LEGO’s 2023 financial results demonstrate slowing growth as sales stagnate, and profits decline to pre-pandemic levels
The LEGO Group has announced the full year financial results for 2023 and the results show that growth is beginning to stagnate with revenue growing by 2%, while operating profit declined by DKK 0.8 billion (US$0.12bn) compared to 2022.
Net profit also declined to DKK 13.1 billion (US$1.92 bn) from DKK 13.8 billion (US$2.02 bn) compared the prior year. This is quite significant, as it’s the first time LEGO’s net profit has declined since 2017.
Thankfully, consumer sales grew by 4%, driven by strong growth in the U.S. and Central and Eastern Europe, however was offset by China due to the challenging economic environment.
Here are the top level highlights from 2023.
- Revenue was DKK 65.9 billion (US$9.66) up 2 percent despite declining toymarket.
- Consumer sales* grew 4 percent.
- Outperformed the toy market and significantly grew market share globally.
- Operating profit was DKK 17.1 billion (US$2.51bn) against DKK 17.9 (US$2.62bn) billion in 2022 as the company accelerated spending on strategic initiatives to support growth. Operating profit grew 7 percent in H2 vs. H2 2022.
- Cash flow from operating activities increased 1 percent to DKK 15.4 billion.
- 60 percent increase in spending on environmental initiatives in 2023.
Operating profit was DKK 17.1 billion down five percent vs. 2022 due to accelerated spending on strategic initiatives and changes in foreign currency exchange rates. Excluding the effects of currency, profit was down two percent. Operating profit in the second half of 2023 grew seven percent versus the same period in 2022 due to revenue growth and increased productivity. Net profit was DKK 13.1 billion in 2023 compared to DKK 13.8 billion in prior year.
You can really see just how significant the stagnation is compared to the huge increase of previous years (compared to pre-pandemic numbers), but in a way, you could also say that this is LEGO’s growth and profitability reverting to the long-term trend.
That said, this is LEGO’s first decline in net profit since 2017.
Before you begin panicking, LEGO chalks this up to strategic investments in manufacturing facilities, digitisation of the business, as well as sustainability initiatives.
Looking in LEGO’s financial statements, we can see why as they spent a huge amount on property, plant, equipment and intangible assets. If LEGO didn’t spend as much on this, they could’ve easily painted a rosier picture in their 2023 financial results.
Those brand spanking new factories in Virginia and Vietnam don’t come cheap!
Thankfully, it seems that LEGO did have a strong second half of 2023, outpacing 2022’s second half. The second half is the most important period for toy companies thanks to Christmas.
Check out LEGO’s sustainability highlights, which you can read in full here.
You can check out LEGO’s 2023 Annual Report here if you enjoy poring over balance sheets.
And here’s a look at their balance sheet.
The most popular LEGO themes of 2023 (in no particular order) were a mix of homegrown and entertainment IPs, including LEGO City, Technic, Friends, alongside Star Wars, Marvel, Harry Potter.
Additionally, LEGO Icons continued to grow, driven by its broad selection of products such as the LEGO Botanical Collection.
For fans interested in how LEGO Fortnite has been doing, LEGO has said that the experience attracted more than 2.4 million concurrent players at launch, making it the most popular experience within Fortnite within that time.
The LEGO Group delivered topline growth and outpaced the market in 2023
BILLUND, DENMARK, March 12, 2024: The LEGO Group today reported earnings for the full year 2023. The company grew revenue two percent to DKK 65.9 billion despite a difficult external operating environment and significantly outpaced the toy market, growing market share. Operating profit was a solid DKK 17.1 billion as the company accelerated spending on short- and long-term strategic initiatives.
CEO Niels B. Christiansen said: “We are pleased with our performance given that 2023 was the most negative toy market in more than 15 years. We continued to grow on top of three years of extraordinary growth and saw strong momentum in the final quarter of 2023. We significantly outpaced the market, growing share and proving the appeal of our strong, diverse portfolio and the LEGO® System in Play.”
