By Uday Sampath Kumar
(Reuters) -Hasbro Inc's higher-priced toys powered its quarterly profit jump, defying an inflation-driven demand slump gripping American retail and sending its shares 2% higher on Tuesday.
The company is leaning on product launches including new Nerf blasters and expansion packs for its "Magic: The Gathering" role-playing game at a time when fears of a slowdown have gained ground among toymakers.
Walmart (NYSE:WMT) Inc and Target Corp (NYSE:TGT) - which together account more for than a third of Hasbro (NASDAQ:HAS)' sales, according to UBS - have in recent months warned of the toll rising prices were taking on shoppers.
Still, the company is yet to see any push back from consumers over price hikes and could raise rates further if costs increase, Chief Executive Officer Chris Cocks told Reuters.
"Toys tend to be resilient in a recession," Cocks said. "Parents want to keep investing in their children, and toys and games are good entertainment value for the money."
For the second quarter, Hasbro posted an adjusted profit of $1.15 per share, beating analysts' estimates of 94 cents, according to Refinitiv data.
INVENTORY HEADACHE
Despite the strong sales, Hasbro's inventories swelled by more than 73% as it expedited shipments to avoid the shortages it faced during last year's holiday season.
Jefferies analyst Stephanie Wissink said the build-up could hurt margins if inflation starts weighing on consumer demand for toys.
"We initially assumed toy companies would be able to fully pass through pricing, but we're seeing some signs that there’s emerging pushback from retailers and consumers," Wissink said.
CEO Cocks said he expects Hasbro to end 2022 with roughly flat inventory levels compared with a year earlier.