A class action lawsuit was filed against Hasbro Inc. (HAS) by Levi & Korsinsky on November 13, 2024. The plaintiffs (shareholders) alleged that they bought HAS stock at artificially inflated prices between February 7, 2022, and October 25, 2023 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Hasbro stock during that period can click here to learn about joining the lawsuit.
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Hasbro is a multinational toy and game manufacturing company. The company’s products include some renowned gaming and entertainment brands such as Hasbro Gaming, NERF, TRANSFORMERS, PLAY-DOH, and PEPPA PIG.
The company’s claims about manageable inventory levels and demand for its offerings are at the heart of the current complaint.
Hasbro’s Misleading Claims
According to the lawsuit, Hasbro and five of its current and/or former senior officers and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about inventory levels and demand for the company’s products from SEC filings and related material.
For instance, during an earnings call at the beginning of the Class Period, the former CFO stated that Hasbro had high-quality inventory on its balance sheet. Meanwhile, the aged inventory levels were maintained well below the historical levels.
Furthermore, in the Q1 FY22 earnings call, Hasbro mentioned that despite maintaining high-quality inventory, supply chain disruptions were causing a delay in shipments. This, in turn, was impacting Hasbro’s ability to manage inventory levels in line with demand.
Next, during a Q2 FY22 earnings call, the CEO added that inventory levels remained elevated, but the high quality enabled the company to meet consumer demand. Plus, Hasbro’s innovation and product development efforts were bearing fruit. Further, the Amazon (AMZN) Prime Day Deals saw good demand and pre-ordering for Hasbro’s products.
Consequently, the company believed that by year-end, the excess inventory issue could be handled, and it would remain flat year-over-year. The CFO also added that the company was proactive in managing the supply and demand disruptions and was in a better position than the prior year.
However, subsequent events (discussed below) revealed that Hasbro had failed to inform investors about the true extent of the excess inventory challenge and diminishing demand issue.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices during the Class Period. Importantly, the Defendants are accused of misleading investors about the potential impact of the excess inventory
The information became clear in a series of events that occurred between January 26, 2023 and October 26, 2023. Specifically, on October 26, Hasbro released its Q3 FY23 results before the markets opened and reported an 18% year-over-year fall in Consumer Product revenues. Also, it slashed the guidance for the rest of 2023.
During the earnings call on the same day, the CFO noted that the company expected to record a one-time charge of $50 million in the Consumer Product segment in Q4 2023. The charge was for clearing off its excess inventory via marketing and pricing tactics. Following the news, HAS stock plunged 11.6%.
Following these unfavorable developments, HAS stock has lost 35.7% in the past three years, causing massive damage to shareholder returns.