“Despite the external market conditions, we continued to invest for the future and made good progress on digital, sustainability and retail initiatives that will support long-term growth. We are grateful for our dedicated colleagues who remain committed to our mission to inspire and develop the builders of tomorrow.”
Performance overview
Revenue grew two percent to DKK 65.9 billion vs. DKK 64.6 billion in 2022, in line with expectations. Excluding the impact of foreign currency exchange rates, revenue grew three percent compared with 2022.
Consumer sales grew four percent in 2023 vs. 2022, driven by strong growth in the U.S. and Central and Eastern Europe. This was offset by a decline in China due to the challenging economic environment.
Operating profit was DKK 17.1 billion down five percent vs. 2022 due to accelerated spending on strategic initiatives and changes in foreign currency exchange rates. Excluding the effects of currency, profit was down two percent. Operating profit in the second half of 2023 grew seven percent versus the same period in 2022 due to revenue growth and increased productivity. Net profit was DKK 13.1 billion in 2023 compared to DKK 13.8 billion in prior year.
Cash flow from operating activities increased one percent to DKK 15.4 billion from DKK 15.3 billion. The company invested DKK 8.5 billion mainly in offices and new and existing factories to expand capacity to support growth, up from DKK 6.0 billion in 2022. This resulted in free cash flow of DKK 6.9 billion in 2023 against DKK 9.3 billion in 2022.
Large, diverse portfolio appealed to builders of all ages & interests
The company’s portfolio was the largest ever with 780 products designed for fans of all ages and interests. As in previous years, new products accounted for around 50 percent of the portfolio.
The LEGO Group also launched innovative new play experiences including LEGO® Fortnite®, the first release from its partnership with Epic Games which aims to develop fun and safe digital spaces for children and families. LEGO® DREAMZzz™, the company’s first new homegrown theme in five years was introduced in the second half, preceded by the global release of a content series streamed on all major platforms.
The top performing themes were a mix of homegrown and entertainment IPs and included LEGO® Icons, a range for older builders, LEGO® City and LEGO® Technic™ alongside LEGO® Star Wars™ and LEGO® Harry Potter™.
Accelerated strategic initiatives for long-term growth
- Creating memorable experiences through retail platforms: The company continued to work to improve shopper experiences across its own and its retail partners’ channels. In 2023, the LEGO Group opened 147 new LEGO branded stores** taking the global total to 1,031. It launched LEGO® Insiders, a new membership programme to connect, reward and inspire fans.
- Expanding global supply chain network: The LEGO Group continued to invest in expanding and upgrading its manufacturing capacity and capabilities in its factories in Hungary, Mexico, and China and building two new factories in Richmond, Virginia, U.S. and Binh Duong, Vietnam.
- Advancing digital ambitions: The company’s team of digital experts grew by 27 percent vs. 2022 and supported new technologies to improve experiences for consumers, shoppers, retail partners and employees.
Building a sustainable future
The LEGO Group increased spending on environmental initiatives by 60 percent in 2023 vs. 2022 and by 2025 plans to have doubled its annual spend compared to 2023.
The company made further progress on efforts to make LEGO products more sustainable including introducing paper-based bags and increasing the use of more sustainable raw materials. In 2023, 18 percent of all resin purchased was certified according to mass balance principles, which translates into an estimated average of 12 percent renewable sources***. There are plans to continue to increase the amount of mass balance resin purchased in 2024.
Through social responsibility programmes, the LEGO Group impacted 9.8 million children in 2023, above its target of 8.8 million. These included its flagship Build the Change programme which engaged more than two million children around the world on environmental issues.
Niels B. Christiansen said: “We know that play provides children with skills that help them achieve their potential. We are fortunate to be in a strong financial position to invest in activities that bring learning through play to children around the world and invest for the future, so we can continue to have a positive impact on children for many generations to come.”
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