Christmas in July: Hasbro increases its inventory purchases to ensure there are enough toys for the holidays

Hasbro Inc. is taking no chances with the 2022 holiday season, increasing its inventory purchases between May and July this year compared to the typical August-December schedule to ensure it has enough items that buyers want.

Supply chain challenges last year caused companies such as Costco Wholesale Corp. cost,
and Walmart Inc. WMT,
to take drastic measures, including chartering their own ships, to get goods on the shelves for the big shopping season. Among toy vendors, Build-A-Bear Workshop Inc. BBW,
said it increased orders in 2021.

“To improve product in-stock this holiday season compared to last, we are advancing deliveries of key items in our inventory to ensure it is on hand,” said Deborah Thomas, Chief Financial Officer of Hasbro during the company’s earnings call on Tuesday, according to a FactSet transcript.

“This allows us to take advantage of the best rates available, but with longer shipping times, it also ensures we don’t have issues with building inventory during times of high consumer demand.”

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Hasbro A.
also ensures that it has enough paper for the “high margin” gaming segment of the business. In the first quarter, Hasbro Gaming, which includes Monopoly and Magic: The Gathering, was up 5% year over year.

Experts are issuing early warnings of supply chain challenges, which are still recovering from bottlenecks and other issues in 2021. Looking ahead, continued pressure from COVID-19 as well as labor negotiations on the west coast of the United States could cause problems.

“Any closure caused by failed negotiations could deal a devastating blow to the supply chain, further impacting delays, shortages and inflation,” said Spencer Shute, senior consultant at the firm of supply chain consultancy Proxima, in an email to MarketWatch.

China is still grappling with COVID-19 infections that threaten manufacturing and other parts of the overseas supply chain network.

“With limited air cargo options in Shanghai throughout the lockdown, all air cargo ports will expect to be inundated with increased volume in an attempt to meet pending demand,” Shute said.

“The downstream effects of this lockdown are shaping up to have an even greater impact on US ports than anything experienced during the pandemic.”

Along with the inventory strategy, Hasbro also announced that it will resume stock buybacks, with a target range of $75-150 million set for 2022.

Additionally, price increases will take effect to offset shipping and product costs, including the first price increase on Magic: The Gathering items. DA Davidson analysts note that Kamigawa: Neon Dynasty, a Magic set, “was the best-selling winter set of all time, +28% over last year’s set.”

DA Davidson rates buying Hasbro stock and raised his price target to $128 from $121.

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“While consumers and industry have weathered the storm of inflation so far, the dual market Hasbro caters to – children and collectors – may start to see some consumers fall,” James said. Zahn, deputy editor of the Toy Book.

“While parents might not notice much since they’re buying toys for special occasions, a frequent collector who ‘must have them all’ is going to have their wallets hit.”

Hasbro is bringing back the starter lineup collectibles this fall. And the recent acquisition of D&D Beyond with its 10 million players is just part of the plan for the popular Dungeons & Dragons game, featuring movies, video games and more.

To see: Dungeons & Dragons is on such a roll, Hasbro bought D&D Beyond for almost $150 million in cash

“Buying D&D Beyond largely borrows a page from the LEGO playbook — like when this company bought Bricklink a few years ago in an effort to better connect with its adult fans,” Zahn said.

“Even a few years ago, D&D was considered by many to be a niche brand, but now fantasy gaming is really mainstream.”

JPMorgan analysts are bullish on Hasbro’s long-term outlook, but kept their rating neutral and their price target of $95.

“Hasbro faces a tough turn in 2022 with revenue growth expected to slow and higher costs continuing to put pressure on margins,” the analysts wrote.

“Longer-term, Hasbro’s results are supported by a strong entertainment roster that is driving partner brand activation, continued innovation in its own-brand portfolio, and growth in digital games. However, given the near-term headwinds, we believe this remains a telling story as the valuation looks complete.

Hasbro stock is up 3.5% for the week so far, but has fallen 13.3% for the year to date.