Q1 2021 Hasbro Inc Earnings Call
[music].
Greetings and welcome to Hasbro's first quarter 2021 and earnings conference call.
This time, all participants are in a listen only mode.
And and answer session will follow the formal presentation.
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At this time I'd like to turn the call over to MS. Debbie Hancock Senior Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone. Joining me today are Brian Goldner, Hasbro's, Chairman and Chief Executive Officer, and Deb, Thomas Hasbro's Chief Financial Officer.
Today, we will begin with Brian and Deb, providing commentary on the company's performance then we will take your questions. Our earnings release and presentation slides for today's call are posted on our Investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures our call today.
And we'll discuss certain adjusted measures, which exclude these non-GAAP adjustments.
A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.
Please note that whenever we discuss earnings per share or EPS were referring to earnings per diluted share.
Before we begin I would like to remind you that during this call and the question and answer session that follows members of Hasbro management may make forward looking statements concerning management's expectations goals objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other extra.
Patients expressed and these forward looking statements. These factors include those set forth and our annual report on form 10-K, our most recent 10-Q and today's press release and and our other public disclosures. We undertake no obligation to update any forward looking statements made today to reflect events or circumstances occurring after the date of this call.
And I would now like to introduce Brian Goldner, Brian.
Thank you Debbie good morning, everyone and thank you for joining us today.
The first quarter was an excellent start to the year with growth and both sell in and point of sale for our consumer products segment.
Robust engagement from gamers driving double digit growth and the Wizards of the coast and digital gaming segment.
And we remain on track to deliver our full year expected revenue growth and entertainment.
I want to recognize and thank the Hasbro employees around the world, who continue to work through a pandemic and we're able to deliver such a high quality quarter with revenue momentum.
That improvement and strong cash generation.
This quarter marked the first with our new reporting segment structure, which provides a clearer view of the drivers of Hasbro revenues profit margin and cash generation.
As we shared at our Investor event in February.
<unk> blueprint succeeds as we create value from our three businesses.
Housebroke consumer products, including toys and games Wizards of the coast and digital gaming and entertainment.
Each has a growth plan that drives that segment, but also drives growth across Hasbro.
Our teams and expanding capabilities are enabling us to unlock the full potential of our brands and company.
Yeah, and we will speak to the quarterly segment performance in more detail shortly.
It is clear our unique portfolio of brands and capabilities and driving long term sustainable profitable and cash generative growth, while we invest to build bigger better brands across a much bigger universe that includes toys and games, but also spans digital gaming and entertainment revenues.
With double digit year over year growth and both consumer products and Wizards of the coast and digital gaming and <unk>.
Businesses are up nearly 20% from the first quarter 2019 pre COVID-19.
Importantly, the quality of this growth is impressive as we have added $120 million and operating profit dollars between the two segments.
We continue to see consumers choosing Hasbro brands as evidenced by the 9% point of sale growth globally, and nearly 20 percentage point of sale increase and the U S.
This doesn't reflect most of magic the gathering dungeons and Dragons and doesn't yet reflect hasbro's line of Peppa pig and PJ masks toys and games.
Hasbro franchise brands revenue increased 24% with gains in magic the gathering play Doh, Nerf Transformers and baby alive.
Revenue increased in all regions with high single digit P. O S led by the U S and Europe innovation.
Innovation for consumers of all ages is driving this growth, including Dino squad, which released in March ALLETE to point out and our high performance Ultra line, which have now fully set around the world continued strength and our licensed fortnite business and the March launch of the rival curb shot.
We have more innovation coming but the nerf hyper line and the newly announced Nerf roadblocks for fans of the massively popular games.
Transformers revenue growth was led by gains and the U S and Asia Pacific and global point of sale was up nearly 40 per cent.
Innovation and storytelling are central to driving Transformers, and the E. One team is expanding the reach and relevance of the brands through World class entertainment across platforms and demographics.
We delivered our latest warfare cyber try and content and partnership with Netflix and December 30th supported by new products that drove first quarter's performance.
Warfare, cyber try and chapter three will be airing this summer and and partnership with Paramount and that's feature and the theatrical Transformers franchise is slated for 2020 two.
Transformers continued to be the top brand pro forma on Hasbro pulse and the first quarter delivering the much anticipated has lab unicorn.
The brand kept the momentum to start Q2.
And partnership with Robeson during Hasbro pulse Standfast earlier. This month, we unveiled a 700 dollar auto converting Optimus Prime robot, which sold out and presale and less than 10 hours.
E Com revenues increased 70% and the quarter.
And it continues to ship consumer shopping behaviors and accelerating the shift to digital for Hasbro and our pure play E comm retailers and omni channel retailers and supported by their investments and technology and services like curbside pickup.
