Q2 2021 Hasbro Inc Earnings Call
[music].
Good morning, and welcome to the Hasbro second quarter 2021 earnings Conference call.
At this time, all parties will be in listen only mode for anyone should require operator assistance during the conference. Please.
Sorry zero on your telephone keypad.
Today's conference is being recorded if you have any objections you may disconnect at this time.
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.
For STR 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.
All of the financial measures our call today will discuss certain adjusted measures, which exclude those 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. We are referring to earnings per diluted share before we begin I would like to remind.
Non-GAAP free and 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 expectations expressed and these forward looking.
Do that don't these factors include those set forth in our annual report on form 10-K, and 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 I would now like to introduce.
State and that Brian Goldner, Brian.
Thank you Debbie good morning, everyone and thank you for joining us today.
The Hasbro team delivered an excellent second quarter, highlighting the power of our portfolio and the benefits of Supercharging, our blueprint across consumer products Wizards and digital gaming.
Introduce and entertainment.
Each segment grew revenues and profit on the other adjusted basis and the second quarter.
Overall revenue was up 54 per cent from last year, and 9% higher compared to pro forma second quarter 2019.
The man for Hasbro brands and products and content remains.
And a strong.
The team is executing extremely well to meet consumer retailer and audience, the man and a dynamic environment, while driving significant profit and cash generation.
As communicated earlier this year, we are on track to grow revenues and adjusted earnings and adjusted EBITDA. This year.
This includes revenue growth and all segments to achieve double digit revenue growth for Hasbro.
We also continue to believe we can reach and adjusted operating margin level of approximately in line with last year's adjusted level of 15.1 per cent.
We delivered 2 quarters of excellent results so far.
And these results and favorable mix year to date adjusted operating margin is 570 basis points higher versus last year's first half.
We successfully established price increases that go into effect during the third quarter and provide an offset for the rising input and freight costs and the business.
And give your supply chain pressures of meaningful given the strength and our business. The actions we have taken combined with our global footprint. We continue to believe we can meet our full year targets.
The team is doing tremendous work for manufacturing to logistics, the partnering with our retailers to ensure there is product to meet demand.
It is not easy and will work through challenges every day.
Deb will speak to this further.
Each brand category grew in the quarter as did 6 of our 7 franchise brands.
Monopoly declined slightly versus the very robust quarter last year.
Franchise brands, Hasbro gaming and emerging brands for each.
And versus second quarter 2019.
Partner brands and the T V film Entertainment categories were essentially flat with 2 years ago as theatrical releases and content production is returning.
Wizards generated a standout performance this quarter led by magic the gathering demand for magic as at all.
All time highs, including 2 record releases and the quarter strict saving and modern horizons too.
As player begins to return to stores and play communities, we're seeing an uptick in sales on our backlist product as well.
The high demand as temporary the only by supply chain challenges as the collectible.
The trading guard space has seen significant demand for production capacity and materials.
The launch of Magic, the gathering arena and mobile exceeded our expectations and is attracting new arena players.
Players, who engage and both desktop and mobile show increased engagement and spend.
Digital remains an important driver for our business and our overall digital portfolio is performing at record levels. We take a holistic approach and are pleased with the direction of our digital transformation.
For Dungeons and Dragons, which grew in both analog and digital this past quarter. The launch of dark of lines did not meet our expectations.
<unk> or that of our players.
We will continue to invest and improving the game play and downloadable content.
Dark Alliance was the modest investment for us and we do not anticipate any material effect of the wizards of results.
We continue to invest robustly and digital.
With us on track for another record year.
And while much of that growth was front half loaded we expect growth and the second half of the year behind the positive third quarter release slate.
Turning to our consumer products business. Each reason grew toy and game revenues as the licensing which is beginning to recover.
The strength of our brand portfolio.
So more than offset the difficult comparisons and games.
As expected point of sales declined in the mid single digits versus high single digit growth last year, which was led by the extraordinary growth and the games category.
Hasbro point of sale for toys for the second quarter.
Was up 1.
Ballgames was.
And was down.
For the U S, where we have the most comprehensive data point of sale is up 10% when compared to 2019 with similar gains in both toy and games categories.
The quarterly year over year comparisons are choppy, but the trajectory is positive.
E Commerce.
<unk> revenue, including Omnichannel retailers continued to grow and the mid teens and physical shopping improved as most stores are open this year versus last.
According to the proxy of Taro Hasbro has the leading share of Prime day toy and games sales in several countries.
Channel growth was widespread with the largest growth.
And mass retailers and toy specialty and sand channels.
We have significant product launches backed by robust multichannel marketing campaigns slated for the second half, including new Nerf launches to continue driving the brands after successful Dino squad and hyper launches and the second quarter.
As for Peppa pig and PJ masks line will be on shelf and the coming weeks with hundreds of new products, New entertainment and the support of Hasbro's Global retail partners. These brands are poised to reach more families than ever.
We're also Relaunching my little Pony and the third quarter, there was an all new cash the ponies.
And product and support of the September and Netflix premiere of the CGI movie My Little Pony and new generation.
