J.P.摩根-美股零售业-行业 公司深度研究(HAS,MAT,FNKO)

NorthAmericaEquityResearch

16June2022

ToyTime

Sector/CompanyDeepDive(HAS,MAT,FNKO)

Retailing/Broadlines&Hardlines

MeganAlexander,CFAAC

(1-212)622-6457

megan.alexander@

ChristopherHorvers,CFA

(1-212)622-1316

christopher.horvers@

ChristianCarlino

(1-212)622-9145

christian.carlino@

AbigailLake

(1-212)622-5412

abigail.lake@

J.P.MorganSecuritiesLLC

Inthisprimer,weprovideanoutlookfortoyindustrytrends,alookbackat

categoryperformanceinrecentrecessionaryperiods,andadeepdive

comparisonofeachcompany’sportfolios(HAS,MAT,FNKO)andgrowth

strategies.Bigpicture,weremainpositiveonthebroadertoyindustry,especially

inlightofinvestorwarinessaroundaconsumerspendingslowdownandlapping

outsizedgrowthduringCOVID,giventailwindsfromastrongboxofficecontent

rebound,fusionofcorebrandswithentertainmentandtechnology,andits

historicalresiliencyduringdownturns.

$96Bmarketgrowing~5%.Theglobaltraditionaltoyandgamesmarketisa

$96Bfragmentedindustrywitheightofthelargestcompaniesaccountingfor

40%ofglobalsalesin2021,perEuromonitor.Thesectorisdrivenbythe

economy,populationgrowthanddemographictrends,innovationand

technology,andentertainmentconsumption.Theindustryisexpectedtogrow

5%in2022following9.7%growthin2021andreach$125Bby2026with

NorthAmericaanddollscontributingthemostgrowthonageographicaland

categorybasis,respectively.Figures1-7.

Relativesafehavenduringcyclicaldownturns.Whilearecessioncould

changethegrowthforecast,wewouldstillexpectrelativeoutperformanceas

parentshavehistoricallybeenreluctanttocutbackontoyspendingduring

recessions,partlyduetolowaveragepricepoints/productdurability,andthereis

lowerriskofdemandpull-forwardgiventheeventnatureofthecategory.Inour

view,bothMATandHASaregrowth-oriented,consumer-centriccompanies

thathavesuccessfullynavigatedpriorshockswithlimiteddeclinestothetop

andoperatingprofitline(andcertainlycomparedtootherdiscretionary

companies).Moreover,fromastockperspective,bothHASandMAT

outperformedtheS&P500duringpriorrecessionaryperiods.Wealsoexpect

marginrecoverytoprovideatailwindtotheindustryin2023onthelagged

impactofpriceincreaseswhilethecostinflationheadwindsbegintodiminish

onthelaps.Figures17-22.

Fusionofownedbrandswithentertainmentandtechnologytodrive

strengthinthecore.Weestimatecore/ownedbrandsmakeup~75%of

industryrevenueandbelievecertaintoysandgamesincludingBarbie,

Monopoly,HotWheels,andNERFwillcontinuetobeevergreenproperties,

especiallyastoycompaniesincreasinglymonetizetheirownIPthroughcontent

creationandlicensedpartnerships.MATformedMattelFilmsin2018with14

live-actionmotionpicturesannouncedsince(includingtheBarbiemovieslated

for2023),whileitisalsoexpandingintodigitalgamesandleveragingitsbrands

intonewcategoriesandwithnewpartners.HAS’seOneacquisitionfueledits

brandblueprintstrategytodriveengagementacrossallsegmentsofitsportfolio,

whileFNKOistargetingunder-penetratedcontentgenresincludinganime,

sports,andmusic.Fromatotaladdressablemarketperspective,theglobal

licensedmerchandisemarketwasestimatedat~$292Bin2019whiledigital

gamingisa$192BmarketperNewzoo.Figures29,60-62.

Seepage60foranalystcertificationandimportantdisclosures.

