Wizards of the Coast’s Magic: The Gathering and Dungeons & Dragons were two bright spots in Hasbro’s Q3, an otherwise tough quarter with sales and earnings both hit by actual and threatened tariffs on goods from China, the company reported today.  Hasbro Gaming, which does not include franchise brands Monopoly and Magic: The Gathering, was down 17% year over year, with some “off-the-board” game brands, such as Bop It!, falling subject to the List 3 25% tariffs enacted during the period.  Total gaming sales, including Magic and Monopoly, were roughly flat, a big change from the 26% growth in Q2 (see “Magic’ Sales Drive Hasbro Q2 Growth”).

Sales were roughly flat overall, at $1.6 billion for the quarter, with U.S./Canada revenues down 2% and entertainment, licensing, and digital revenues up 20%. 

Sales were impacted even on products on which tariffs were delayed until December 15 (such as board games), because large retailers canceled direct import orders, on which they take possession in Asia, in favor of letting Hasbro import the products themselves, dealing with any tariff issues, and buying from Hasbro domestically.  The change in how retailers order was due to the threat of tariffs during the quarter.  Hasbro was unable to get product through its own supply chain fast enough to keep the sales in Q3.  And not all of the canceled orders are likely to be replaced by domestic orders, company CEO Brian Goldner said in the company’s conference call (transcript via SeekingAlpha). 

Goldner described the situation as “a very choppy environment where retailer order patterns have changed in response to potential tariffs, and our supply chain is being pushed to meet high levels of demand in condensed periods of time.”

Profits for the quarter were down 19% from a year ago (which was negatively impacted by the Toys ‘R’ Us bankruptcy).  The sales hit wasn’t the only way tariffs hit profits; costs were also up as Hasbro scrambled to get inventory to the U.S. and to its customers to replace canceled direct import orders, using air freight at times. 

The company warned several times during its conference call that Magic: The Gathering would have a tough comparison to the previous year during Q4, due to a product release moving earlier in the year relative to the 2018 release pattern.

Other Wizards of the Coast news from the conference call included the revelation that the company has “close to a dozen [digital] games in development for delivery over the next five to six years;” the acknowledgment that that “only a small percentage” of sales on Magic: The Gathering and Dungeons & Dragons is captured by NPD data (that’s the percentage that goes through chains or online retailers such as Amazon); and the belief at Hasbro that WotC sales can be doubled over the next five years, “…as we’ve accomplished over the past five years.”

Shareholders didn’t like the quarterly report, pushing the share price down over 16% in trading Tuesday.