We will further support the franchise with the additional series and specials in coming periods.
Audiences of returning the theaters and we're supporting several feature films, including and partnership.
And the ship Paramount Snake eyes G. I, Joe origins that premiered this past weekend Marvel Studios' Black widow, and it released earlier this month as well as Marvel Studios Spider Man and no way home and Ghostbusters Sony's Ghostbusters afterlife.
Entertainment is the catalyst that unlocks the next.
Next level of value and our portfolio.
1 is the production.
TV and both scripted and unscripted led growth this quarter, along with family of brands revenue from content sales and Youtube advertising.
And our entertainment business grew significantly in the quarter and we continue to target of similar level of revenue.
For the segment this year versus 2019 absent the second half of the year music revenues.
And TV cruel summer Premier at the very high ratings on free for them and was picked up by the network for a second season.
B C renewed the rookie for a fourth season, and we have commenced production.
Apple.
The full TV plus brought worldwide wide rights to our production of come from away, which is and post production for release this fall.
Additional film releases to come include kicked Clifford the big Red Dog with Paramount and Stillwater, directed by Tom Mccarthy and starring Matt Damon.
And unscripted T D R.
<unk> remains robust with close to 40 active productions for Canada, The U S and U K.
The <unk> team continues to develop and move into production of the Hasbro IP.
More than 200 projects and development across TV and film and animation more than 30, Hasbro brands are being developed.
Among the many active projects, where and production on the Dungeons and Dragons live action feature to Premier and 2020.3 and we began principal photography with Paramount on the live action Transformers rise of the beef coming June 2020.2.
Hasbro is well positioned for the coming quarters and years with the industry.
Industry's best brand portfolio backed by unmatched capabilities and consumer products gaming and entertainment, our global team of Hasbro employees and partners continues exceeding expectations, the execute and deliver outstanding results. The dirt. During these dynamic times ill now turn the call over to debt.
And thank you, Brian and good morning, everyone.
The second quarter was another very good quarter for Hasbro.
Team executed at the high level to drive revenue gross profit and margin improvement.
And as the complex supply chain, while reducing debt and delivering a strong balance sheet.
Revenues.
<unk> were up significantly versus last year, but importantly, also up compared to the second quarter of 2019, which did not have an impact from COVID-19.
Each segment grew revenues and profits on an adjusted basis year over year.
As Brian said, we're tracking to our full year of goals.
And our outlook is in line with our prior guidance.
The strength of our balance sheet and the sale of the music business, which was completed early in the third quarter enabled us to pay off 250 million of long term debt prior to quarter and and another $100 million in July.
Sure.
And today, we've retired $650 million of debt this year and are evaluating incremental opportunities for further reductions.
At quarter end cash on hand, with $1.2 billion, and we're making good progress toward our goal of returning to our target of 2.
2.2 and a half times debt to EBITDA and maintaining our investment grade rating.
We see for both declined further in the corner.
Dsos were 60 days a reduction of 37 days compared to Q2, 2020 and down 24 games from pro forma Q2.2019.
The team.
This is the lowest levels of Dsos and the very long time.
And this improvement is the result of higher sales combined with improved collections and excellent work between the commercial and treasury teams across our business.
Inventory decreased versus the second quarter of last.
Last year when sell into retailers and it's limited.
Inventory remains below 2019 levels and of good quality.
Retail inventory increased and markets, where we're under the stocks last year, including the U S and Europe, and we continue to reduce current levels in certain markets.
Like of Latin America, which is helping improve profit in that region year over year.
My discussion of the based on adjusted results, which exclude several items outlined in our release today, including a $101.8 million charge related to the life of England music assets held for sale.
And related pretax transaction costs of 9 and a half million.
And within our segments consumer products revenue grew 33% behind games and franchise brands emerging brands and partner brands.
Well overall, Hasbro gaming grew and the segment declined compared to the strong.
The demand last year.
Revenue grew in each geographic region.
Licensed consumer products revenue increased again, this quarter behind franchise and entertainment that brands and.
Places categories and the retail environment are improving.
Foreign exchange had a favorable of $19.1 million.
And the impact from the segment.
Operating profit for the segment increased $63.1 million.
Similar to the first quarter the higher revenue was partially offset by increases and royalties from partner brand growth.
The advertising to drive the business throughout the year and increased straight.
Yes.
Profit was up throughout the segment with North America, Europe, and Latin America contributing the most of profit improvements.
Which is from the coast and digital gaming segment revenues increased 118% of the quarter.
Magic, the gathering and Dungeons <unk>.
<unk> contributed to this growth.
Foreign exchange had a favorable $7.2 million intact.
With the higher revenues operating profit growth, increasing $118.8 million and 780 basis points and operating margin.
The increased revenue more than offset higher expenses to support new game launches, including investing in future games.
Advertising and marketing to support game launches and depreciation related to capitalized game development.
We said previously the based on release schedules, we expect.
Specced at the second quarter did even the largest for this business and the team outperformed our expectations.
Based on the release schedule for the remainder of the here. We continue to expect of record revenue year for with Inc. With operating margins close to the 2019 levels.