J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

2

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Favorablecontentoutlooktosupportlicensedpropertygrowth.Domesticboxofficereceiptsarepoisedtosharplyacceleratein2022followingtwoyearsofsubduedactivitywithJPM’sInteractiveMediaResearchteamforecasting2022receiptsup67%YOYwhile2023ismodeled+21%YOY.Boxofficeperformancetendstobeaproxyforcertainlicensedtoypropertieswithbothcinemaandtoysalesbasedontherelative“success”ofthefilm.TheatricalreleaseshavecomeroaringbackwithSpider-Man:NoWayHome(releasedDec2021)thefirstfilmofthepandemiceratocrossthe$1BmarkinglobalreceiptsfollowedbyrecentstrongdebutsfromhighlyanticipatedblockbustersincludingDoctorStrangeintheMultiverseofMadness(HASlicensetie-in),TopGun:Maverick,andJurassicWorld:Dominion(MATlicensetie-in).Indeed,JurassicWorld:Dominionbroughtin$145MMonopeningweekendinthedomesticboxoffice,fallingjustshyofthe2018movie’sopeningweekend($148MM)andrankingasthe29thbiggestdomesticopeningofalltime.Figures24-28,48.

Fromastockperspective,therobusttheatricaloutlookbodeswellforOW-ratedMATgivenlicensetie-instoJurassicWorld,Lightyear,andMinionswithourestimatessuggestingMATcouldtheoreticallyachieveits8-10%top-lineguidesolelyfromrevenuegrowthdrivenbythesemovies,assumingsimilarbenefitsasprioryears.ThestrongcontentreboundisalsopositiveforN-ratedFNKOwhileitslowaveragepricepoints(<$12)andtheimpulsenatureofthepurchasepositionitwellinapotentialrecessionaryenvironment.N-ratedHASshouldalsobenefitfromtheentertainmentrecoveryespeciallygivenupcomingcoreIP-relatedreleases,thoughwebelievethisismoreofa2023opportunity,whileitalsofacesanestimated~3-4%top-lineheadwindfromthelossoftheDisneyPrincesslicensenextyear.

3

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

TableofContents

ToyIndustryOverview 4

NorthAmericaRemainsLargestMarket;GrowthExpectedtoAccelerate 4

DistributionPostTRU:WMT/TGTRemainDominantinUSA;InternetRetailing

GainingGlobally 11

PerformanceinaRecession 16

BoxOfficeContentReboundtoDriveGrowthin2022&2023 20

GlobalLicensedMerchandiseMarketOpportunity 24

DemographicTrendsRemainPositiveforToyGrowth 25

AMoreDetailedLookattheTopTwoPlayers:HASand

MAT 27

MAT 32

ABriefLookatMAT’sTurnaroundunderCEOYnonKreiz 33

MultipleTop-LineGrowthDriversacrossBrandsandCategories 34

OptimizationforGrowthSavings&ScaleBenefitstoDriveMarginExpansion 38

CapturingValueofIPthroughAlternativeRevenueStreams 41

HAS 42

ConsumerProducts:PremierPortfolioofOwnedandFranchiseBrandsandRelated

EntertainmentContentReleasetoDriveTop-LineGrowth 45

WizardsoftheCoast:StrongTop-LineGrowthwithSignificantlyHigherOpMargin

49

Entertainment:Long-TermStrategyPlay;ExpectedtoAcceleratePostCOVID-

InducedProductionShutdowns 52

FNKO 54

TheFunkoMoat 56

FNKO’sKeyTop-LineGrowthStrategies 58

4

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

ToyIndustryOverview

Theglobaltoyindustryisexpectedtogrowstronglyoverthenextfiveyears,following9%growthin2021.EmergingmarketsareexpectedtoleadthegrowthfollowedcloselybyNorthAmerica.PerEuromonitorInternational,theglobaltoyindustryisexpectedtoreach~$125Bby2026withaCAGRof~5.4%from2021to2026vs.1.4%CAGRinthepreceding10years.Underpinningthepositivesecularviewarefavorabledemographictrends,anemergingmiddleclassacrosshighlypopulousgeographies,growthiniconictoyandgamebrands,fusionofcoreowned/licensedpropertieswithentertainmentcontentandtechnology,favorableprojectionsforbroad-basedentertainmentconsumptioninare-openingeconomypost-COVID,anddevotiontocertainholidayseasons(coupledwithlowaveragepricepoint).

