The toy industry may be facing a reckoning, but one of its crown jewels isn’t.
Billund-based Lego has powered through 2023, one brick at a time, to rake in strong revenues as it continues to see demand for its toys.
The company braved a sharp drop in demand for toys right after the pandemic, when people—old and young—were confined to their homes and forced to entertain themselves.
“We are pleased with our performance given that 2023 was the most negative toy market in more than 15 years,” the company’s CEO Niels Christiansen, said in a statement announcing earnings on Tuesday.
The toy market’s sales shrunk by 7% globally in 2023 compared to a year earlier, according to Circana data released in January. While that’s still 17% higher than the pre-pandemic levels, it points to consumers pulling back their spending on leisure items.
Lego reported a 2% growth in revenue, notching up nearly DKK 66 billion ($9.7 billion) for last year, compared to a year earlier. That’s the slowest sales growth the company has seen in seven years, but still significant given a shrinking market. During the same period, consumer sales—a proxy for demand—were up 4%, thanks to buyers in the U.S. and parts of Europe who helped offset a slump from their Chinese peers.
“We continue to grow our topline, outperform the market, significantly grow market shares, strengthen financial foundation and continue to invest for the future,” Lego’s CFO Jesper Andersen said during the company’s earnings call on Tuesday. He added that the company was “building on three years of extraordinary double-digit growth,” thanks to its solid portfolio and demand from America and European markets.
Since 2019, Lego’s cumulative growth rate has been 71%, Andersen highlighted.
Despite the growth in sales, the company’s profits still dropped 5% in 2023, owing to greater spending on new initiatives and foreign exchange impacts, Lego said.
Last year, the 92-year-old company launched a number of new digital initiatives, including the Lego Fortnite video game that brings Lego brick characters in Epic Games’s flagship franchise. Christiansen said that upon its launch in December, the game was an instant hit with 2.4 million people playing it concurrently.
Lego has launched a membership program for its brick-building community and is ramping up its sustainability efforts in the coming years. The Danish group achieved a milestone last year with over 1,000 stores globally, having opened 147 of them in 2023.
What’s happening to the world of toys?
It’s not all fun and games in the toy universe right now.
Lego may have retained its loyal customers post-pandemic , but its rivals like Hasbro and Mattel haven’t. Rhode Island-based Hasbro’s saw revenues in 2023 plunged by 15% overall and 19% in consumer products, owing to macroeconomic pressures. It also reported an operating loss of $1.5 billion for the year. As for Mattel, despite the blockbuster success of the “Barbie” movie, its revenue remained flat in 2023 compared to a year earlier.
A lot of what the toy market is experiencing can be blamed on economic volatility, according to Circana’s global toy industry advisor Frédérique Tutt.
“With inflation at the highest level we have seen in decades and birth rates at their lowest in many countries, the global toy industry faced new challenges in 2023,” Tutt said. “Consumers across many regions had to make difficult trade-offs and reduced their spending on toys and games.”
At a time when people are rejecting non-essential spending, Lego is banking on staying relevant with its diverse audience through innovative and sustainable initiatives. We’ll have to wait and watch whether that’ll work in keeping kids and adults coming back.
This story originally Appeared on Fortune