Entertainment segment revenues grew 47% with growth and scripted and unscripted TV animated content and Youtube revenues.
Foreign exchange had a favorable $8.8 million dollar impact and the quarter.
These results have us on the path to reaching 2019.
19 levels of revenue, excluding the music business over the second half of the year, given it will no longer be and our results.
Adjusted operating profit was up but margin decline with higher expenses as he run returns to more normal levels of operation.
Our cash spend.
Non content across scripted and unscripted live action animated TV and film is planned to be in the range of $675 million to $750 million for the phone yeah.
Through the second quarter, we spent approximately 300 and the $8 million of that plan.
Looking at our overall Hasbro the P&L.
And our robust revenue growth and favorable mix drove significant improvement and operating profit dollars and of 1060 basis point increase in adjusted and adjusted operating profit margin to 16% for her.
Adjusted EBITDA more than doubled in the quarter versus last year.
Gross margin, including cost of sales and program amortization increased 80 basis points from growth across the business, including high gross margin revenues from license of the coast.
Cost of sales increased and doubling from the higher revenues, but declined as a percentage of revenue, reflecting the favorable for them.
Mix of the Wizards.
The revenue and improved profit and the consumer products business.
Well all of the factors positively and for its gross margin for.
Great and input costs are significantly higher this year than last.
1 example of ocean freight costs, when we're projecting on average that cash.
The cost will be more than 4 times higher this year versus Ross.
And Brian mentioned, we're implementing price increases during the third quarter and should be fully realized by the fourth quarter.
We expect this to offset the rising cost of freight and commodities, we continue to see across the business.
We're also working to ensure product availability during the holiday season.
And we may experience, the shifts and delivery dates and timing of revenue, but we're leveraging our global footprint and scale to meet demand.
This includes sourcing more products earlier out of multiple countries increasing.
And the number of ocean carriers, the request and utilizing more ports to expedite the delivery of our product from the origin to their destination points of.
Along with many other tactics to manage through anticipated port congestion and ocean capacity constraints expected and the second half of the year.
Okay, and the amortization increase and the quarter, reflecting the higher entertainment deliveries.
This is expected to be and the range of 9% to 10% of revenue for the full year 2021.
We continue to expect gross margin to decline slightly for the full year.
Product development increased $29 million led by investments and future analog and digital games at Wizards.
And as a percentage of revenue declined 20 basis points.
Advertising expense increased $33 million to support new digital game launches along with the higher support of our toy and game business.
And this as plans for this year versus last.
This line also declined as the percentage of revenue by 40 basis points.
Reflecting the sale of the music business, we now expect intangible amortization related to the <unk> acquisition to be approximately $86 million for the full.
Full year 2021 of approximately $20 million each of the third and fourth quarters. As a reminder, we exclude this expense and adjusted earnings and EPS.
S. DNA reflects higher expenses as the business returns to pre COVID-19 levels with higher levels of marketing and Sandra.
The expense increase.
Depreciation associated with capitalized digital games increased compensation and higher freight costs.
Despite these higher expenses SG&A declined as a percentage of revenue by 540 basis points.
The underlying tax rate and the quarter was.
And 3.2% compared to 26% last year.
The higher rate is due to the mix of income, but we expect the full year underlying rate to remain at approximately 21%, excluding the amortization of the <unk> acquisition and tangible.
The all in GAAP effective rate.
<unk> was mainly driven by 2 discrete events, including the impact of the music sale and the Remeasurement of our U K net deferred tax liability.
This was offset by the benefit resulting from tax planning and normal discrete items.
Our second quarter showcase the benefit of our deep.
The portfolio of brands and capabilities backed by a tremendous team and solid execution for.
For the remainder of the year, we will be delivering tremendous innovation and a robust content slate, while navigating the global supply environment to deliver a successful holiday.
Season.
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 1 on your telephone keypad and of confirmation tone will indicate your line is and the question queue.
And we.
The press star 2 of if you'd like to move your question from the queue.
For participants using speaker equipment and maybe.
And the necessary to pick up for handset before pressing the star keys.
1 of them. Please follow the poll for questions.
Thank you.
Our first question is.
Is from the line of Steph Wissink with Jefferies. Please proceed with your question.
Thank you good morning, everyone Devin Brian I have 1 for each of you that the question is on operating margins is much stronger than what we would've expected for the quarter, even with the Wizards and I'm. Just curious if you can talk a little bit about how you expect margins to play out over.
Longer term.
Do you expect to see of some of the margin benefits continue to progress through the back half.
And then Brian My question for you is just bigger picture now that you've gotten the blueprint and enhanced capabilities around the blueprint can you give us a few examples for the back half maybe it's pepper my little Pony.
And you.
You expect to fully exploit the capabilities and what we should be looking for and the marketplace is evidence of that.
<unk>.
Great Good morning stuff and Brian.
Let me lead off and thanks for the question yesterday and the team delivered a tremendous.
Tremendous revenue and operating profit margins for the quarter.
