A new complaint was filed against Hasbro, Inc. (HAS) by shareholder (plaintiff) West Palm Beach Firefighters’ Pension Fund on November 13, 2024, in the U.S. District Court for the Southern District of New York. The defendants in the complaint are the company, CEO Christian P Cocks, CFO Gina M Goetter, and two other company executives. To learn more about the lawsuit, click here.
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The plaintiff alleges that the fund bought HAS stock at artificially inflated prices between February 7, 2022, and October 25, 2023 (the “Class Period”) and is now seeking compensation for their financial losses.
Hasbro is an American multinational toy and game manufacturing company. The company boasts some renowned gaming and entertainment brands, including Hasbro Gaming, NERF, TRANSFORMERS, PLAY-DOH, and PEPPA PIG.
The filed complaint alleges that during the Class Period, the defendants misled Hasbro investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
Plaintiff’s Allegations
According to the complaint, Hasbro intentionally misrepresented information in its financial statements submitted to the U.S. Securities and Exchange Commission (SEC). In particular, the defendants wilfully misled investors about the excess inventory issues sitting on its balance sheet.
For instance, Hasbro loaded up excess inventory during the onset of the COVID-19 pandemic in anticipation of growing demand for at-home games and activities. Also, there was a need to stock inventory as supply chain challenges hampered timely supplies. Accordingly, Hasbro’s purchases overshot the expected demand. However, the defendants allegedly led investors to believe that such excess stock was required to meet the anticipated holiday demand in the Christmas season.
Hasbro’s Misrepresentations
In contrast to the claims made by Hasbro and the defendants, the company’s revenues started declining, and it had to give customer discounts and undertake price cuts to move inventories from stores and clear the balance sheet.
The information became clear on January 26, 2023, when the company gave a preview of its Q4 FY22 financial results. In the holiday quarter, sales fell 17% year-over-year. Despite the growing inventory challenges, the defendants continued to give false hope to investors.
In another report released on April 27, 2023, one defendant claimed that the company was able to manage the overstocking issue by reducing its inventory levels and was on track for improvement.
Finally, in the Q3 FY23 earnings report filed on October 26, 2023, Hasbro reported an 18% year-over-year decline in consumer product revenues and also slashed the guidance for the rest of Fiscal 2023. Additionally, Hasbro recorded a one-time $50 million charge for clearing off its excess inventory via marketing and pricing tactics. Following the news, HAS stock plunged 11%.
To conclude, the defendants allegedly misled investors about the excess inventory issues faced during the post-pandemic period. They led investors to believe that the problem was being dealt with effectively, only to reveal later that the revenues were collapsing, and inventories were being cleared with heavy discounts. In the past three years, HAS stock has lost 27.7%, causing massive damage to shareholder returns.