Figure1:GlobalToySalestoExperience5.4%CAGR,2021-2026E

$140

$120

$100

$80

$60

$40

$20

$0

12.0%

10.0%

9.7%

8.0%

6.0%

4.8%

4.0%

3.7%

2.0%

1.4%

0.3%

0.0%

-0.7%

-2.0%

-4.0%

-4.7%

-6.0%

2.0%

6.2%

6.0%

5.1%

5.0%

0.4%

1.9%

1.8%

20122013201420152016201720182019202020212022E2023E2024E2025E2026E

TraditionalToys&Games($B)YOYGrowth

Source:EuromonitorInternational

NorthAmericaRemainsLargestMarket;GrowthExpectedtoAccelerate

In2021,NorthAmerica,thelargestgeographicmarketbysales,generated33%ofoverallindustryrevenue($32B),followedbyAsiaPacific27%($25B),WesternEurope24%($23B),LatinAmerica7%($7B),EasternEurope5%($4B),theMiddleEastandAfrica3%($4B),andAustralasia1%($1B).

5

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Chinadeservesaspecialmentionhere,whoseshareintheoveralltoyandgamecategoryreached13.8%ofglobalsalesfollowinga5.6%CAGRsince2013.

Figure2:2021GlobalToySalesbyRegion

AsiaPacific,26.5%

Western

Europe,23.5%

Australasia,1.4%

Eastern

Europe,

5.2%

LatinAmerica,6.7%

NorthAmerica,

33.3%

MiddleEastand

Africa,3.4%

Source:EuromonitorInternational

Overthenextfiveyearsthrough2026,34%oftheglobalgrowthinthetoysandgamescategoryisexpectedtocomefromNorthAmerica,followedbyAsiaPacific(29%),WesternEurope(17%),LatinAmerica(12%),MiddleEast&Africa(6%),EasternEurope(2%),andAustralasia(1%).WithinAsiaPacific,Chinaremainsthelargestmarket,whileinLatinAmerica,ArgentinaandMexicoarethetwolargestmarkets.RussiaisthelargestmarketinEasternEurope,andTurkey,Germany,andSwedenarethethreelargestmarketsinWesternEurope.Intermsofexpectedgrowthbyregion,thefastestCAGRisexpectedtocomefromtheMiddleEastandAfrica(8.8%),followedbyLatAm(7.6%),AsiaPacific(6.3%),andEasternEurope(6.2%).

6

8.8%

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Figure3:GlobalToys&GamesGrowthShare,2021-2026E

Western

Europe,16.8%

AsiaPacific,28.5%

Australasia,

0.7%

NorthAmerica,

33.6%

Eastern

Europe,

2.0%

LatinAmerica,12.1%

MiddleEastand

Africa,6.3%

Source:EuromonitorInternational

Figure4:ExpectedToySalesCAGRbyRegion,2021-2026E

MiddleEastandAfrica

LatinAmerica

AsiaPacific

EasternEurope

NorthAmerica

WesternEurope

Australasia

7.6%

6.3%

6.2%

5.4%

3.5%

3.2%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%

Source:EuromonitorInternational

7

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

WithinthebroadercategoryintheUS,thelargestsubcategoryin2021wasdollsandaccessories(20%)followedbygames&puzzles(14%),construction(10%),andoutdoor&sports(9%).Allcategorieswiththeexceptionofremotecontroltoysexperiencedgrowthin2021ledbyplush(27%),actionfigures(15%),games&puzzles(14%),andoutdoor&sports(13%).

