What's going on?

Lego reported on Tuesday that profit growth tumbled like a poorly engineered plastic house last year.

What does this mean?

Demand for Lego’s colorful plastic bricks stacked up last year, so much so that the firm had to scramble to keep up: the world’s biggest toymaker opened 155 new stores and upped production at over half of its factories. A lot of that enthusiasm was for fan favorites like Lego Star Wars and Harry Potter sets, but all-new creations made up nearly half of last year’s sales. That helped Lego build up its market share, with revenue fattening up by 17%. But all that investment – plus some higher costs – inevitably put a dent in profit: 2022’s 4% uptick was the smallest in three years.

Why should I care?

The bigger picture: Brick by brick.
These results are actually better than Lego expected: after all, keeping up with the roaring pandemic years was always going to be a tough task. But the firm’s confident its market share will bulk up even more in 2023 – unlike rivals Mattel and Hasbro, which are predicting flatlining and falling revenue respectively. But Lego’s betting it knows how to avoid their fate: no price hikes and plenty of store openings – particularly in China, where the economy’s finally starting to find its feet again.

Zooming out: Virtual value.
Store openings are all well and good, but it’s hard to pull kids away from digital devices these days – and that’s a threat for old-school toymakers like Lego. The solution: lean into digital. That’s Lego’s attitude anyway, so the firm’s also funneling more money into its e-commerce offerings and digital playing experiences. In fact, the coming weeks are expected to reveal details of a metaverse collaboration with Fortnite’s developer Epic Games.