For the quarter revenue and the total gaming category, including Magic and monopoly increased 7% as gaming continued to be a focal point for players consumers and retailers.
Throughout last year and robust demand for a high point of sales and revenue growth and.
And the consumer product segment, this surge and gaming demand began around week 12 of last year.
If we look at the U S. This year heading into that same week, our games point of sale was up more than 30 per cent.
Once we hit week 12 points of sales slowed.
Despite the tough comparison underlying game demand is healthy and point of sale is more than 30% higher and 2019 pre COVID-19 levels.
We have many new games, both this spring and for the holiday and availability of classic games to continue meeting the higher levels of gaming demand.
Within Wizards of the coast and digital gaming magic, the gathering and Dungeons and Dragons, both posted double digit revenue increases.
Fueling this growth is both tabletop and physical play as well as the team's continued expansion and digital.
Magic was up against an exceptionally good first quarter shipment number last year.
Based on release strength and timing, we continue to expect the second quarter to be the biggest for magic and Wizards This year.
Arena revenue was also higher including a late late first quarter release on mobile.
Dungeons and Dragons license digital gaming revenue also increased.
Dark Alliance is slated for release in June and the game is receiving positive early buys.
Partner brand revenues grew 3% behind strong growth and Hasbro products for Star Wars, as well as continued strength in products for them and the laureate as.
And as well as growth and Marvel led by momentum in the spiderman franchise across all consumer segments and new products from Marvel Studios, the Falcon and the winter soldier unveiled a quarter and that will be fully distributed and the second quarter.
Shifting to our entertainment business our E. One team has more than 200 projects and development across television film and animation featuring more than 30, Hasbro and <unk>.
As we spoke to earlier this year, we have theatrical revenues and the first quarter last year due not this year due to COVID-19 related closures.
We're also planning for TV deliveries to be later this year versus last week.
We remain on track for our target to reach 2019 television and film revenue levels. This year.
With our partners at Paramount and the G. I, Joe Snake Eyes movie beliefs is now set for July 23rd and the brand team continues to drive engagement and demand with fans through product and events, including our pulse initiatives.
<unk> team is also shepherding the relaunch of my little Pony with new content across digital and broadcast networks with Pone life and the release of the C. G animated film on Netflix This September.
We are currently and preproduction for the Dungeons and Dragons live action feature with a new release date of March 3rd and 'twenty, and 'twenty, three and and amazingly talented cast and crew.
During the quarter the team wrapped principal production on two films all the old knives, and Arthur the King and are currently and postproduction on boats and.
Scripted television cruel summer completed filming and premiered last week and free form and we continued deliveries of season three of the rookie.
And unscripted, we have a robust slate of shows and Canada. The U S and the U K underway with more than 40 active productions.
We announced yesterday and agreement to sell the E. One music business for $385 million.
We continue to focus on the core strategic elements of our brand blueprint as a play and entertainment company.
While we plan to continue working with the music group, including music supervision and music rights exploitation across several brands music was not the primary driver of our acquisition of <unk>.
This transaction will allow the team to continue investing to grow and unlock value for its many talented artists and partners.
I want to recognize the leadership of Chris Taylor is dedicated team and the entire organization.
Thank them for their countless contributions and look forward to working with them on various projects well into the future.
We plan to use the net proceeds from the sale to accelerate deleveraging and for general corporate purposes.
The first quarter's results are a good start towards achieving our target.
Well digit revenue growth this year.
And did an excellent job delivering profit growth strong cash generation, and our dividend and reducing our debt profile.
We have tremendous innovation and content coming this year and we look forward to sharing more details as the year progresses.
I'll now turn the call over to Deb Deb.
Yeah.
Thank you, Brian and good morning, everyone.
We began 2021 with a very good first quarter, which demonstrates the strength of our portfolio, our focus and driving profitable revenue growth and progress toward our commitment to strengthening our balance sheet as our goal remains to return to our stated target of two to two and a half times debt.
EBITDA.
Revenue grew 1%, including a positive $18 million impact from foreign exchange.
Adjusted operating profit grew 15% adjusted EBITDA increased 24% and adjusted earnings per share were $1.
Our continued focus on working capital was evident.
We generated operating cash flow of $378 million and ended the quarter with $1 43 billion and cash after paying off $300 million and debt, which was due in may and paying our quarterly dividend.
Receivables declined with improved collection and the quality of receivables improved DSO was 66 days versus 79 last year.
Inventory was also down decreasing 7% absent FX.
We remain and are very healthy financial position as we invest to profitably grow.
As Brian mentioned this is the first quarter, we've reported under our new operating segment.