Figure5:USTraditionalToys&GamesCategoryMix2021

Scientific/Educational,2%

OtherTraditionalToysand

Ride-OnVehicles,3%Games,2%ActionFiguresand

Accessories,7%

RemoteControlToys,2%

Artsand

Crafts,7%

BabyandInfant,4%

Pre-School,7%

Plush,6%

Construction,10%

OutdoorandSports,9%

DollsandAccessories,20%

ModelVehicles,4%

GamesandPuzzles,14%

Dress-UpandRolePlay,

3%

Source:EuromonitorInternational

Overthenextfiveyearsthrough2026,23%oftheUSgrowthintoys&gamesisexpectedtocomefromdollsfollowedbygames&puzzles(21%),construction(12%),andactionfigures(8%).Intermsofexpectedgrowth,thefastestCAGRisexpectedtocomefromGames&Puzzles(7.7%),followedbyscientific/educational(7.4%),outdoor&sports(6.5%),andconstruction(6.4%).

8

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Figure6:USToys&GamesGrowthSharebySubcategory;2021-2026E

Scientific/Educational,

OtherTraditionalToys

Ride-OnVehicles,3.4%

1.9%

RemoteControlToys,-

0.6%

andGames,2.5%ActionFiguresand

Accessories,7.7%

Pre-School,27%

Plush,38%

ArtsandCrafts,52%

BabyandInfant,1.8%

Construction,12.4%

OutdoorandSports,11.2%

ModelVehicles,3.6%

DollsandAccessories,

22.5%

GamesandPuzzles,20.8%

Dress-UpandRolePlay,

1.1%

Source:EuromonitorInternational

Figure7:2021-2026ECAGRbyCategoryintheUS

7.7%7.4%

GamesandPuzzles

Scientific/Educational

6.5%6.4%6.2%

OutdoorandSports

Construction

6.1%5.6%

OtherTraditionalToysandGames

DollsandAccessories

5.4%5.1%

ActionFiguresandAccessories

TraditionalToysandGames

ModelVehicles

4.3%4.0%

ArtsandCrafts

Ride-OnVehicles

3.7%2.7%

Plush

2.3%2.1%

BabyandInfant

Dress-UpandRolePlay

Pre-School

RemoteControlToys-1.7%

0.0%2.0%4.0%6.0%8.0%10.0%

-4.0%-2.0%

Source:EuromonitorInternational

MAT/HAS/LEGOLargestGlobalPlayers

Theglobaltoyindustryishighlyfragmentedwitheightofthelargesttoycompaniesaccountingfor~40%ofglobaltoyssalesin2021.HAShadthelargestshareofthecategoryat10.2%,followedbyLEGOat10.1%andMATat9.4%.PriortoCOVID,HASandMATgenerallyhadaninverserevenuegrowthrelationship,implyingahighlevelofcompetitionamongretailers,licensors,andultimatelyconsumers.Whilestoreclosurespressuredindustrygrowthin2020,thecategoryacceleratedin2021witharisingtideliftingallboats.Onathree-yearCAGRbasisfrom2019to2021,FNKOexperiencedthemostgrowthat14%followedbyHAS(12%),TOY(SpinMaster,notcovered;9%),MAT(7%),andJAKK(notcovered,3%).

9

US$B

16.4%14.9%

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

InNorthAmerica,HASholdsa16.4%shareofthetraditionaltoycategory,followedbyMAT(14.9%)andLego(8.8%)asof2021.China,thesecondlargestmarketaftertheUSA,hasamorefragmentedmarketwithLegoleadingwitha7.7%share,followedbyBeijingPopMartCultureCreativeCompany(4.3%)andShanghaiYaoji(3.8%).

