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Hasbro CEO says inflation won’t hurt holiday sales. Investors disagree

Hasbro, Inc.

By Paul R. La Monica, CNN Business

(CNN) - The holidays are rapidly approaching, and for the toy company Hasbro, a slowing economy could be a proverbial Grinch that steals Christmas.

Shares of Hasbro, which makes toy brands including Play-Doh and Monopoly, are already down 40% this year. That's more than twice the drop of competitor Mattel's stock and far worse than the S&P 500's 16% decline in the same period.

Then there's the worry that inflation could cut into consumers' budgets. One major retailer — Target — has already noted a slowdown in overall toy sales.

That presents a challenge for Chris Cocks, who took over as CEO in February after long-time chief executive Brian Goldner passed away in October 2021. He is optimistic that Americans will still open their wallets this season.

"Consumers definitely feel inflation," Cocks said in an interview with CNN Business earlier this month. But he also noted that the job market is healthy, wage growth is strong and many people are still sitting on pandemic stimulus payment savings from 2020 and 2021.

With that in mind, he thinks parents will do all they can to create "a great holiday experience for kids."

Cocks also said that supply chain problems related to the pandemic that kept some toys stuck on container ships overseas or at ports in California have largely receded. This shouldn't be like 2020 or last year, when some parents were unable to get hot toys under the trees or in stocking in time for late December.

"I think we're going to see a more normal kind of holiday cadence where, you know, November, December, it's really going to ramp up and there's going to be lots of product and lots of choice for consumers on the shelf," he said.

Investing in digital toys

Cocks was previously head of Hasbro's digital gaming division, which is home to the popular "Dungeons & Dragons" game, as well as head of the toymaker's "Wizards of the Coast" role-playing game.

Before joining Hasbro, Cocks was an executive at Microsoft from 1999 through 2006 and 2008 through 2016. He left Microsoft briefly for a two-year stint at interactive educational toymaker LeapFrog.

So Cocks understands the importance of tech for the toy industry in this increasingly digital world, especially for kids more inclined to pick up a phone or tablet instead of an action figure, doll or board game.

Cocks said Hasbro is investing "significantly" in digital toys, particularly digital versions of classic Hasbro board games like "Monopoly" and "Scrabble" as well as D&D and the company's "Magic: The Gathering" game.

"We have digital experiences that help to augment that core gameplay experience, help you be able to find new players, help you be able to bring the experience to life on the screen. And that's been a fantastic addition to our portfolio," Cocks said, adding that mobile gaming and desktop gaming can only serve to enhance the popularity of these brands.

Cocks said that the digital effort isn't just about the types of toys either. It's also about selling more products online via Hasbro's own sites so the company is not relying exclusively on retail partners like Amazon and Walmart. Cocks said Hasbro is branching out in particular with digital sales of exclusive toys to adult collectors, a rapidly growing segment of the market.

And more is to come on the digital front, he said.

"We've been starting over a half dozen new studios to build blockbuster video game experiences that extend those brands and help us as a company be able to grow into what I think is a sweet spot of the future of entertainment," Cocks said.

But the company isn't shying away from classic toys either. Hasbro has a lucrative franchise of toys for babies and toddlers thanks to its Playskool brand. It also owns Play-Doh, Mr. Potato Head, Nerf, My Little Pony, GI Joe and Transformers.

Benefiting from Disney...and Peppa Pig's popularity

Hasbro has close ties with Disney, selling toys tied to the lucrative Star Wars, Marvel and Disney Princess and Frozen brands. (Hasbro is losing the Princess and Frozen lines to Mattel next year.)

And Hasbro added more popular characters to its arsenal in 2019 with the acquisition of eOne, which brought cartoon franchises Peppa Pig and PJ Masks into the fold.

Hasbro has since announced plans put some of the non-core parts of eOne up for sale, including the movie and TV film studio that produced the historical action film The Woman King with Viola Davis and Showtime TV show Yellowjackets.

Hasbro previously sold the Death Row music label that eOne also owned to private equity firm Blackstone, which subsequently turned around and sold Death Row to rap star Snoop Dogg earlier this year.

At the end of the day, Cocks wants Hasbro to be a toy-focused company that has some entertainment assets that feature its top brands, and not stretch itself too thin.

With that in mind, Cocks is optimistic that Peppa Pig toys, new products tied to the hit "Black Panther: Wakanda Forever" Marvel movie and the perennial winner that it is Play-Doh will be big sellers this holiday season.

Some experts more worried about holiday sales

Still, others in the industry are a little more cautious.

Isaac Larian, CEO of MGA Entertainment, the privately-held owner of the Bratz and LOL Surprise toys, said in an interview with CNN Business that he understands "inflation has had an effect" on consumers and that many parents may delay toy shopping until December in order to wait for deals and promotions.

Larian is still confident that toy sales will hold up this holiday season, but he conceded that toys are a discretionary item and that his company can't aggressively raise prices because of inflation without the risk lowering sales.

"Families are struggling with high gas prices. If we passed big increases in costs to consumers, we don't think that would be workable," he said.

Cocks agrees. He told CNN Business that Hasbro was doing its best to keep costs stable and offer toys at a variety of price points

Still, Wall Street is worried, and that shows in Hasbro's dismal stock performance this year.

Bank of America Global Research analyst Jason Haas recently cut his rating on Hasbro to "underperform," citing concerns "that Hasbro has been overproducing Magic cards, which has propped up Hasbro's recent results but is destroying the long-term value of the brand."

Haas estimates that Magic: The Gathering accounts for about 15% of overall sales.

Cocks didn't share those concerns, and pointed out that demand for Magic and other role-playing card games continues to grow, particularly among female players.

He also noted that Hasbro has gotten a big boost in its Dungeons & Dragons role-playing business thanks to prominent exposure for the game on the most recent season of Nettflix's "Stranger Things."

"We love our partnership with Netflix and Stranger Things. It's definitely been a boon for the game," Cocks said. "Nearly 50 years since the launch of the brand, it's bigger than ever and it's in more places than ever."

But BofA's Haas said he's also growing "increasingly cautious" about sales for Hasbro's other consumer products "given negative read-through from retailers."

Target has already warned that toy sales so far haven't been as strong as hoped.

"We saw a meaningful deceleration in toys this quarter, most notably in October. This is a trend we will continue to monitor closely as we move throughout the holiday season," said Target chief growth officer Christina Hennington on an earnings call.

Cocks remains confident, though, that Hasbro can avoid having a Blue Christmas.

"Toys are traditionally a very economically resilient category," he said. "If there's a couple of truisms in life, there's death, there's taxes, and there's parents wanting to have a great holiday for their kids."

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