Consumer products segment revenues grew 14% behind growth and franchise brands emerging brands and partner brands.
Hasbro gaming, excluding magic and monopoly was down just slightly versus a difficult comparison with last years strong performance.
Revenue grew in each geographic region led by the U S and Europe, along with growth and Asia Pacific and Latin America.
Retail inventories declined and most markets, including the U S and Latin America, and the quality of inventory is good.
License and consumer products revenue also increased in the quarter with strong demand for our brands.
Foreign exchange had a favorable $9 million impact on this segment.
Operating profit for the segment increased $42 million on higher revenue somewhat offset by increases and royalties and advertising as well as higher freight costs.
Profit was up throughout the segment with North America, and Europe, and Latin America contributing the most to profit improvement.
With this as the coast and digital gaming segment revenues games, 15% and the quarter.
Both major brands and the segment magic, the gathering and Dungeons and Dragons contributed to growth.
Foreign exchange had a favorable 4 million dollar impact.
Operating profit grew with higher revenue, which was partially offset by increased product development as previously capitalized digital game development is now being expense as well as higher advertising spend to support the mobile launch of Magic Arena and the upcoming launch of Dark Alliance.
Operating profit margin was essentially flat, but we expect the expense cadence to impact future quarters more significantly.
Entertainment segment revenues declined 32%, primarily due to the TV and film business.
Foreign exchange had a favorable $5 million impact and the quarter.
And as Brian discussed and we shared with you earlier and the year. The comparison to last year when theaters were open was challenging.
Given the nature of entertainment delivery timing, we'll have revenue variances quarter to quarter, but our full year plan remains to deliver double digit growth and the segment beginning with growth and the second quarter.
Operating profit declined on lower revenue, but lower program amortization and advertising contributed to higher operating profit margin for this segment.
Our cash spend on content across scripted and unscripted live action animated TV and film is planned to be and the range of 675 million to $750 million for the full year.
And the first quarter, we spent approximately $147 million of that plan.
Looking at our overall, Hasbro P&L gross margin, including cost of sales and program amortization increased 90 basis points.
This improvement resulted from a reduction and program amortization as a percentage of revenue the favorable impact of growth and Wizards and fewer closeout sales.
Monster sales increased both in dollars and as a percentage of revenue, including higher freight costs as we spoke to earlier this year.
Great capacity continues to be very limited and more expensive across our market.
We have been actively managing transportation and minimize the impact.
This includes using more airfreight at a higher cost and our initial plan.
In addition to higher freight costs, we like most other companies have seen significant increases in resin packaging material and metal prices.
We are proactively mitigating such cost pressures with our vendors, but the trends have accelerated in recent months.
We have covered this increase year to date, but recently communicated to our customers price increases for Hasbro toy and game product to help further mitigate the higher input costs.
Product development increased 60 basis points, reflecting ongoing digital gaming investments.
Magic Arena on mobile it was the first of several games scheduled for release this year with additional games slated for release in future periods.
Advertising declines were driven by lower promotional spend and he won due to lack of theatrical releases this quarter.
We increased advertising spending at Wizards, and supportive digital gaming launches and increased advertising and the consumer product segment.
S. DNA included higher freight and warehousing costs, along with higher stock compensation and phased bonus expense, partially offset by declines from cost savings and integration initiatives.
During the second quarter based on the value allocated to the Eva and music business and purchase we anticipate recording a noncash pre tax loss of approximately $125 million to $135 million from the sale.
And this amount includes expected transaction costs.
The first quarter underlying tax rate was 19, 5% and based on currently enacted tax law, we expect our underlying tax rate for 2021 to be approximately 21% or slightly higher excluding the amortization of the evil and acquisition and <unk>.
And tangible.
Other income net was $31 million. This includes the $25 $6 million gain from <unk> 19 per share from a legal settlement realized and the first quarter of this year.
Adjusting for that gain other income was slightly lower year over year.
We are very pleased with the quality of the first quarter and how it positions us to deliver our plan for the year.
The team has continued to navigate the ongoing impacts of the pandemic to deliver strong results for the business, well and managing the health safety and well being of our employees.
Our plans are in place to continue innovating continue telling compelling stories and continue creating new experiences that bring people together to drive our business in 2021 and beyond.
Brian and I are now happy to take your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is and the question queue.
You May press star, two and you'd like to remove your question from the queue.
And so they're using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please pull for questions.
Thank you and our first question comes from the line of Mike King with Goldman Sachs. Please proceed with your question.
Great. Thank you very much for the question and good morning, and just have to first could you talk a little bit more about the TV deliveries that are happening at E. One and the second half.