Figure8:MarketShareofTop3ToyMakersbyRegion

18.0%16.0%14.0%12.0%10.0%8.0%6.0%4.0%2.0%0.0%

10.2%10.1%

9.4%

7.7%

2.0%1.6%

8.8%

World

NorthAmerica

China

MATHASLego

Source:EuromonitorInternational

Figure9:RevenueofTopGlobalToyMakersinFY21(US$,B)

$10.0$9.0$8.0$7.0$6.0$5.0$4.0$3.0$2.0$1.0

$0.0

$8.8

$6.4

$5.5

$3.4

$2.0

$1.5

$1.0

$0.6

LEGOHASMATNamcoBandai*TOYTOMYFNKOJAKK

Source:Companyfilings,BloombergFinanceL.P.,andJ.P.Morganestimates.*NamcoBandai’stoysandhobbyrevenues

10

FY21YOY%Growth

3YCAGR

16%

14%

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Figure10:YOY%RevenueGrowthand3YCAGR

70%

60%

50%

40%

30%

20%

10%

0%

14%

58%

12%

8%

7%

30%

3%

19%

17%

11%

-3%

20%

MATHASFNKOTOMYJAKKTOY

FY21YOY%Growth3YCAGR(FY19-FY21)

Source:Companyfilings,BloombergFinanceL.P.

11

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

DistributionPostTRU:WMT/TGTRemainDominantinUSA;

InternetRetailingGainingGlobally

Globallyin2021,non-storeretailingaccountedfor36%oftoysales,followedbyspecialtyretailers(26%),groceryretailers(23%),andmixedretailers(15%).Non-storeretailing(i.e.,internetretailing)clearlygainedsharein2020and2021drivenbytheshiftonlineduringCOVID.However,intheUS,groceryretailersstillholdthelargestshare(36%,primarilyWMT/TGT),followedcloselybyinternetretailing(34%)andmixedretailers(21%).InChina,non-storeretailingaccountedfor44%oftoysalesin2021withcompetitivedistributionatthestore-basedretailers.

Interestingly,groceryretailershaveheldsharesince2019intheUSdespitetheshiftonlinedrivenbyCOVID.Thatsaid,non-storeretailinggained~400bpsofsharevs.2019intheUSprimarilyfrommixedandspecialtyretailers.InChina,non-storeretailinggained14pointsofsharefromallofstore-basedretailing.

Figure11:RetailChannelSharebyRegion,2021

50.0%45.0%40.0%35.0%30.0%25.0%20.0%15.0%10.0%5.0%0.0%

43.6%

36%

36.0%

33.9%

26.1%

22.8%

20.9%

21.4%

17.2%

18.3%

15.1%

8.7%

Non-GrocerySpecialists

Non-StoreRetailing

GroceryRetailersMixedRetailers

WorldUSAChina

Source:EuromonitorInternational

12

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Figure12:COVID-19AcceleratesInternetRetailShareGains;SomeReversionin2021

50.0%45.0%40.0%35.0%30.0%25.0%20.0%15.0%10.0%5.0%0.0%

GlobalChannelShare

20112012201320142015201620172018201920202021

Non-GrocerySpecialistsNon-StoreRetailing

40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

USChannelShare

20112012201320142015201620172018201920202021

Non-GrocerySpecialistsNon-StoreRetailing

Source:EuromonitorInternational

13

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

IntheUS,WMT,TGT,andAMZNareHAS/MAT’sbiggestpartnerspostTRUbankruptcy

WalmartandTargetfurthersolidifiedtheirtoppositionsasHAS’sandMAT’sretailingpartnersfollowingthebankruptcyofToysRUsinMay2018,whileAMZNhasmovedintothethirdspot.WMT,TGT,andAMZNrepresented21%,14%,and11%ofworldwideMATsales,respectively,whileforHAS,thethreeretailersaccountedfor13%,8%,and11%,respectively,in2021.Collectively,WMT,TGT,andAMZNmadeup$4.6Binsalesor39%ofcombinedHASandMATsalesin2021.TGTandAMZNwereseeminglythegreatestbeneficiariesfromtheTRUbankruptcyastheyhaveseenthemostsharegainssince2018,whileWMT’ssharehasbeenrelativelyflat/downforbothMATandHAS.

