Number crunching…it’s the Friday Blog!

Published on: 22nd April 2022

I hope you all had a splendid Easter. The pleasant weather was a nice bonus in our neck of the woods, and the town centre was certainly busy on Saturday – let’s hope it was a good trading weekend for toy retailers across the country.

Hasbro released its Q1 results this week. The first quarter is not a major toy selling season, so you can’t read too much into the numbers, other than getting a general feel for the overall direction of travel. Hasbro’s Q1 numbers were solid enough – a 4% increase on the same period last year – and there was talk of aiming for “low single digit revenue growth” over the year as a whole, with lost business of around $100m in Russia cited as one of the factors behind the arguably modest aspiration. We’ll come back to Russia a bit later, as there is more to say on that front – but I just wanted to touch on a couple of other quotes from the Hasbro announcement, which I interpreted as subtle digs at an activist investor that has been attempting to cause trouble in recent months.

The investor in question – Alta Fox Capital Management – holds a 2.5% stake in Hasbro. Pretty small beer right? Except for a small player, it certainly hasn’t been shy of telling Hasbro where it has been going wrong and what it should be doing to put it right. Alta “suggested” that the company should spin off its Dungeons & Dragons unit and nominated no fewer than five directors that it argued should be added to the Hasbro board. It also criticized the company’s Brand Blueprint strategy, instigated by beloved former CEO Brian Goldner. So, basically, sell off a division that is performing well, parachute in a bunch of our cronies and row back on the core strategy introduced by a hugely respected former head of the company – sure, that seems an entirely reasonable set of requests. Anything else while we’re at it?

So, fair play to Hasbro for stating that “revenue growth in all segments highlights the strength of Hasbro’s Brand Blueprint strategy” and reaffirming commitment to a share repurchasing programme of between $75-150m this year. Hopefully Alta’s shares are top of the repurchasing list – no-one needs that level of internal interference from an investor with such a small shareholding.

Hasbro is not the only company having to deal with the fallout from the Russian war (let’s call it what it is). Many companies will be facing significant shortfalls after halting business in Russia – but morally and ethically, there is realistically no choice but to cease operations in the country for the foreseeable future. I gather that one major licensor has agreed to remove Russia from licensing agreements and wave all guarantees & royalties. Apparently the licensor in question had already told licensees not to trade in Russia, but when licensees double checked that they would not contractually be liable for paying what they had signed up for, it was confirmed that would no longer be the case. This may seem blindingly obvious, but I am sure many people will appreciate why it was still something worth checking, based on previous experience. How long this crazy situation will go on is anyone’s guess, but regrettably it doesn’t seem that an early solution is in sight.

And while it is entirely tangential, anyone wanting to fly from New York to Hong Kong will now have to endure a 17-hour flight, as the new 10,000 mile route has to detour around Russia, adding two hours to the original flight time, making it the longest commercial flight route in the world. I suspect our American chums will be a tad less enthusiastic about heading back to Hong Kong if that route is still in place when China finally sorts out its own Covid situation (although I am still very much getting ‘don’t hold your breath’ vibes from my contacts in Hong Kong).

Netflix has also cited loss of business in Russia as a major factor after it lost 200,000 subscribers in the first quarter, causing shares to slump by 35% and wiping more than $50b off the company’s market value. Don’t forget, our own dear culture secretary Nadine Dorries (famous mainly for eating Ostrich anus on a reality TV show, lest any of our international readers not be aware of the esteem in which we hold that government position) held up Netflix as the reason why the government has chosen to sell off Channel 4, claiming that public ownership was somehow holding Channel 4 back from “competing” against streaming giants. Turns out the streaming giant has its own problems, chiefly that it is losing money hand over fist and its core business model doesn’t appear viable, at least not in the long term.

You may be asking why all this matters to the toy market, but if you have seen the number of stories we’ve run recently announcing kids TV shows that will be coming to Netflix, you will appreciate that if Netflix crashes and burns, it is going to have a significant short-term impact on the toy community. However, there may be a positive to the whole Netflix situation; one fix being suggested is that the company offers an alternative subscription model, whereby subscribers could opt for a lower priced tariff for a service that includes advertising. Could Netflix end up as a new advertising platform for toy companies? It could be an especially attractive proposition to those brands whose content appears on the channel – watch this space…

Elsewhere this week, toy companies are continuing to capitalize on the opportunity for expansion through acquisition: this very morning, Goliath announced the acquisition of Colorific, a family-owned Australian STEM, craft, activity, pre-school and educational toy business, and I am sure that Vivid Goliath is looking forward to the opportunity to integrate Colorific’s lines into its portfolio here in the UK. Meanwhile over in the US, University Games has announced that it will be taking over the Forbidden Games range, with president Glenn Drover joining University Games as VP of the Strategy Games division as part of the deal.

I am sure there will be more mergers and acquisitions as the year unfolds – there are undoubtedly some great brands out there that can benefit from being part of a larger, global network of companies. As ever, more news as we have it.

Finally, it has been announced that Simon Arora will be stepping down from his role as chief executive of B&M in 12 months’ time and is currently helping the business recruit his successor. However, brother Bobby will be staying with the business. A very interesting role up for grabs there, I suspect there will be no shortage of candidates.