Any sense of major shows that should be bigger contributors to revenue and then second given the strong margin performance and the quarter could you talk about your current expectations for EBIT margin for the full year. Thank you very much.
Sure Good morning, Mike.
On the first question, we're really seeing an array of TV series that are in production.
For you one as well as a number of films, we talked about that on our prepared remarks, and we are beginning those deliveries.
Including the rookie cruel summer, which just launched on free form.
A couple of films.
And increasing TV deliveries throughout the year in fact.
By Q2, we expect to see the growth that we've been talking about and our expectation for the full year remains the same which is there.
Entertainment business should grow double digits and revenue and return on television and film revenues to the levels that we saw back in 2019 as we move beyond that as we look at long term plans, we clearly believe and the continued growth.
Of the <unk> business.
Over the longer term and we're really seeing the Hasbro IP begin to take hold and fact.
Right now we're already on pre production with the planned launch of production and the next few months from the Dnb Dungeons and Dragons film.
We've got Transformers, both television and film My Little Pony. The feature animated CG film comes out in September on Netflix.
Power Rangers we.
We have both the television series and film that we'll talk about going to a platform very shortly.
Have some great creative stewards on a brand like risks because that will be coming.
And our future period so.
The Hasbro IP or being active actively developed and the television and films well under production, we do continue to use coal.
COVID-19 protocols right now and we believe those will dissipate as the situation continues to get better.
But we feel very good about the entertainment business for 2021 and beyond.
And as far as our EBIT margin and in the first quarter is generally a smaller quarter.
At this point, we don't see anything that changes our full year outlook, our demand and strong and we are positive trends and consumer products and whether it's and digital.
Gaming business and Brian just talked about entertainment and so we're confident.
That segment can you.
<unk> continued to deliver as well and together we can do it can all delivered double digit revenue growth for us for the year, but as we said in February we're targeting operating margins in line with last year's adjusted level of around 15% demand and strong and that helped support it but the impact of freight and input cost.
<unk> has become more pronounced over the past several months and we do have plans in place to help mitigate those costs, including including price increases for the second half a day and we're actively working with our vendors suppliers and customers. So for the full year. Our plans are continuing to show that we should be in line.
With operating margins around last year's adjusted level of 15%.
Great. Thank you Brian Thank you Deb.
Thanks.
The next question is coming from the line of Eric Handler with MK and partners. Please proceed with your question.
Thank you very much and good morning.
Wonder if you could talk a little bit about debt.
Video game business at the moment, particularly.
Magic the gathering.
Rina and mobile launch maybe you could talk give a little bit of color about.
You know how many downloads occurred.
And the global representation there.
And how much it's potentially expanding the funnel of players and.
And then secondly.
It looks like the hot new consumer product.
Out there is mfp's.
And given that you have a lot of collectible business.
Have you thought much about.
What might make sense and the NFC business.
Sure. Let me, let me start by talking a bit about Wizards and digital gaming.
And we will begin with Magic Arena, we have.
Really seen and acceleration of Magic arena and the first quarter.
And we went to the full mobile launched just at the end of the quarter at March.
March 'twenty Beth.
It's available both on Android and iOS and arena is up 24% versus a year ago, where we've now seen.
About three and 5 billion games played collectively since the beginning and the launch the average.
Per hour.
Use and gameplay for the week.
Now back to trending at nine hours per week.
As you know, we're launching a whole array of card sets that are simultaneously for magic analog and digital and we really saw great success from the first quarter around call time, and fact that launch which was early February.
What's the biggest winter set of all time from Magic and times spiral was also in the quarter and that was also very successful.
As we move forward and now with Magic Arena up on both iOS and Android will be entering second quarter in fact, just launching and.
And in April on the 23rd strict Haven, which is a brand new world for magic the gathering.
The big New card release that will come in June.
Modern Horizons will really drive Q2's business and Theres a lot of excitement around that and then buy.
July we have another release coming for the brand. So we're really seeing and acceleration of downloads in fact, its as good or even better than the team had anticipated.
People are really enjoying the play it's translated very well to the mobile format and.
And we.
And we'll continue to monitor and look at.
And what appears to be and accelerating magic business.
And Ftes are a real opportunity for us as you know we have so many brands that.
Really operate on multiple demographic levels, whether it's transformers or the magic and <unk>.
The indie brands.
Brands like Gi, Joe and we have a team that's leading our effort out of the West coast, we have our arms around this and see multiple opportunities on the NFC side and you'll hear more about that as we move forward, but we are actively developing our opportunity here and we do see it as substantial.
Thank you very much.
Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your questions.