Figure13:MATDistribution

27.0%

WalmartToys"R"UsTargetAmazon

22.0%

17.0%

12.0%

7.0%

2.0%

2009201020112012201320142015201620172018201920202021

-3.0%

%ofTotalMATSales

47%

41%

41%

38%

38%

46%

37%

37%

37%

37%

34%

32%

37%

2009201020112012201320142015201620172018201920202021

Source:Companyreports

14

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

Figure14:HASDistribution

30%

Wal-MartToys"R"UsTargetAmazon

25%

20%

15%

10%

5%

0%

2009201020112012201320142015201620172018201920202021

Top3%ofHASsales

49%

41%

46%

38%

35%

34%

34%

34%

33%

33%

35%

32%

29%

2009

2010

Source:Companyreports

2011

2012201320142015201620172018201920202021

OuranalysisshowsTGThasgained190bpsofcombinedHASandMATsalessharein2021comparedto2017whileWMThaslostconsiderableshare(670bps).

Figure15:ShareGainofWMTandTGTinHAS+MATUSSales

1

16.7%

8.6%

19.3%

TGT'sUSShareofHAS+MATSales

WMTUSShareofHAS+MATSales

0.0%

15.0%20.0%25.0%

5.0%10.0%

20212017

Source:CompanyreportsandJ.P.Morganestimates

26.0%

30.0%

Whilecompetitionforshelfspaceandmargingrabbybigboxretailersremainongoingheadwinds,thetoyindustryhasperformedrelativelywellsincetheTRUbankruptcyin2018.Ultimately,webelievethepowerofbothMAT’sandHAS’sportfolioofbrandsdrivessustainablerelationshipswiththebigboxstoresascustomersdemandtheproductsintheirportfolioand,asaresult,thebigboxretailers’shelfspacewillbegivenpreferencetothoseproducts.Webelievethe

15

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NorthAmericaEquityResearch

16June2022

smaller-captoycompanieswillseepressurefromadistributionandshelfspaceperspective.

AMZNgainingshare;top3retailerforbothHASandMAT.In2019,HASforthefirsttimequantifiedAMZNasthethirdlargestcustomerwith8%ofglobalsales(excluding3P).MATfollowedsuitin2020disclosingAMZNasitsthirdlargestcustomerwith10%ofglobalsales.AMZNcontinuestogainshare,representing11%ofsalesforbothHASandMATin2021.WebelieveAmazonhasasimilarmarginprofiletobigboxdistribution,renderingthetoycompaniesrelativelyagnostictothedistributionchannel.AccordingtocomScore,Toys&Hobbiescategorysalesonlinewereup32%in2021vs.3%in2020witha17%CAGRcomparedto2019.Interestingly,mobilepenetrationofToys&Hobbiesrankedthesecondhighestacrossallcategoriesat74%(rightbehindVideoGamesat75%)followedbyEventTicketsandJewelry&Watches.Aswehavesaidbefore,mobileadoptionhasapositivecorrelationwithdigitalsalesgrowthhistorically.

Figure16:DigitalSalesGrowthbyCategory

Category

2015

2016

2017

2018

2019

2020

2021

∆vs.2019(CAGR)

Apparel&Accessories

19%

20%

23%

25%

19%

-4%

17%

6%

Books&Magazines

11%

14%

20%

15%

6%

-10%

21%

4%

ComputerHardware

5%

16%

21%

19%

18%

17%

20%

19%

ComputerSoftware

12%

24%

22%

16%

6%

29%

6%

17%

ConsumerElectronics(includesTablets)