The really good job all the way around as we said we continue to expect that throughout the rest of the year, we'll have solid operating profit margins and that we can achieve the guidance we set out at the beginning of the year to grow revenue.
You know double digits and operating profit margins to be in line with a year ago.
Over the longer term and the medium term, we do expect that we can have our grow our operating margin levels greater than 16% on a full year basis and have cash generation close to that $1 billion level that we saw a year ago. So excited about what the teams are doing how they're working and how they're driving.
Driving profitability and products as you know this year. There are some pressures that are existing out there on the cost side, we've taken pricing that we think will cover all of that and where you expect it to cover it right now.
But we still expect there'll be some fluctuation and operating profit levels for the rest of the year, but over the long term no reason why we won't.
Exceed that 16% level and the future.
Yeah, Good morning, Steph and as we look at the business clearly Q2 is the importance of inflection point for the company and for stakeholders as we returned to growth and our entertainment business, we're seeing the momentum and our.
Wizards of the coast business and of course continue.
And to see very strong consumer product sales.
For the fall, we are lining up with pepper and P. J launches, it's great to see those brands and growth mode in Q2.
Consumer products returning on those businesses and Peppa is the second most viewed preschool brand in the world and that content.
Consumption really goes unabated as we are and season 9 on that brand and the in season for on the P. J masked with lots of new content to come and buy.
My Little Pony films coming in September it's on Netflix and will be the beneficiary of the 200 million subscribers that Netflix has and a really robust array.
Hey of products, great innovative products from our team as well as an array of consumer products that come from any number of licensees.
Great Big moving the size the marketing campaign and.
And a lot of excitement with a whole new core cash with the lots of content to follow.
In addition to that and Dungeons and Dragons has its live action film in production.
Currently the team is doing a tremendous job and delivering that film that will be for first quarter 2023, and I've already seen the plan along with the team for consumer products and licensing we're out to our global retail.
Retailers and their entertainment councils, and it's really the shape of things to come as we activate more Hasbro IP and begin to take them into content stand them up with great storytelling and begin to activate them across the flywheel and the blueprint.
And then of course, you're seeing Wizards really and the early stages.
As of unlocking the opportunity there as we begin to achieve that doubling of the size of the business and start to set some new objectives and targets for that brand those brands and the and that business as we go forward.
So overall the.
This is a very good and important time for us as we've said we would.
Returned to growth.
And it helps us to.
Be as confident as we are and our full year goals and objectives as well as our medium range guidance that we've provided.
Thank you very much.
The next question is coming from the line of Eric Handler with MGM partners. Please proceed.
Proceed with your question.
Good morning, and thanks for the questions wondering if we could dissect the entertainment set.
Segment, as we think about the back half of the year of little bit here.
The film and entertainment and since you have.
And 2 movies coming.
Globally.
And then you held so have my little Pony going to Netflix and then I assume production deliveries or are ramping I imagine the film and television.
The segment should be up nicely on the year over year basis.
But when I look at the family brands line.
Line of.
So first and second quarters were down year over year, and still well below 2019 levels is that pure is that reflecting animated program deliverables as out of timing issue as the consumer products sort of how can you help me understand that and then I've got a follow up question.
Sure well first let me.
And remind you that the consumer products revenues that were prior reported inside of a you want it moved over to the consumer products group.
So what youre seeing now and you why and as the family of brands revenues that comes from entertainment.
Take it in total and in fact, the family of brands were up.
And the second quarter, if you look at like Peppa pig and PJ masks.
And that's taken and total where you have a consumer products plus the entertainment coming from the 2 different divisions as we look at Q3 and for we do expect with productions returning.
Seeing a great array of deliveries we expect growth.
And in Q3 and for for the <unk> business, we have a number of TV series and production for delivery in Q3 and.
And we also.
Have the similar amount for Q4, Inc.
Including a new show for Showtime called the yellow jackets that come from away and movie that will appear.
On the Apple TV on and the fall of <unk>.
For season of the rookie.
As well as you know getting the family of brands revenues.
For the new seasons of Pepper P. J and we will get paid for the my little Pony movie.
Primarily and the third quarter.
Elaborate to Netflix.
I'd say, we have a very robust slate of entertainment coming.
Lots of Hasbro IP and development and we're very excited about the return to growth for you..1 is we had projected.
Okay. Thanks, and then as a follow up.
Yeah.
As we talk about Matt.
Magic the gathering arena the launch on mobile did a little bit better than expected.
The expected wondering if you could maybe talk a little bit about.
Some of the key performance indicators, if not just for mobile just in general for the for the digital business with the arena.
Sure.
So if you look at arena, it's up quite considerably year over year.
And also we're really seeing that sustained high level of hourly weeks.
Hours per week played so about 9 hours per week.
And what I would tell you is that the kpis if we compare the.
The kpis.
Did Tyson of Magic Arena to other top mobile games were very competitive on the on the comparisons.
And it's really a part of that virtuous circle.
That we're seeing within the Magic business also just to remind you as we think about the cadence for the full year we have.
Kate theatrical releases and Q3 and just 1 major release in Q4, this year and a year ago.
