Hasbro

Hasbro's second-quarter results included 16% sales growth, stemming from 27% growth in the Wizards of the Coast and digital games segment (67% of sales). The 24.8% adjusted operating margin was hurt by a $56 million digital impairment as Hasbro refocuses on its highest conviction digital brands.

Why it matters: Magic: The Gathering continues to drive growth, delivering $545 million in second-quarter sales (up 32%). Expansion into new locations and Universes Beyond launches are attracting new players to the brand, further penetrating the "kidult" consumer with higher discretionary income. Consumer products marked its third consecutive quarter of growth, with sales up 5%. While segment profits have yet to be optimized (with a quarterly loss on the heels of a cyber breach in March), we expect improvement in the back half assuming mid-single-digit top-line growth persists. Still, the second-quarter operating margin was 220 basis points better than our forecast, helping Hasbro throw off improved cash flow, leading the firm to increase its 2026 outlook for share buybacks to more than $200 million. It held its $0.70 per share quarterly dividend (3.4% yield).

The bottom line: We plan to maintain our $100 per share fair value estimate for narrow-moat Hasbro. Shares jumped 6% on the durability of Magic demand, lower capital intensity ahead, including a 25% reduction in digital spending by 2028, and an improved full-year prognosis. Hasbro lifted its 2026 outlook to include 5%-7% sales growth (3%-5% prior) and adjusted operating margins of 25%-26% (from 24%-25%). Our preprint forecast already had 6% sales growth and 24.4% operating margin, which we plan to nudge toward the low end of new guidance from better mix. We plan to lower our Uncertainty Rating to Medium from High to account for moderated risk perception around tariffs (thanks to Hasbro's high exposure to games) and relatively stable demand for the firm's products, thanks to robust innovation across the portfolio.

We are maintaining our $100 per share fair value estimate for Hasbro after digesting second-quarter performance and nudging our 2026 profit margin outlook modestly higher. Hasbro's first-quarter sales growth of 16% stemmed from 27% growth at the Wizards and digital gaming segment and a 5% uptick in consumer products, and was well ahead of our 7% estimate. The adjusted operating margin of 24.8% contracted 30 basis points year over year, as Hasbro took a noncash impairment charge of $56 million related to the cancellation of select digital games projects set ot launch in 2028 and beyond. Additionally, Hasbro raised its outlook for 2026, calling for constant-currency sales growth of 5%-7% (from 3%-5% prior) and operating margin of 25%-26% (from 24%-25%). Our forecast calls for 7% sales growth (lifted ffrom 6% prior) and a 25% operating margin in 2026 (up from 24.4%).

We view this profitability as impressive, but believe the WOTC and digital games segment sales growth and margin should return to a normalized rate in 2027 of 6% and around 40%, respectively. Hasbro's gaming portfolio remains a source of resilience, with consistent releases stimulating demand and digital assets and local production insulating the firm from tariff risk. The WOTC and digital games segment represented 46.5% of sales in 2025, up 1,000 basis points from 2024. However, consumer products lagged, with a 4% sales decline in 2025, hurt by unfavorable ordering patterns from retailers (due to domestic shipping from direct imports), an issue echoed by narrow-moat Mattel. This should normalize over time, leading to less inconsistent ordering patterns and sales and resulting in less benefit from further mix shifts ahead.

By segment, Hasbro sees low single digit sales growth in consumer products, and low-double-digit sales growth in WOTC, with 6%-8% and low 40%'s respective segment operating margins. This leads to revenue of roughly $5 billion and a 25% operating margin in 2026 in our model, which would generate EBITDA of $1.48 billion, helping fund the dividend and the investment in innovation while continuing to pay down debt.

Furthermore, Hasbro's medium-term plan (2025-27), Playing to Win, targets mid-single-digit sales growth and 50-100 basis points of operating margin expansion annually. In our forecast, we have Wizards of the Coast and digital games growing at 9% through 2027. In the aggregate, we project 5.9% sales growth through 2027, which allows Hasbro to reach more than $5.2 billion in sales in 2027.

Hasbro also had an expense-reduction plan of $350 million-$400 million in annual run-rate savings, an effort that was previously lifted to $750 million and now stands at $1 billion in gross savings (captured between 2022 and 2027). Originally, nearly half of these expense reductions were expected to benefit the bottom line, flowing equally through cost of goods sold and operating expenses.

Both revenue opportunities and cost savings should drive robust ROICs. Continued innovation, a stockpile of ideas for movie tie-ins that will provide free product advertising for Hasbro's goods, and brand enthusiasts, lead to average adjusted ROICs, including goodwill of 30% over the next decade.

We assign a narrow economic moat to Hasbro stemming from an intangible asset edge that has arisen from strong brands that have resonated with consumers over an extended period, bolstered by the ability to market products successfully and an entrenched distribution network. As evidence, the firm boasts solid market share and pricing power, as well as the ability to win licensing contracts, combined with symbiotic wholesaler/retailer relationships.

