LEGO’s first half of 2023 financial performance slows down, but outperforms declining toy industry

August 30, 2023 | 5

LEGO has announced the results their First Half of 2023 financial results and the results are not pretty with growth and profitability slowing down compared to the previous two years.

While consumer sales grew 3% against the same period last year, LEGO have only grown their revenue by 1%, which resulted in sales of 27.4 billion DKK (US$3.99bn).

The bad news continues with net profit declining to 5.1 billion DKK (US$0.74bn), a decline of 17.74% compared to 6.2bn DKK (US$0.9bn) this time last year, which is likely due to the rising costs in this inflationary environment, and perhaps LEGO’s increasing need to discount their sets as fans and families tighten their spending.

That said, it’s not all doom and gloom, and while sales and revenue have grown as the wider toy industry goes into decline, LEGO could have easily improved their profits, but have continued to invest heavily, with 3.6bn DKK spent on property, plant, equipment and intangible assets – likely to be tied to LEGO’s new manufacturing facility in Virginia, USA, and Vietnam, as well as increasing the capacity of its other factories.

LEGO could have easily juiced their numbers by decreasing investment, and following in the footsteps of other large companies and begin laying off staff, but they haven’t, which is a really good thing and demonstrates how differently The LEGO Group operates.

Some other interesting insights, are that LEGO and Epic Games’ metaverse partnership continue to progress with news coming in the next few months.

We also got a snapshot of LEGO’s Top Themes for the first half of 2023, with City, Friends, Star Wars, Icons and Technic being the most popular themes.

Overall, it’s concerning but not too surprising that LEGO’s growth and profitability is beginning to slow. In this inflationary environment and with the cost of living impacting consumer pockets, it’s natural that LEGO purchases are deprioritised and that we’re beginning to see the results revert to the natural trajectory outside of the Covid-induced boom from 2020-2022.

Price increases have also likely dampened demand, as LEGO fans are seeing their dollars not go as far as they used to.

See here for LEGO’s growth trajectory. To make it easier to compare, I’ve highlighted the first halves in orange (revenue) and net profit (green) to make like for like comparisons.

Looking at full year results, it looks like LEGO has their work cut out for them in the second half of 2023, and it remains to be seen if LEGO can repeat the stellar growth and profitability seen in the previous 2 years.

The LEGO Group outpaces toy industry in H1 2023 while accelerating long-term growth initiatives

Demand for diverse portfolio continued after three consecutive years of extraordinary growth. Strong financial foundation enables company to invest in building for the long term and reaching more children with LEGO® play.

Highlights

• Consumer sales grew 3 percent vs H1 2022 as demand for relevant and diverse portfolio continued.
• Revenue was DKK 27.4 billion, a growth of one percent versus an exceptional H1 2022.
• Market share grew significantly as the LEGO Group outperformed a declining toy market.
• Operating profit was DKK 6.4 billion compared with DKK 7.9 billion in H1 2022. This is in line with company expectations as it accelerated long-term strategic initiatives such as manufacturing, digital and sustainability. Net profit was DKK 5.1 billion vs DKK 6.2 billion H1 2022.
• Free cash flow was DKK 1.1 billion after investing in building new factories and expanding existing facilities.
• Pledge to achieve net-zero carbon emissions by 2050 across its full supply chain.

BILLUND, August 30, 2023: The LEGO Group today announced earnings for the first six months of 2023. Revenue was DKK 27.4 billion, a growth of one percent compared with H1 2022. Consumer sales grew three percent outperforming a declining toy market and contributing to strong market share growth.

Operating profit was in line with expectations at a solid DKK 6.4 billion compared with an exceptionally strong DKK 7.9 billion in H1 2022. The company continued to accelerate spending in long-term strategic initiatives including manufacturing, digital and sustainability.

CEO Niels B Christiansen said: “We are satisfied with our performance; especially as it has been a challenging six months for the toy industry. Demand for our products saw us outpace the industry and significantly grow market share.

“Our strong financial position allows us to invest for the long term, particularly in areas such as digital, sustainability and manufacturing. Overall, our performance is in line with expectations, after three consecutive years of extraordinary growth and we are grateful for our great colleagues who work each day to inspire children through play.”

