ZACKS·2025-12-05 15:31Core Viewpoint - The Zacks Toys - Games - Hobbies industry is facing challenges from high production and logistics costs, alongside changing consumer spending patterns, but strong franchise partnerships, e-commerce growth, and product innovation present positive prospects for companies like Hasbro and Mattel [1]. Industry Overview - The industry includes companies that design, manufacture, and sell various games and toys, ranging from traditional action figures and dolls to video game platforms and related software [2]. Trends Impacting the Industry - Cost Inflation and Supply Chain Pressures: The industry is dealing with elevated production and logistics costs, which have not normalized post-pandemic, affecting manufacturers' margins due to higher input prices and volatile freight rates [3][4]. - Shifting Consumer Spending: Inflation is leading consumers to prioritize essentials over discretionary purchases like toys, resulting in reduced traffic and sales at major retailers [5][6]. - Popularity of STEM Toys: There is a growing demand for educational toys that promote problem-solving and creativity, with STEM toys becoming increasingly popular among families [7][8]. - Focus on Emerging Markets: Companies are expanding their presence in emerging markets, particularly in Eastern Europe, Asia, and Latin America, which offer greater revenue growth opportunities compared to developed markets [9]. Industry Performance - The Zacks Toys - Games - Hobbies industry currently holds a Zacks Industry Rank of 218, placing it in the bottom 10% of 243 Zacks industries, indicating dull near-term prospects [10][11][12]. - The industry has underperformed the S&P 500, with a 12% increase compared to the S&P 500's 15.1% rise, while the sector has declined by 3.3% [13]. Valuation Metrics - The industry is trading at a forward 12-month price-to-earnings ratio of 11.22X, significantly lower than the S&P 500's 23.53X and the sector's 19.89X, with historical trading ranges between 10.29X and 25.55X over the past five years [16]. Company Highlights - Hasbro: The company is benefiting from its entertainment pipeline, strategic partnerships, and focus on high-margin segments, with shares gaining 24.1% over the past year and projected earnings growth of 7.4% for 2026 [18][19]. - Mattel: The company is expected to benefit from its growth optimization program and strong demand for Hot Wheels, with shares increasing by 9.3% over the past year and projected earnings of $1.74 for 2026, indicating a 10.7% year-over-year gain [21][23].