To start, we think Hasbro’s ability to develop a durable presence indicates its brands have been able to maintain relevance with consumers—in North America, Hasbro remains a key player in the categories it operates within. Most impressive is the firm’s leadership in the $5 billion North America games and puzzles category, where it represents 39.4% of category retail sales (in line with the 39.8% share it held in 2015). Notably, brands like Magic: The Gathering, or MTG, and Dungeons & Dragons, or DND, with passionate fanbases, alone make up 17% of the domestic games and puzzles market (Euromonitor). While the global stage is more fragmented, Hasbro still leads the $15 billion worldwide market in share for games and puzzles (21%), with MTG and DND representing just under 8% of global retail sales. Additionally, in the $3.3 billion domestic toddler infant preschool market, Hasbro is the number three player with 4% share of the baby/infant market and a top five player in the fragmented preschool market with more than 2% market share, bolstered by its Playskool brand. In our opinion, a strong market share implies brand relevance.

We contend that the staying power of Hasbro’s products is a result of its ability to monetize the intellectual property of the brands. Hasbro has excelled here by penetrating across age demographics in its brands and channels (television, apps, analog). For example, the relationship with Discovery (via the Discovery Family channel) delivers kids programming with Hasbro’s brands (Pound Puppies, My Little Pony), providing visibility and engagement through appealing content.

Moreover, we believe further executional success should stem from Hasbro’s ongoing focus on fewer, bigger brands, while outsourcing less fruitful franchises to third-party producers. In our opinion, this has resulted in better pricing power stemming from more effective innovation in key brands at Hasbro, which has already surfaced improving gross margin metrics. Historically, gross margins were on the rise, ticking up to 62% in 2019 from 58% in 2010. But then this metric jumped to 69% in 2020 due to the change in the mix of revenue following the acquisition of EOne. Still, we expect gross margin levels will remain stable as most of the entertainment assets were sold to Lionsgate, and strategic restructuring and cost savings initiatives ensue (we forecast gross margin of 73% in 2026). Over time, we expect pricing to outpace inflation, and faster growth of the higher-margin gaming category will lead to the maintenance of a long-term gross margin around current levels.

We think the firm’s ability to amass a solid market share and price optimally is a function of its consistent spending on product development as well as marketing and advertising. For reference, Hasbro’s product development costs averaged 6% over the past five years, in line with the mid-single-digit rate at narrow-moat peer Mattel. In our opinion, investing in product innovation is just as important to converting ongoing brand sales as are advertising efforts to ensure that its brands remain top of mind. As such, we forecast that Hasbro will allocate 8% of sales to the expense on average over the next five years.

Moreover, not only does Hasbro have several topnotch franchise brands, but its position as one of the largest toy companies allows it to capture licensing partnerships with relative ease, as the firm is a top choice for any partner to pair with, having one of the widest reaches and the deepest marketing pockets across the toy industry. Most recently, Hasbro inked a licensing deal with Nintendo. It also has renewed contracts to produce toys for Disney’s Marvel and Star Wars lines, brands that have shown long-term resonance with consumers. The historical successes of industry incumbents with respect to licensing partnerships are enough to make most would-be competitors skeptical about entering the marketplace and directly competing for new licensing contracts, as the incumbents have more proven sales success.

Furthermore, we surmise that Hasbro’s entrenched position with retailers has led to a symbiotic relationship that would be difficult to replicate by a new entrant, solidifying its brand edge. Thanks to its industry leadership stemming from brand relevance, Hasbro remains a key partner to companies like wide-moats Walmart and Amazon. In 2025, these two sellers comprised 20% of worldwide net toy sales for Hasbro, signaling its importance as a key vendor for filling the toy aisle. We don’t expect these distribution relationships to be disrupted, given that most industry competitors are sizably smaller than Hasbro’s $4.7 billion in net sales (2025) and are unable to provide sufficient inventory levels to optimize shelf space (for example, no-moat Spin Master sold $2.1 billion in toys in 2025).

While we think Hasbro’s efforts to buoy profits are prudent and should aid its ability to reinvest in its brands, we don’t think it suggests a perpetually enduring competitive edge. For one, the recent pruning of the lower-margin EOne entertainment assets will lead to a lift in the profitability due to mix shift, but we don’t see this as suggestive of a cost edge. Additionally, while cost savings stemming from the firm’s pivot to focus on better return on investment properties while outsourcing less fruitful lines is a recipe for higher profits ahead, it fails to indicate a durable competitive advantage that would exceed 20 years, supporting our narrow moat rating.

Opportunities exist in the digital and games space, as Hasbro continues to innovate on existing brands and expand into new areas (like video games).

Stock ownership is compelling for income investors. The firm has an above 3% yield and has paid out around $1.9 billion in dividends in the past five years. The dividend payout ratio should moderate back below 40% over the long term as free cash flow rises.

The firm enjoys a stable expense base and should easily be able to maintain operating margins around 25% as higher margin games and digital remain a bigger part of the total sales mix.

The market for traditional toys could continue to shrink as a percentage of the total as technology plays a more dominant role in product selection and children shift to digital toys at a younger age.

The consolidated retail channel leaves Hasbro at the mercy of its largest outlets (Hasbro's top two retailers account for one-fifth of sales), which could affect profits, depending on demand for promotional spending.

Dislocation from the supply chain and bloated retail network inventories could intermittently weigh on profits, particularly during periods of economic duress.