Hasbro targeted by investment lawsuit

A self-proclaimed “investor rights law firm” filed suit on Wednesday

They allege Hasbro, the tabletop gaming and toy maker, misrepresented its excessive inventory to investors, which the company says is a violation of federal securities laws. Polygon has reached out to Hasbro for comment and has not yet received a response.

Bernstein Litowitz Berger & Grossmann (the law firm) filed a complaint in a New York court on behalf of the West Palm Beach Firefighters’ Pension Fund, asking the court to grant the case class action status – meaning other investors and stock buyers can participate. Hasbro, like other gaming companies, saw a surge in interest and sales during the pandemic as people looked for things to do in their homes; Games were an obvious choice. The lawsuit accuses Hasbro of buying inventory to meet demand – but ended up buying too much. According to the lawsuit, Hasbro told investors that large purchases were necessary to “mitigate supply chain risk and meet consumer demand” ahead of the 2022 holiday season. Once that inventory was determined, Hasbro said the stock was “the standout and reflected expected demand” and not

a lower demand. The lawsuit accuses Hasbro of intentionally misleading investors knowing that the company “overpurchased inventory at a rate that significantly exceeded customer demand.” The timing makes sense: In 2022, the world began to open up further and people were eager to get out of their homes.

Hasbro announced in 2023 in a preview of its 2022 financial report that sales had declined due to poor sales in the toy market. To mitigate this loss, It laid off 15% of its staff – around 1,000 people. Despite this, Hasbro reportedly continued to tell investors that there was no inventory problem. In October 2023, an investor inquired about Hasbro stock. Gina Goetter, Hasbro’s chief operating officer, said Hasbro is spending $50 million moving and marketing inventory as “obsolescence costs,” which is corporate speak for old, devalued inventory.

Because of all of this — particularly the October 2023 financial disclosures — stock prices declined and investors lost money, the lawsuit says, amounting to a loss of $831 million in shareholder value. Hasbro’s previous stock value, according to the lawsuit’s allegations, was due to inflated prices due to the lack of disclosure. The lawsuit says Hasbro shares are owned by “hundreds or thousands” of investors who would be affected. The law firm is seeking damages from the court for alleged violations of the Exchange and Securities Act, which requires publicly traded companies to be honest and transparent with shareholders.

In its most recent earnings report filed October 24thHasbro reported a 15% decline in sales. According to the report, inventories fell 39% compared to the third quarter of last year. Hasbro expects the company to lose a total of 14% in 2024.