Thank you good morning, everyone and good morning, a couple of housekeeping questions and Deb. Just one is for you I think you mentioned in your remarks, and Wizards that the expense cadence is going to impact future quarters more significantly and I think Brian you mentioned Q2 is going to be the biggest quarter.
And wondering if you can help us think GAAP expenses and revenues and the windows business.
And then Brian on on your comments on the entertainment business growing and back to that 19 level for the year can you help us think about the cadence by quarter and just wanted make sure that we're thinking through puts and take it pro rata kind of through the balance of the year or is there going to be some.
Higher and lower quarters, as we think about Q2 versus Q3 and Q4. Thank you.
Sure. So I'll start and then and I'll, let Dave comment on the your question. So as we look at E. One throughout the year.
We've said Q2, we expect to see growth and we're seeing our deliveries really come in I think Q3.
And that will accelerate and.
And then Q4, we will see how many additional deliveries come in Q4, whether certain episodes get delivered and the first quarter of 2022, but again for the full year, we have planned and place that gets us double digit revenue growth.
Very robust sales the teams executed across multiple platforms.
And productions and increasingly.
<unk> IP comes into the mix there was a number of unscripted shows for Hasbro IP that I didn't mention but are also underway and so we feel very good about that business. We had said all along that in Q1, a year ago, we were still receiving theatrical revenues and it happen to be.
Very big theatrical quarter for us and clearly just given the timing of closures, we would be up against those revenues. This year and we had mentioned that in our.
Our investor day as well as.
Our first quarter conference call. So again the team is doing an excellent job. They are really engaged in developing Hasbro IP and delivering a whole array of very entertaining shows and.
And upcoming movies for the marketplace.
And as far as the cadence of Wizards.
And Youre right, Jeff it's the varying nature of the net releases really does impact the shipments from year over year year over year trends and.
And the releases.
At least cadence this year gives us and expectation that the second quarter will be the biggest quarter of the year. It's our current expectation anyway of the year.
Whether it's Q1 of last year had some revenues pulse far away to avoid COVID-19 logistical issues, but obviously the comp very well because of the strength of releases and momentum is there and the spring set timing will be and Q2 of this year versus Q1 of last year, So that with time, Inc.
<unk> game launches and the second quarter, which don't have a comp on the digital side, that's what kind of gives us the belief that the second quarter being higher than the other quarters and if we look back on that business and can see it fluctuates from time to time and the digital revenue as that ramps will have depreciation that goes with that.
And so while arena, we started to have some marine and mobile we started to have some expense.
And the first quarter, you'll see a bit more of that ramping windows digital games being developed and that's why we continue to believe that full year operating profit margin for that segment is expected to be more in line with 2019 levels.
For the full year of 38, seven and versus the 46 four that we had last year.
Very helpful. Thank you.
Our next question comes from the line of David Beckham and Sternberg capital. Please proceed with your partner.
Hey, Thanks, a lot for the questions.
And I have two if I could first one just on arena or magic and general I guess really impressive growth, obviously from arena and the quarter I'm curious do you have the data set.
Capable of giving you a holistic picture of your player base and I'm curious more specifically if that growth.
Growth is coming at the expense of tabletop or if youre actually expanding the market base and and whether or not you expect mobile to further expand the market base.
Sure.
So in fact Youre right.
<unk> Arena had historically been expanding its accelerating and that effort.
In fact analog tabletop has performed incredibly well and let me remind you that.
The analog and tabletop business is performing incredibly well while people can't get together locally in their local favorite.
Hobby shops for local gaming shops.
Play the game and.
In fact about a year ago. If you looked at the hobby shops, you would have seen about 40% of global hobby shops had some capability to fulfill or either curbside pickup or some kind of E com and today, that's well over 80% and we've tried to help foster those capabilities and building card sets and releases that.
And would be.
Enabling local hobby shops to really participate, but we do expect and additional tailwind on the analog business. When we're starting to see that as markets begin to reopen and people can begin to get back together again. So that's obviously a major contributor to people's being able to play and also the opportunity to.
Continue to share.
Share and.
And individual gamers passion with new gamers to the game people get invited to come along and learn how to play magic all the time.
So yes, its expansive no there is no cannibalization and in fact Magic Arena is just allowing people to play at a distance who had never been able to reconnect with friends or.
Family before.
And not necessarily be and their neighborhood. So all in net positive.
That's really helpful. Thanks and.
Just a question on the the music deal can you more housekeeping and nature can you give us. The net proceed amount from that deal I realize it was sold at a loss and maybe there was a tax benefit and then also.
And what the financial impact of the divestiture will be for the for like on a full year basis.
So in fact, the business was not sold at a loss. We in fact sold the business on a multiple basis basis far over what we had paid for it and so obviously before we were as we were acquiring you one we assigned certain values to certain elements of the business music television.