Magic.
Biggest quarter was Q3, followed by Q4, so what we have seen great growth and Magic Arena.
And we continue to see that where people are playing both magic arena.
2 magic the gathering that it's really adding to the engagement and.
And players playing.
And as we are seeing a return to more in store and in person play. That's also a tailwind for the business.
Great. Thank you.
And our next question comes from the line of therapy, and a kocharyan with UBS. Please proceed with your questions.
Thank you and good morning, so very strong set of results. This morning, and it sounds of the full year of top line guidance is unchanged, but let's play of guidance, including music business and now it doesn't and which means underlying guide actually went.
Could you clarify and then I have my main question.
Certainly so as we look at the entertainment business. We said, we believe that film and TV you can get back to those 2019 levels and you look at our entertainment overall.
All of our entertainment segment and can get back to that 2019 levels.
And went up and have music and <unk>.
And I believe we said this last quarter, but if we did and we expect that music business revenue to be reduced because it's no longer of business by about $60 million to $70 million and about $15 million to $20 million and operating profit over the course of the second half of 2000 and.
The second line. So those are the levels that we're talking about.
Okay.
I was wondering on the.
And your gaming business.
Your margin guidance of 39% for the year largely unchanged I guess, what I'm trying to understand and to go back to an earlier question too.
20, and meet your operating profit guidance of around 15% and for the back for the for the full year, you know back half doesn't need to be up more than 14.5% of in terms of sort of overall.
Operating profit margin I guess could you talk through some of the kind of puts and takes on how to think about it it seems like.
<unk> has been very strong and some of that was the front end loaded like the gaming business, but how do you think about the fact that coffee. Thank you.
Certainly well and as we talked a little bit about this earlier, but I can't I can certainly add some more color.
If you think about our consumer products business, while we see the consumer products licensing.
And the Sun business coming back.
And as retail starts to open and you also see some pressures on our freight costs and moving things around and that was taking price increases for that but do you think about all of the product that's kind of moving and the second half of the year. So if you go back and look over time there are some pressure.
License sales on certain of the quarters and operating profit for that when you think about the entertainment business as Brian mentioned, we're very excited for my little Pony to launch on Netflix and be able to access all of those subscribers, but with that comes ameren and the amortization of the cost of the settlement itself. So when you think about that that's also.
Pressure coming through and the second half of the year as well as some of the other entertainment initiatives that we've talked about out there Wizards we.
Said earlier and our prepared remarks, they actually outperformed our expectations for the first half of the year. We will continue to have for the second quarter, we will continue to have.
We're gonna be accusation.
And of our and.
Administrative costs around the amortization depreciation of the games that we have that are being launched out there and that as well and Thats why last year was just such an exceptional year for Wizards from an operating standpoint, we think that it will be closer to those 2019.
<unk> <unk> and 2020 levels. This year, so when you're out of all of that up it's just the different puts and takes over the last part of the latter part of the year is what gets us back to our operating profit guidance around the same levels of a year ago.
Thank you.
And level of next question comes from the line of drew Crum from Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys good morning.
And I think the entering entering the year the goal for consumer products was to grow revenues by mid single digits. The.
Business was up more than 20% through the first half and and so for the math.
For for the year.
The consumer products would need to be down low to mid single digits is that how we should be you should be thinking about the business and the second half for.
Does your outlook change there and then I guess separately, Brian you mentioned, the dark alliance sort of your expectations can you just discuss.
And the worse what happened there and you know in the past you've indicated that launching new titles was important.
Double and the size of Wizards and it sounds like you're pacing ahead of that.
Should we.
Expect.
New titles to be similar in size of the dark alliance going forward or.
The school bus production budgets for new games.
So on.
Started starting with the D and D and and the titles.
We are going to have an array of new development and titles some coming from third parties like Baldur's gate, which.
For more reformed quite well and we'll go wide.
And the and the next period and probably in 2022, we have a number of games that we have and development and some will have more modest budgets and somehow the larger budgets as we continue to invest and digital while the underlying games and D and D are really growing.
As part of Peru and.
We're just seeing.
Great.
Play both in face to face role, playing as well as well as digital role playing it.
Really a new area for us as people are playing more online and really building that brand quite considerably. So you know again.
And we feel very good about the slate that we have coming up.
And.
The momentum, we have and brands like Magic and arena and as we said the launch of <unk>.
Dark alliance was really about the listening to the players giving them more of what they want more of downloadable content.
Again, we are more satisfactory more immersive game play and look and Thats part of the process and.
And we were fully prepared to continue to invest behind the.
Behind the games as.
As we think of our consumer products.
<unk> for the year to date period, if you look at the industry data.
<unk> double digits, but and the second quarter was up single digits, clearly Hasbro outperformed and as we go forward, we'll have some debt.
Different compares for Q3 and 4 of last year as we began to return to greater levels of sales and being able to supply of product remember the Big Inc.
Was wall of supply was from mid March to about mid to end of May of last year. So no. We do believe we can continue to see growth and our consumer products business, but taken in total we are happy to reiterate our guidance for the full year of recognizing that there's been so many questions about the supply.
