BRICK BY BRICK

Lego is spending and hiring like crazy to become the world’s largest toymaker

For years, double-digit percentage gains in profit have been the norm for Lego. It was a surprise, then, when the Danish toymaker reported a drop in first-half earnings today.

The company had a good explanation for the 1.8% decline, though: It is hiring and investing like crazy. Around one in four of Lego’s 18,500 employees has been hired in the past six months. Also during this period, a new factory in China has come online and the company has expanded plants in Hungary and Mexico.

And there are signs that there’s demand to justify that investment. Revenue grew by a perky 11% in the first half, which the company attributes to innovation in its product lines. Lego CFO John Goodwin acknowledged in a press release that the spending would hurt profits in the short term, but said it’s all part of a long-term plan to serve “more children in more parts of the world in the future.”

One reason Lego can get away with this kind of heavy-duty investment: It’s family-controlled, whereas its main US-listed rivals, Hasbro and Mattel, must answer to shareholders every quarter. “Although making money in the business is important, the family’s values are more important,” Lego CEO Jørgen Vig Knudstorp said earlier this year, when the founder’s great-grandson took over as deputy chairman.

Even so, Lego has proved very good at making lots of money from plastic bricks. Even with the extra spending, its first-half sales and profit comfortably surpassed both Hasbro, the maker of the Transformers, and Mattel, home of Barbie:

Company H1 ’16 revenue H1 ’16 profit Employees
Lego $2.4bn $523m 18,500
Mattel $1.8bn -$92m 31,000
Hasbro $1.7bn $101m 5,000

This is a big reversal of fortunes. A decade ago Lego had a brush with bankruptcy. Back then it had roughly as many full-time employees as Hasbro; now it is more than three times larger. And although Mattel employs far more people, Lego is more efficient, with higher revenue and earnings per worker. If its latest investments pay off, its competitors could fall even further behind.

 

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