%, respectively, from the year-ago levels.

Ralph Lauren Corporation (RL - Free Report) presently sports a Zacks Rank of 1. RL has a trailing four-quarter earnings surprise of 18.7%, on average. The stock has risen 47.1% in the past year.

The Zacks Consensus Estimate for RL’s fiscal 2025 sales and EPS implies growth of 4.2% and 9.5%, respectively, from the year-ago levels.

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