8 we chain and about our ability to supply of product that we felt that we're able to supply of product we are able.
Through an immense amount of work on the other half of the supply chain team to add ports to add tactics and strategies to add new ocean carriers and to achieve the objective.
Supply and we set out for the company of which was growth across our business and each of the operating groups of the business and ultimately with the opportunity to achieve double digit revenue growth for the full year.
Thank you.
Our next question.
<unk> and comes from the line of Jamie Katz with Morningstar. Please proceed with your question.
Hi, Good morning, I guess I have the sort of a follow up to some of the your prior comments.
You guys have made all the steps and sourcing and and availability of products for the holiday season how.
The <unk> worked with you and except that product and I'm, just thinking about working capital intensity over the back half of the year and whether or not.
Thats going to escalate.
The Hasbro has to hold on for the inventory rather than maybe target and a lot of Walmart.
Yeah, So let me comment and and Deb can comment further.
A lot of different you know the.
Cost side.
From an execution side, what I will tell you is our retailers have been incredible partners and not just in the United States, where they are amazing partners, but around the world, we have been incredibly resourceful and finding.
Several new ports and ways of bringing and product working with our retailers.
Further.
And the.
And the Great news about our business and the categories, where we're competing is there and very high demand and we are seeing that high demand with an array of new innovation with entertainment returning not only for our portfolio, but also.
Of the Marvel and Star Wars portfolio of the Princess business is performing very strongly so our retailers and making good investments and these categories, where our consumers are purchasing incremental product and our.
Certainly participating and toys and games sales across the board so again the.
So for that we have a very rich mix of new innovative product and our toy business. The nerf business was up considerably and up and every region. For example, the play Doh business was up and as a major contributor of the growth in the quarter and.
And you know the play Doh business was up and we continue to see.
Double digit growth.
The facts are online and omni channel business taken together so again the the.
Good news is we have categories of product and are in high demand and with gamers.
And the players with families and fans engaging and our brands and increasing manner, Debbie and a lot of talk cost side.
And are we do expect it front and center and with great demand for the product that they are bringing and so.
As you bring in and and pass it through to a retailer as well.
We had an exceptional I will say and I.
And the exceptional day DSO from a receivable standpoint this.
Sure and so much of that was dependent on the mix of our revenue and when we shipped items and the corner and and the great work that our team skin on the collection.
Wouldn't expect our dsos to be at the same from and DSI standpoint, I do expect our inventory levels to still be in line.
Yeah.
Sure and with with reasonable amounts of retail inventories. Good we've increased retail inventory and the places where we couldn't have inventory a year ago, we just couldn't get it and we couldn't ship it and.
So retailers were selling out of everything so and I think our inventory will be in good shape on our books it will be in good shape and our retailers box I think are received.
And what shape. So we don't anticipate any unusual draw.
Draws on our working capital.
For the full year and in fact, we still expect our operating cash flows for the full year to be in that $6 million to $750 million level for the full year of kind of getting back to that $1 billion level over the medium term.
Most of excellent. Thank you.
Next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Hey, guys. Good morning, maybe just to follow up on that last question I know that we have seen some timing changes just given the FRB and domestic fulfillment of couple of years ago do you think that given the.
The environment today, we could see a similar type of timing shift from <unk> to <unk> were relatively steady for the past few years.
Yeah look I think our first objective is to ensure that <unk>.
<unk> and <unk> and the people engaging and our toys and games business have the.
The shipping that Theyre looking for and that our retailers have products to support. These major initiatives that we have I do believe that there could be some shifting between Q3 and 4 were out to source product and to bring it in buyer.
Any number of new carriers, the team secured more ports and.
The product more shipping lanes than we've had in the past and so I'm going to be a little less for.
Focused on exactly where the inventories come in but rather that we have the inventories to meet the demand that we need for the second half of the year recognizing we also have.
And we've got of new entertainment initiatives.
Including the my Little Pony film of several from our partners at Marvel.
Additional star Wars content coming for the second half of the year.
Princess is performing at a very high level and then of course, you know we get into the holidays and the.
And then eyes and ears.
Ray of new games lined up there as well.
You know again, you're right there could be some shifting around as the it's a little different than past years, where.
The direct import could play a bigger role than it has and in the past.
But again working with our retailers around the world.
Team, how do we feel most importantly, we want to meet the high demand.
Yeah.
Makes sense and then just if we look at some of the language and the slides from this quarter. It looks like you guys are now saying you are tracking ahead of plan to double the Wizards business by 23 is that really just the mobile launches at some of the pent up demand for the legacy card.
The assets that Youre, seeing and and how do you sort of offset that with some of the supply constraints that you touched on in your prepared remarks.
Well, let me comment on the supply a little bit first what we just wanted to make sure again the people understood that while we were using certain printing.
Expertise and.
The capabilities we've had.
<unk> and our global footprint for capabilities because of the brand is expanding because gamers are increasingly discovering and rediscovering the brand of playing at an increasing rate and our Russell sharing more bringing in new players more than ever before and I think the magic of magic is that in fact it.
