Toy products entertainment giant Hasbro, Inc. (NYSE: HAS) shares are trying to grind back towards pre-COVID levels as the benchmark S&P 500 index (NYSEARCA: SPY) grinds to new all-time highs. Shares are still trading more than 20% below its year-to-date (YTD) highs. The Company has pivoted to adapt to the migration towards digital entertainment and refined its products to also appeal to the money demographic of Marvel Cinematic Universe fans (NYSE: DIS) bolstering its pipeline of collectibles, toys and live action projects. Hasbro’s supply chain and manufacturing has resumed in nearly all regions as restarts hit globally. Prudent risk-tolerant investors may consider opportunistic pullback entries as the rebound gains traction ahead of the holiday shopping season.
Q2 FY 2020 Earnings Release
On July 27, 2020, Hasbro released its second-quarter fiscal 2020 results for the quarter ending June 2020. TheCompany reported a gain of $0.02 per share falling short of consensus analyst estimates for a profit of $0.23 per share, a (-$0.21) per share miss. Revenues fell (-12.6%) year-over-year (YoY) to $860.3 million falling way short of consensus estimates at $986.51 million. The COVID-19 pandemic severely disrupted supply chain and manufacturing facilities in the U.S., Ireland and India which make up 45% of production capacity. Distribution was hampered due to the numerous brick-and-mortar distribution channels being shutdown or limited. Live action production schedules were shuttered due to the pandemic as well, pushing back production dates causing eOne entertainment revenues to drop (-30%) YoY. E-commerce sales were robust but not enough to offset the negative effects of store closures. Gaming revenues were the highlight rising 11% YoY from strong demand of Magic: The Gathering as well as legacy games including Monopoly, Jenga, Twister and Scrabble were robust due to stay-at-home mandates. The Company ended the quarter with $1 billion in cash with an additional $1.5 billion revolver available and accessible as needed.
E-Commerce Leads the Way
E-commerce grew to 30% of toy and game sales in Q2, up 13%. This was an exceptional milestone that accelerated due to the pandemic as the Company has been investing in “building a digital-first organization” for many years. Hasbro continues its digital migration and expects e-commerce to grow into more than 30% of full-year total company revenues. Licensing for Disney’s Frozen 2, Lucasfilms Star Wars and Marvel lines have been a boon and expected to flourish as production resumes for Mandalorian and Marvel’s Phase IV rollout of big-budget live-action productions.
Supply Chain and Production Back Online
Demand wasn’t the problem, the supply chain, manufacturing and distribution channels were negatively impacted by COVID-19. Production shutdowns occurred from mid-March to mid-May but have been coming back online quickly. High demand for Play-Doh and Nerf lines were severely impacted with the shutdowns during Q2. These are all recovering heading into the Fall and holiday shopping season. With kids staying at home with online schooling, demand for toys and entertainment products should be heavy in 2H 2020.
CEO Brian Goldner updated investors on the strong 2021 entertainment lineup and expects to beef up content production cash spend to a range of $445 million to $450 million and expects $130 million in synergies from the acquisition of eOne by the end of 2022. Hasbro has invested heavily in creating its own IP taking a lesson from Marvel’s Cinematic Universe. The demand for eOne content is huge and the company projecting spend to increase to $450 to $500 million due to earlier production delays in 1H 2020. They are developing over 100 films and 60 new TV projects of Hasbro IP and new IP with distribution deals and series on Netflix, Alien TV and upcoming My Little Pony 2021 feature film. The live-action, animated and feature film content in turn drives up demand for its toy products and games. The Q2 2020 earnings sell-off was a headfake that is enabling prudent investors to step into shares of Hasbro below pre-COVID levels.
HAS Opportunistic Pullback Price Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for HAS stock. The monthly rifle chart is in a channel tightening with a bullish stochastic mini pup. This means that support is rising as illustrated by monthly 5-period moving average (MA) at $76.38 heading towards the 15-period MA bumper at the $90.41 Fibonacci (fib) level. The weekly rifle chart triggered a market structure low (MSL) buy above $71.22. The weekly stochastic has a mini pup that targets the upper Bollinger Bands (BBs) at $86.57. Further upside trajectories point to the $90.41 monthly 15-period MA, up towards the $99.68 gatekeeper fib. A breakout through $100 can slingshot it towards the $104.88 gatekeeper fib. Opportunistic pullback price levels are at the $78.90 fib, $75.38 monthly 5-period MA, $74.90 fib and the $71.22 weekly MSL trigger. It’s always prudent to gauge the systemic context during company-specific movements. Traders should monitor the SPY levels in the background to gauge if HAS is buy or sell fading as it nears critical inflection points to top out or springboard the markets higher.
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