And film other goodwill and that was back in late 2019, and so there's a book loss just to true up our book loss that comes as a result of.
The proceeds that we received from <unk>.
The acquisition.
But we feel very good about the sale and it was.
And on a multiple basis.
Far ahead of what we paid for it I don't know if you want to comment that as far as the impact on the full year and not expected to be material. As we said, we expect the deal to close and the second quarter of late and the second quarter early in the third quarter. We would expect at that point it would reduce revenues by approximately $60 million to $70 million and maybe.
15% to 20 and operating profit so not material and the second half of 2021.
Great. Thanks, so much.
Our next question is from the line of <unk> Kocharyan with UBS. Please proceed with your question.
Good morning, and thanks for taking my question I was wondering if you could comment on Pls Q1 was pretty strong across the board helped somewhat by Easter, but do you have any color on what Pos is doing into April and now that we're comping now.
And sort of tough comparisons from COVID-19. This last year, and then I have a quick follow up.
Sure.
Well, what we've seen is.
And continued strength, obviously, if you look at the games business and I described this a bit and the and the remarks, our games business up until week 12 was up 30% and then obviously, we hit where COVID-19 really accelerated a year ago and so games finished the quarter at minus five per.
And Pos however, underlying Pos.
During this period is still up 30% versus the 2019 pre COVID-19 levels. So we're still seeing that robust.
Gaming demand.
Secondly, our toy business Pos has been incredibly strong through this period.
And double digits double digits.
Four.
Post Q1.
The other thing that's really important to note is that this is a period of time, where we can actually supply product.
A year ago, the Pos was being generated from inventories retailers had on hand as our.
<unk> factories, and Massachusetts, and Ireland had been closed for eight weeks. So now we're able to supply and demand and we weren't able to supply.
A year ago, and similarly supply chain disruptions had caused us to be unable to supply product. During Q2 last year. Despite good strong Pos it was really coming from inventories on hand more than our ability to replenish so we're seeing and Q2 shape up quite well from a demand.
And perspective and also.
Early on and I'll comment from a shipments perspective.
And a really seeing continued strength around the product categories and.
And growth in our franchise brands.
It's really been robust around the world and North America franchise brands and Q1 grew 37%, we're really seeing our partner brands grow our E com.
POS was up 34% and the first quarter with even higher numbers for several brands Disney Princess was incredibly strong with Pos up more than 60% and the first quarter and that's continuing as the team has launched a whole array of new innovative products. So again, it's going to.
A bit of a strange comparison on Pos and Q2 as compared to a year ago, but the ability to supply product against real demand is very evident and we're executing on that.
That's super helpful. Thank you and then just a quick follow up have your expectations changed at all.
Volume under Peppa and P. J you could.
And we're particularly integrate and the second half of the year.
No in fact, I would say, whereas confident and are even more confident the teams have done an incredible job of working with our global retailers and selling in and array of new really inventive product season nine of.
Peppa is really proceeding theres, a whole lot of new content coming.
And I don't want to give anything away to the fans but.
Including a trip to the United States for the family and all.
A lot of product around all of that and the play patterns are really it's just so cute and inventor.
So no we feel very good paper and P. J, both will have around 50 skus each this holiday.
And then we will continue to accelerate in 2022.
As we have new products coming in that year as well.
Thank you very much.
Our next question is from the line of Tami Zakaria with Jpmorgan. Please proceed with your question.
Hi, Thank you so much for taking my question.
So my first question is do you still expect advertising expense to be 9% to nine and a half for the year given the first quarter was light and how should we think about this line from.
The rest of the year.
Hi, Good morning, Tammy I think we do still expect advertising to be right around that 8% to 9% of revenue level. It was light in the first quarter and not because of consumer products and Wizards and digital gaming because they had increased advertising and those.
And those particular segments. It really was because of entertainment and not having the theatrical launches that we had a year ago. When we're out promoting promoting those line. So that's really why youre seeing the impact of upfront I'll call year basis, we still expect it to me and that 8% to 9% of revenue range.
Got it 8%, 9% got it that's very helpful. And then along the same line.
Thank your cost of sales.
Excluding production costs and amortization saw about 220 basis points of deleverage and the first quarter.
Do you expect that trend to continue for the rest of the year.
Or should it be lower given you've announced price increases to your.
To your clients come to your line.
Yes, so we did see that impact Youre, correct, and the first quarter and to date, we've been able and mitigate and absorb the increases that youre seeing and freight there as well as for the product.
Cost, but they have become more pronounced but in addition to our efforts we do have to increase prices and taxes and the second half of the year to help mitigate those rising costs.