Financial overview

Continued demand for products and strong retailer confidence contributed to consumer sales growth. Revenue grew one percent as reported and was flat in constant currency compared with record first half revenues in 2022 despite the impact of retailers’ inventory management. Net profit was DKK 5.1 billion compared with DKK 6.2 billion in the first half of 2022.

Free cash flow was DKK 1.1 billion compared with DKK 3.8 billion in the same period last year which reflected planned investments in expanding manufacturing capacity globally and upgrading technology.

Market performance

Consumer sales in major, established markets such as Americas grew, while consumer sales in China were impacted by a slower than predicted return to pre-pandemic shopping habits. The company will continue to expand its retail footprint and online presence in China in 2023 and beyond to reach more children.

Portfolio and brand performance

The LEGO Group’s portfolio in 2023 will include more than 750 products which are designed to appeal to builders of all ages and interests. Around half of the portfolio each year is new, demonstrating the creativity and innovation of its talented designers.

The top performing themes in the first half were a mix of homegrown IPs and external IPs and included: LEGO® Icons, LEGO Star Wars™, LEGO Technic™ and LEGO City. LEGO DREAMZzz™, the company’s new homegrown IP, was launched in March, with content featured across all major streaming and kids content platforms to build awareness before products went on sale in August.

The LEGO Group and Epic Games continue to make good progress on their partnership to create fun, safe digital experiences for children and expect to be able to share more information in the coming months.

The LEGO brand remains strong and in April was recognised by RepTrak as the most reputable brand in the world.

Strategic initiatives to drive long-term growth

The company stepped up strategic initiatives to deliver sustainable long-term growth and relevance.

• Expanding global manufacturing network
  The LEGO Group broke ground on a new factory in Virginia, US, in April and continued construction of a new factory in Vietnam. Both sites are USD 1 billion (DKK 6.7 billion) investments and aim to be carbon-neutral run once completed in 2025 and 2024 respectively. Capacity was also added to LEGO factories in Mexico, Czech Republic, Hungary and China. These investments further strengthen the company’s global manufacturing network, which locates production closer to major markets to ensure a short, efficient supply chain able to respond to shifting consumer demands and reduce carbon footprint.
• Building a sustainable future
  The LEGO Group continued to make progress on a wide range of initiatives to reduce its environmental impact. In the first half, the company continued its transition to paper-based pre-packs and announced a partnership with the company European Energy to produce e-methanol which has the potential to be used in future products.
  The LEGO Group aims to triple spending over three years on activity to reduce its carbon footprint, including using more sustainable materials, expanding usage of renewable energy and working towards its target to reduce carbon emissions by 37 percent by 2032. It also pledged to achieve net-zero greenhouse gas emissions across its full supply chain by at least 2050.
• Transforming shopper experience through digital
  As part of its digital transformation, the company introduced technology that has improved shopper experiences in the first six months. This included an instore point of sale app and new digital tools that flow orders between warehouses to reduce delivery times. The company continued its planned growth of its digital team and by the end of the year expects to have around 1,800 digital colleagues in four locations: Billund, Copenhagen, London and Shanghai.
• Memorable retail experiences
  The company continues to expand the global network of LEGO branded stores* designed to create memorable brand moments for shoppers. It opened 89 new stores during the first half of 2023, taking the total number globally at the end of the period to 988. The company has also continued to strengthen e-commerce capabilities and performance across its own and partner platforms.

Inspiring future generations

The LEGO Group believes that learning through play gives children the best opportunity to develop life-long skills that will help them achieve their potential. During the first six months of 2023, more than 4.3 million children benefited from product donations and local community engagement activities.

Niels B Christiansen said: “We remain fully focussed on our ambition to inspire and develop more children around the world. We are proud to be in a strong financial position to deliver on this mission today and invest to ensure we continue to deliver for many generations in the future.”

To get the latest LEGO news and LEGO Reviews straight in your inbox, subscribe via email, or you can also follow on Google News, or socials on Facebook, Instagram (@jayong28), Twitter or subscribe to the Jay’s Brick Blog Youtube channel.