The extent, a great flywheel, where players play face to face and the and the card game.
And the contributes to engagement MIT Magic Arena as you know has the release cadence that marries 2 the card releases of the analog game and so again.
It is really contribute to 1 another and they are synergistic with 1 another and it's not as if 1 detracts from the other ore or takes it takes the time away from the other and in fact, it just gives people more opportunity to play and the play with different players whether their friends.
For acquaintances at a distance and they play.
They were able and online or whether they're playing face to face increasingly returning to our global hobby shops, which are performed quite well, thanks to our support and support of others through the pandemic.
Yeah.
Great. Thank you.
Yeah.
And our next question is coming from the line of Tami Zakaria with Jpmorgan. Please proceed with your questions.
Hi, Thank you so much for taking my questions and congrats on the very strong trend I have 2 questions. The first 1.
Just to get a little more color on Wizards of the call for expectation for the rest of the.
Do you expect growth and both of the third and the fourth quarter or are you are you seeing.
The back half of it is gonna be up depending on timing of releases.
Yeah. So it's a very good question and look let me, let me walk you through a little bit of detail on that.
So we have a.
The 2 major releases coming in Q3.
1 is called the adventures in the forgotten realms, and that's actually a very exciting set because its a crossover with dungeons and dragons and that'll come out the actually just coming out of out now and then we have a second release and in the stride coming in Q3, we have 1 major release.
<unk> for Q4, so as Debbie indicated in her remarks, we expect to see the Wizards will continue to see some growth, but our big quarter for the year was Q2, and let me remind you last year Q3 was the largest quarter followed by Q4. So if there is a competitor.
Comparison challenge and revenues and we don't yet know exactly where it will end up given the level of engagement that we're seeing and the brand right now are probably the 2 most challenging comparison will be in Q and Q4.
And relative to a year ago.
But again the momentum and the business remains we.
We are ahead of our plan and to double the size of that business.
And it will come down too.
And what really takes place in the in the Q4 period.
Got it that's very helpful. And then very quickly I know, it's probably a bit early but are you seeing any benefit.
Net of the advent of child tax credit.
Payments that began in mid July.
And the benefits of that are in the R. P less for the consumer segment and the past couple of weeks.
And what we're seeing is that our consumers are.
Very engaged and the products and cash.
<unk> that we're offering we've also gone out as we always do and do a lot of our proprietary insight working with search around our brands and categories and we're seeing any increased and sustained level of come.
Commitment to our gaming business and game, playing and people are very engaged I think they have found.
Gaming again for those who had played it more in the past the playing it more now.
Lots of families around the world, who hadn't really discovered games of discovering and games now so I don't know that I can comment specifically on family budgets, but what I can say is that people are spending money.
And in.
And the consumer product categories that we're offering.
For Nerf to play it out playskool to our.
Partner brands, and Marvel Star Wars and Princess.
And of course, several other brands and the portfolio.
Great. Thank you so much.
The next question is coming from the line of Mike King with Goldman Sachs. Please proceed with your questions.
Great. Thank you for the question just have to 1 of the follow up and on MTG Arena.
Could you talk a little bit about where we are and the point of lifecycle. There is it still lossmaking and.
Spending heavily on user acquisition or is it approaching profitability when would you expect it to do so and then could you talk a little bit about what you expect to see as of the long term mix.
As it relates to mobile versus PC, and then I have a quick follow up.
Sure for Magic Magic Arena is profit.
Profitable, but obviously a stab describe with the cost that we amortize as profitability is below the analog business and that's why if you look at the blended mix.
The operating margin for the year on average comes down a little bit as digital.
Enters more of the mix of offerings.
But again long term as you pay for the initial.
The development as you pay for your marketing campaigns, you start to get more and more of the benefit of the underlying and consistent gameplay and that's what we're seeing and arena. So it's a profitable part of the business.
Obviously have some costs associated with it the the analog card business does not the bear.
I don't know and Deb, if you want to comment further on that and then as.
As we go forward.
I'd also say digital.
He is going to be.
Growing part of the business.
But I also expect and we're seeing and that the analog businesses for both D and D and for Magic continue to grow so perhaps the universe continues to grow and therefore as a percentage of total digital increases, but maybe not as much as 1 of them, but would expect.
The other thing to note is that within Dnb.
And D. There's this digital roleplaying area that we're really investing and and so its kind of partially analog partially digital and we think this is of great opportunity for the brand as we go forward. So we're charging of course beyond the doubling the size of the business.
It will include a good array.
And and a very robust slate of new digital games coming at different price points. It will also include both first party games as well as third party games for lining up some great studios to produce games for us as well with our teams embedded with them to ensure just great gameplay and the.
And the brand the continuity.
But the Deb do you want to comment.
Yeah, I was gonna shaver, and and and which is fantastic and you're actually seeing that and the results of the numbers as well. So if you think about what we've had capitalized.
We've got about from a digital gaming standpoint, we have similar levels to what we had at year end and so we've obviously depreciated.
<unk>.