So as of right now.
And with blending all of that together.
We do expect that we should be able to mitigate those increases at present.
Got it and so the first quarter is really sort of the trough right.
The highest.
And <unk>, probably sign it should get better throughout the rest of the year is that how we should be thinking about it.
I think we're seeing continued pressures, but we have plans to mitigate with price increases and the second half of the year.
Got it okay. That's very helpful. Thank you so much.
Thank you.
Next question is from the line of drew Crum with Stifel. Please proceed with your question.
Okay, Thanks, and good morning, guys.
Good morning, Brian is there as it relates to the consumer products shipped any insight into how retailers are planning the holiday shopping and shopping season. This year.
Moving to start much earlier last year.
Are you anticipating a similar shape this year or do we return to pre COVID-19 behavior on the part of retailers and.
And then separately per Deb and.
And the press release last night, you mentioned plans to accelerate deleveraging with the sales and music business can you give a little more detail around that thanks.
Sure.
<unk>.
Around the world and we were.
It's really great to see the growth in every region around the world for the consumer products business.
Including a real return to growth in Europe, and Asia Pacific and Latin America, and addition to very strong growth and demand in the U S. As we look at our retailers plan. It's clear that these are categories that are important and increasingly important to retail.
And robust sales increases we are seeing across our business are.
A really important again to the consumer so what we're going to see we believe is.
A number of very big promotional windows debt will occur in the summer time.
A few of our major retailers already lining up around those kinds of plans and then additional opportunities and big promotional windows occurring at the beginning of Q4. So I would say it's multiple at that four big promotional windows that will begin early but also.
Continue and accelerate during Q4, so the holiday period.
And we're seeing that from several different categories of retailing and.
And our major retailer.
Alright, and then as far as the net and net proceeds.
We said, we expect the deal and to close late in the second quarter or perhaps early in the third quarter and we do anticipate using net proceeds to <unk>.
And to Delever as you recall, we structured the debt at the <unk> deal. So we could prepay several components of it with no penalties.
And.
Our expectation is that we will.
We will you will see something likely around that timeframe or shortly thereafter.
Got it thanks guys.
Our next question is from the line of Gerrick Johnson with BMO capital markets. Please proceed with your question.
Good morning, Thank you Hi, I have two questions I promise to be quick.
First you mentioned that retail inventory was down in most markets where was it up and by how much and why and then I have follow up please.
Sure.
Retail retail inventory is up a little bit with our wizards business and it's.
And it's up.
A little bit in our games business, but these are very very small increases.
I would say overall inventories either kind of in line with year ago or slightly below and.
It's just where we have <unk>.
Increasing demand and sales.
Okay got you and just to clarify.
Last time, you said that all three segments were expected to grow revenue adjusted operating income and adjusted EBITDA is that still the case.
In fact, the performance and the first quarter and makes us even more confident and our ability to execute.
A very good year and the team is performing at a very high level. So yes, we feel very confident about.
Our guidance that we had provided earlier this year.
Alright fantastic. Thank you Brian.
Okay.
Our next question comes from the line and Fred Wightman with Wolfe Research. Please proceed with your question.
Hey, guys. Good morning, I just wanted to follow up on Brian Restocking comments are you comfortable with where retail inventories are overall today or are you seeing Pos constraint and anyway as a result of channel inventories.
No I think we're feeling pretty good about inventories and in fact.
It should continue to drive E comm and omni sales.
Sales and we talked about it being up 70% and a quarter.
And Thats, just that will reflect a bit of a mix shift and weak supply of inventory on on the margin and so you're just seeing us continue to hone the inventories for the channel continuing to use really.
Good techniques and how we restock are using flex warehouse space for our online and omni retailers.
And.
The as efficient as possible, while still fulfilling demand and in fact, we're lining up.
And against a continued strong demand in Q2, a lot of new initiatives coming.
Throughout the year and <unk>.
<unk>.
And we're really excited about.
Number of new initiatives, we have coming for the remainder of the year that debt.
Run the gamut across a multitude of our brands and as we've talked about some of the new initiatives and.
New initiatives coming and action around.
A couple of new films.
Hi, Joe My Little Pony and.
So again, we're lining up those inventories for those major initiatives.
And then just on the games Pos is that 30% growth rate versus 2019, and good to your expectation as we move through the year or is there something that could cause that to change.
Yes.
<unk> really got up and array of new games that are coming we have really robust plans in fact already year to date, we have the number one new game in the marketplace. According to NPD.
Which is this food skip all and it's been.
Really well received.
We have a number of new games.
And in monopoly and.
Several new original games coming as well so.
Very strong plans for games for the year, obviously in Q2 and during this like a 12 week period, we have a bit of a flip on.