8%

15%

19%

18%

12%

2%

13%

7%

ConsumerPackagedGoods

8%

17%

27%

31%

34%

79%

50%

64%

EventTickets

29%

24%

14%

28%

12%

-67%

41%

-32%

Flowers,Greetings&Misc.Gifts

23%

24%

17%

15%

6%

40%

26%

33%

Furniture,Appliances&RelatedEquipme

15%

26%

20%

31%

20%

63%

85%

74%

Home&Garden

16%

22%

18%

28%

15%

46%

29%

37%

Jewelry&Watches

30%

39%

25%

17%

16%

-5%

31%

12%

Music,Movies&Videos

25%

21%

24%

21%

13%

10%

16%

13%

OfficeSupplies

6%

18%

15%

15%

3%

30%

8%

18%

Sports&Fitness

32%

17%

18%

21%

26%

28%

35%

32%

Toys&Hobbies

42%

16%

35%

20%

28%

3%

32%

17%

VideoGames,Consoles&Accessories

44%

24%

14%

19%

10%

17%

7%

12%

Other

8%

19%

15%

13%

11%

10%

14%

12%

Total(Non-Travel)

14%

19%

20%

21%

16%

15%

28%

21%

Source:comScore

Figure17:MobilePenetrationbyCategory

2019

2020

2021

Category

OnlineGrowthMobilePenetration

OnlineGrowthMobilePenetration

OnlineGrowthMobile

MobilePenetration>40%(High)

VideoGames,Consoles&Accessories

Toys&Hobbies

EventTickets

Jewelry&Watches

Music,Movies&Videos

Sports&Fitness

ComputerSoftware

10%

28%

12%

16%

13%

26%

6%

56%

59%

43%

50%

53%

41%

40%

17%

3%

-67%

-5%

10%

28%

29%

63%

66%

52%

52%

59%

49%

43%

7%

32%

41%

31%

16%

35%

6%

75%

74%

73%

65%

62%

56%

45%

MobilePenetration>32%,<40%(Above-Average)

Flowers,Greetings&Misc.Gifts

Books&Magazines

Apparel&Accessories

ConsumerPackagedGoods

6%

6%

19%

34%

43%

28%

28%

36%

40%

-10%

-4%

79%

37%

37%

29%

41%

26%

21%

17%

50%

39%

38%

37%

32%

MobilePenetration<32%(Below-Average)

ComputerHardware

Other

Home&Garden

Furniture,Appliances&RelatedEquipment

ConsumerElectronics(includesTablets)

OficeSupplies

18%

11%

15%

20%

12%

3%

21%

22%

32%

39%

15%

13%

17%

10%

46%

63%

2%

30%

27%

24%

29%

25%

16%

14%

20%

14%

29%

85%

13%

8%

31%

29%

23%

19%

19%

14%

Total(Non-Travel)

16%

30%

15%

32%

28%

34%

Source:comScore

16

MarketSize($B)

YOY%Growth

8.0%

6.0%

4.0%

2.0%

0.3%

0.0%

-2.0%

-4.0%

MeganAlexander,CFA

(1-212)622-6457

megan.alexander@

NorthAmericaEquityResearch

16June2022

PerformanceinaRecession

Inrecentrecessions(2001,2007),bothHASandMATwereabletoholdthelineonoperatingmarginsamidachallengedrevenueenvironment,givingusconfidencethatthetoycompanieshavebeengenerallymoreinsulatedfrombroadermacromoves(relativetoothercompaniesinouruniverse).Weattributegreateroperatingcontroltoalesscapital-intensivemanufacturingbase,lowerper-unitcost(andcorrespondingprice),andgeneral“stickiness”oftoyandgamepurchases,allofwhichshouldhelpbuoyoperatingperformanceduringadownturn.

Duringthemostrecentrecessionaryenvironment,theindustrygrew7%in2008anddeclined4%in2009perEuromonitorwhiletheNorthAmericamarketdeclined2%in2008butsawflatgrowthin2009.Inaddition,thegames,toys,andhobbiescategoryperPCEexperienced4%growthin2008andwasflatin2009.

Figure18:GlobalTraditionalToys&GamesMarketResilientduringPriorRecessions

100

90

80

70

60

50

40

30

20

10

0

10.0%

GlobalTraditionalToys&GamesMarketSizeandGrowthYOY

9.2%

7.8%

6.8%

5.9%

3.8%

3.4%

1.8%1.9%

1.4%

0.4%

-0.7%

-3.7%

-4.6