A self-described “investor rights law firm” filed a lawsuit Wednesday alleging that Hasbro, the toy and board game company, misrepresented its excess inventory to investors, something the firm says is a violation of federal securities laws. Polygon reached out to Hasbro for comment and has yet to hear back.
Bernstein Litowitz Berger & Grossmann (the law firm) filed a lawsuit 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, which means that other investors and buyers of shares 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 alleges that Hasbro bought inventory to meet that demand, but ended up buying too much. Hasbro allegedly told investors that large purchases were necessary to “mitigate supply chain risk and meet consumer demand” ahead of the 2022 holiday season, according to the lawsuit. When that inventory was closed, Hasbro said the stock “reflected pending and anticipated demand” and No a decreased demand. The lawsuit alleges that Hasbro was intentionally misleading investors and knew it “overpurchased inventory to an extent that significantly exceeded customer demand.” The timeline makes sense: 2022 is when the world began to open up more widely and people were eager to get out of their houses.
Hasbro announced in 2023, in a preview of its 2022 financial report, that revenue declined due to poor sales in the toy market. To mitigate that loss, it laid off 15% of its staff, about 1,000 people. Despite that, Hasbro reportedly continued to tell investors that it did not have any inventory problems. In October 2023, an investor asked about Hasbro stock, to which Hasbro COO Gina Goetter said Hasbro was spending $50 million to move and market inventory and as a “cost of obsolescence” , which is corporate speak for obsolete and devalued inventory.
In its most recent earnings report, filed on October 24, Hasbro reported a 15% decline in revenue. Its inventory, according to the report, was down 39% compared to the third quarter of last year. Hasbro predicts the company will decline 14% overall in 2024.