Hasbro stock suffers a downgraded outlook in the face of recent layoffs and controversies

CEO Chris Cocks acknowledged the challenges, stating:

"The market headwinds we anticipated have proven to be stronger and more persistent than planned. While we're confident in the future of Hasbro, the current environment demands that we do more."

This sentiment aligns with the cautionary tone shared by Mattel in October, signaling a slowdown in the toy industry after years of record growth during the pandemic.

However, analysts like Bolton Weiser remain more optimistic about Mattel's prospects compared to Hasbro. Mattel continues to benefit from the success of the Barbie Movie and other marketing catalysts, potentially helping the company weather the industry's slowdown more effectively.

Bolton Weiser's concern centers on Hasbro's ability to manage its financial obligations amidst slowing toy sales. With overall toy sales on the decline, the analyst notes that Hasbro may have less cash available to pay off debt and provide cash dividends. This could, of course, potentially lead to a dividend cut in early 2024.

Hasbro stock reflected these concerns, falling 1% to $50.53 on Tuesday. Over the last 12 months, the shares have seen a decline of 17%. Delving into the specifics, D.A. Davidson analyst Linda Bolton Weiser provided additional insights. The analysis highlighted Hasbro's acknowledgment of a post-COVID correction in the toy industry, with the aforementioned thoughts of CEO Chris Cocks foreseeing the challenges faced in 2023 persisting into 2024.

Bolton Weiser anticipates that pressures on consumers and Hasbro's business will drive management to focus on fixing the cost structure in 2024, with hopes for the industry to return to historical growth over time. Consequently, she adjusted toy segment sales estimates for Fiscal Year 2024 (FY24) to +1% Year-over-Year (Y/Y) from +3% and the EPS estimate to $3.40 from $3.60.

The analyst expressed skepticism about the consensus operating profit estimate of 29% for FY24, modeling a more conservative outlook of +12% to $755 million. Notably, Bolton Weiser's model suggests that 2023 could be the second consecutive year where free cash flow (FCF) does not cover cash dividends.

Despite projected FCF improvements in FY24 and FY25, along with solid EBITDA growth, the analyst estimates debt-to-EBITDA ratios of 3.4x in FY24 and 3.0x in FY25, falling short of the targeted ratio of 2.5x. To meet this target, Hasbro might need to consider a dividend cut in early-FY24.

Hasbro is certainly navigating a challenging financial landscape, with analysts closely monitoring its ability to adapt to industry changes and maintain financial stability in the face of a turbulent toy market. But with all of that said, WoTC is looking at a major push in 2024. Magic: The Gathering will release new expansion sets starting with Murders at Karlov Manor, as well as crossovers with other popular franchises. Meanwhile, Dungeons & Dragons is preparing to celebrate its 50-year anniversary through the new One D&D edition of the world's most popular TTRPG.

On the other hand, both brands have had their own controversies, including issues of plagiarism, the unethical use of A.I., the Open Gaming License (OGL) scandal, the mediocre box office of Dungeons & Dragons: Honor Among Thieves, and the infamous Pinkerton incident.

Could WotC's high-profile push be enough to carry the rest of Hasbro through 2024? Perhaps Dungeons & Dragons and Magic: The Gathering's influences help to rally the rest of Hasbro's line of business to recover this year? Or has the goodwill been stretched too far of even the most die-hard D&D and MTG customers and fans?