But as I said, the underlying demand remains quite strong and <unk>.
Plans for the year.
And really look good.
Great. Thank you.
Next question is from the line of Devin Frisco with Bank of America. Please proceed with your question.
Thanks for the question.
Can you talk through the puts and takes per partner brands, given youre still able to grow revenue, despite tough comps and the quarter.
Could you could that segment grow more in line with your core business for the full year, just given increased Disney plus adoption and.
And new series like the Falcon and the winter soldier.
Yes.
Youre right there is.
There's a lot of excitement and major initiatives coming from the partnership with the Walt Disney Company, clearly Disney plus has.
And array of new content lined up.
Falcon and the winter soldier began to ship and.
And Q1, but it's really a Q2 initiative.
And we're seeing incredible growth in the Star Wars business incredible growth and pass Disney Princess I mentioned earlier.
Really strong shipments as well as.
More than 60% increase and pass.
And then Marvel.
Very strong around spiderman, but also will launch product for a number of films this year, including back Black widow and Shang Chi.
We will have some product for venom and then internals, which comes later in the year is going to be a major initiative for us. So again and then the Spider Man movie that comes at the end of the year. So against those three major brands, where we're certainly driving a lot of innovation and product.
For both Disney plus initiatives as well as the film.
Film initiatives.
Thanks, that's helpful and related to each one.
Sony recently, just signed deals with Netflix and <unk> and Disney.
3 billion, combined which is really unprecedented and.
And I know you recently signed output deals and the UK and Ireland and the Sky, but was hoping to get your.
Thoughts on that deal and the implications for E. One just in terms of how you're thinking about investment and that business and potential from more output deals and the future.
Yeah, well look.
What's great about where we are is that <unk>. One has historically been a and organization that's been very effective and building incredible content and a risk mitigated way and selling to any number of partner has great relationships across the board with the OTT platforms from Netflix to Amazon.
Apple.
To others.
Have shows on the air with all of this different.
Outlets, and then of course as well with broadcasters terrestrial.
And satellite around the world.
We continue to look at how we put Hasbro IP and the market. There is a very strong demand for world class IP and Hasbro has an array of it we're working as I mentioned on a number of brands and we're starting to see the traction around brands like my Little Pony, which we talked about is on Netflix.
And September Transformers.
New television series going on the <unk> and other platforms are.
Film coming next year and partnership with Paramount and then power Rangers Youll hear more about it but we've been developing that and we expect shortly to be able to talk about.
The brand new.
New.
Our content for the brand that will go after multitude of audiences that will be on a on a streaming platform. So.
Again.
Very good position for the company and and we look at all of our opportunities, but you are right. We have entered an era, where there is unprecedented spending on content and and unprecedented desire for great Brad.
<unk> with Great story, and you won is expert at that.
Thank you.
Thank you. Our final question comes from the line of Shawn Collins with Citigroup. Please proceed with your question.
Great, Thanks, Hi, Brian and Deb good morning.
Morning.
Hey, Mike quick question is on the sale of the music business.
I'm just wondering what additional turn it too that you planned on before the equal and acquisition in the summer of 2019, you certainly got a healthy deal multiple 332 times revenue.
Or was this more of an opportunistic sales given a very healthy deal market any color would be interesting.
While I'll comment and I'll, let Debbie comment.
And from very early on we received a lot of interest in.
In the business as soon as it was announced and if you remember the headlines around.
And all the different music labels, and <unk> had and so well juxtaposed to some of our brands and it.
Yeah.
It was really a lot of conversation and a lot of interest we ran a very robust process. We had a number of parties more than 10 parties interested in the business.
During the process.
And ultimately.
We think we found the right partnership.
The team is really well positioned with.
With the buyer and.
And this.
This opportunity will continue to work with them on several brands from music supervision and.
Some of our music for a number of years.
They are so good at what they do and <unk>.
So again it was a really robust process. It wasn't debt we were contemplating a sale, but we certainly had the interest from the very beginning.
Alright, and as Brian said, we just for US it's about continuing to focus on really the core strategic element of the acquisition and how they fit into our brand blueprint to continue driving our company to get results like the double digit revenue growth that we expect for this year. So go forward, we think that our music business.
And a great team, there and a great place.
And we look forward to working with them and we look forward to continue growing Hasbro as a great play and entertainment company.
Great. That's helpful. Thank you very much.
Thank you.
And I will turn to flow back to Debbie Hancock for closing remarks.
Thank you Rob and thank you everyone for joining the call today, the replay will be available on our website and approximately two hours management's prepared remarks will also be posted on our website. Following this call. Thank you.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and we thank you for your participation.