(Reuters) - Hasbro reported a smaller-than-expected drop in first-quarter sales and handily beat profit estimates on Wednesday, as leaner inventories and steady digital gaming revenue helped cushion a drag from softer demand for toys.
Shares of the company, which maintained its annual forecasts, jumped 6.6% in premarket trading.
The Play-Doh maker has taken steps to reduce expenses and more than halved its inventory over the past year to control costs amid an uncertain demand environment.
Those efforts, coupled with cost efficiencies, helped its operating margin expand to 15.3%, from 1.8% last year.
"We made solid progress in our turnaround efforts in the first quarter," Hasbro CFO Gina Goetter said.
Inventory levels remained "healthy both at retail and at Hasbro", the company said, adding it would restock going into the second quarter to support product innovation and retail shelf visibility.
The company's owned inventory was down 53% in the quarter from last year.
Hasbro is making fundamental changes to its business model and shifting to an out-license model - that allows it to keep producing toy lines for lower-margin brands by partnering with other toy manufacturers - which is paying off, said James Zahn, editor-in-chief at The Toy Book online magazine.
Revenue from the Wizards of the Coast and Digital Gaming segment grew 7% in the quarter, driven by the popularity of the company's "Baldur's Gate III" and "Monopoly Go!" games.
Its core Consumer Products unit, which brought in more than half its fiscal 2023 revenue, saw sales decline by 21%, hit by a broader slowdown in the toy industry and discounting at mass retailers like Walmart and Target.
The toymaker's total revenue fell 24.3%, to $757.3 million in the quarter ended March 31, smaller than the 26.2% drop to $738.6 million estimated by analysts on average, according to LSEG data.
On an adjusted basis, Hasbro earned 61 cents per share, beating analysts' estimate of 27 cents per share.
On Tuesday, rival Mattel posted a smaller-than-expected loss for the first quarter, helped by its cost-saving measures.