7 reasons Hasbro’s investor day flopped

Yahoo Finance's Brian Sozzi breaks down his takeaways from Hasbro's investor day and what it signals to shareholders about the health of the toy company.

Video Transcript

BRAD SMITH: After several quarters of struggles and a stock price still hovering near a 52-week low, Hasbro held a closely watched investor day on Tuesday afternoon. The Dow finished up 825 points on yesterday's session, yet Hasbro stock barely finished up 2%. That lack of enthusiasm for Hasbro stock on such a hot day in the markets caught the attention of our Brian Sozzi. That's where we find his take today, in the toy aisles.

BRIAN SOZZI: It darn right caught my attention. Now I have two levels of what I would call nuclear analysis. Nuclear level one would be my takes on Bed, Bath & Beyond and Sears in the past. Now this is level two, a little more toned down, but very critical, I think, of what Hasbro put up yesterday at its investor day, with its stock near a 52-week low and under considerable pressure for the past year because of various operating struggles and probably just not getting it done operationally, and also on several earnings calls.

So here's what I got, my takeaway from what was a three-hour plus livestream presentation where they also happened to unleash their 2050 sustainability goals. First up here, full year revenue guidance slashed. So full year revenue guidance taken down by Hasbro. At the same time, they're pumping investors with 2027 targets and their sustainability goals for 2050. Next up, third quarter reported sales down 15%. So what does that mean? They dropped an earnings warning during this three-hour livestream presentation.

Next, third quarter constant currency sales excluding-- which means excluding FX volatility, down 12%. Third quarter operating margin seen under pressure. Next up, operating profits interestingly seen up over 50% over the next three years, mostly driven by cost cuts, despite an economy that contracted in the first half of this year. In other words, I'm saying it's going to be very hard to hit that type of growth rate and with an economy under pressure and a lot of uncertainty out there ahead of the crucial fourth quarter holiday shopping season.

Next up here, I have 6 and 7. They put out 2027 sales target of $8 and 1/2 billion. Well, the Street for this year, they're estimating $6.5 billion. So they have a lot of sales, a lot of sales they're going to need between now and 2027 to reach that big goal. And along that same line, operating margin target of 20% by 2027 for Hasbro. They laid out the Street is estimating for this year 16.2%. So those are very, very big promises that Hasbro came up here-- came out there with yesterday.

Now, here's what I'm hearing from various investors that I talked to on Hasbro. The outlook cut on Hasbro is holding more sway with investors near term. So we saw that a little bit yesterday with the market reaction, the stock only about 2% down after hours, seeing it under pressure here today. Investors more concerned about them cutting guidance and maybe not living up to expectations in the fourth quarter. Also, the 2027 targets look too optimistic, as you probably gathered from my tone around them.

And here's some of my other analysis on Hasbro as we tie this all in a bow. Hasbro, at this point, is a "show me" story. Now, that is something echoed by the team at JPMorgan, who published a note on Hasbro this morning. I have that on the Yahoo Finance home page right now. There I am with My Little Pony. Big fan of My Little Pony, like My Little Pony.

Stock is near a 52 low for a reason, or a series of reasons, for Hasbro. And then last but not least, why is Mattel's stock trading at a major PE discount to Hasbro? I encourage the market to just reflect a little bit on Hasbro. This is not the same Hasbro as it was three or four years ago.

This is a struggling Hasbro and a Mattel that has been a full-on turnaround story under CEO, Ynon Kreiz, notably in that Barbie division and in the Hot Wheels division. And now they're going to start to come out with movies. I don't understand that disconnect. And my take here is very simple-- SMH. I'm shaking my head. I don't get it.

BRAD SMITH: There would have to be a major, on the entertainment front, kind of a breakup of some of the deals that are already in place, or a winding down of the deals in place, on the entertainment front in order for them to capitalize on the toys that are typically annexed to any type of major movie title that comes out. Mattel has done so well at netting those partnerships. You've got to ask yourself, what does Hasbro see coming out in 2026 and 2027 that they would be able to capitalize on and net a big deal or partnership that allow them to sell through toys?

BRIAN SOZZI: Fabulous point, Brad. I'll add this, too. We didn't get a lot of detail on them restructuring the E1 entertainment business. They bought that in 2019 for $4 billion. They teased that they might restructure that business over the summer. We didn't get a lot of details. Should have got them-- the market wanted it.

BRAD SMITH: All right, that's Sozzi's take for today here in the toy category.