And at some to that and within the results of the segments, we see and we see it all the stuff.
Right. So we see the lift.
And the general and Youre seeing that amortization that user acquisition and those costs within the results of the segment.
Great. Thank you both and.
And I was just wondering if you might be able to provide us with a little bit more detail around how youre thinking about the holiday lots of factors to think about you talked about some of the shifting and delivery dates.
And the pricing can you talk a little bit about the magnitude of that price increase and how we should think about how it flows through and obviously some of the the input cost inflation.
Additional color there would be really helpful. Thank you sure ill comment and then have should also talk a bit about this.
And what we really are seeing obviously is early on and we saw and necessity to raise prices as we saw the steps the team was needing to take and the supply chain and logistics in order to execute our.
<unk> and ear and.
And that's very consistent with so many consumer product categories across the board, where we're seeing the snapback in demand.
And this transitory.
Return to try to find production and capabilities I think the holiday should be incredibly good and.
And the very very solid.
Our great new innovations coming from several of our brands, we have big launches coming and the second half of the year from.
And the my Little Pony, New line up behind the brand New film and new cast to several of our partner brands, Peppa pig and PJ masks and array of new games.
And.
Again the.
With the new innovation and new game and toy play for global consumers debt I don't know if you want to comment further on the cost side on the second half.
Sure absolutely well, we talked earlier about ocean freight and some of our prepared remarks, and we're seeing those costs are over 4 times higher than.
A lot of what we had been experiencing earlier in the earlier or last year and and so we expect a lot of those costs to continue however, as Brian said the team is doing just a tremendous job.
And actually getting the product and that's what's important rates and we expect between that and some increased input costs.
You know that our gross margin we continue to work expect our gross margin to be slightly down from a year ago and and just as a reminder of that as cost of sales plus program amortization because of where in the great and and the great situation that we can actually provide content now and release things theatrically. So we expect.
The program amortization to go up as well, but between cost of sales for that and we do expect our gross margin to be slightly down from a year ago, but we do expect the price increases that we've taken to offset our increased cash.
Thank you.
Next question is coming from the line of Gerrick Johnson with BMO. Please proceed with your questions.
Hey, good morning, 2 questions first I was hoping you could breakdown wizards between digital and physical it would be really helpful. If you could.
And then on the consumer product side.
Whereas the average price increases that you're putting in and the back half.
Quantify what that is and.
With your own inventory down 11% is that sufficient.
Yes, it is sufficient to hit your goals and the back half, but how are the shifts and fulfillment between F&B and domestic affecting you as well thanks.
Yeah.
Yeah. So you know clearly.
<unk> digital and analog or contributing to the growth.
And the magic the gathering.
And.
And the digital role playing with D and D as well.
And really break down those a cat.
Categories.
And those brands, but suffice it to say.
We're seeing very strong growth on both sides.
As we look at the second half of the we looked at the second half of the year.
Youre right were.
We're going to see.
The additional shifting between F O b and domestic shipments for working with our global retail partners and what that will exactly look like but.
Because of the demand and the product categories that we are offering.
We have a lot of great partnership and we do expect that.
And we'll get our products to market recognize that the price increases were taking will cover the and.
Incremental costs that we're experiencing and those cost increases are a around the world and there'll be a little different and each of the regions just depending on the.
Foreign exchange.
And that they are that they will hit the P&L, but they're just intended to cover our cost increases to maintain our gross margins and to hit the operating margin debt. We believe we can achieve for the full year.
So with perhaps 10% big of number there.
And.
And the 1 of them.
Don't provide guidance, but I think I would just say that's a bit high.
Okay, I would say, that's a bit high as well Brian.
Thank you.
The next question is coming from the line of the Devin and Briscoe with Bank of America.
Please proceed with your question.
Thanks for the question.
And the back half of the year as you start to bring Peppa pig and PJ masks product and house, how should we think about the initial impact the operating margins.
Licensing revenue is replacement revenue represents full ownership from.
Alongside associated upfront investment and tooling and my second question related to that is what is the long term margin potential for those brands and how much of the product that's currently being licensed.
Can you or do you plan to bring in.
And the house over time.
Sure.
Well.
Both capa and P. J have very strong operating margins on the consumer product side very consistent with our consumer products licensing business.
And the product that we're offering.
And in many ways is both the categories that had been offered but also a lot of incremental product categories.
We're also maintaining our consumer products licensees, so I would expect perhaps.
Over time about 80 per cent of the product lines.
Of Pepper and P J to the inside but with another 20%.
The continuing to be license and those category.
And with additional consumer products licensing opportunities Peppa and P J enjoy.
On our P&L the.
The consumer products P&L.
Enjoy.
<unk> Pro high teens operating profit margins and so on average higher than company.
Average operating margins, which is very consistent.
And with Hasbro IP.
On the on the toy and games side, and then obviously much higher on the consumer products side I don't know.
And Deb, if you want to add anything else relative to the plan.
No I think you know we had talked about this year that.
Just based on as Brian said, you know this year, we will be ramping.
And the lines and we expect about maybe 70.85 million of impact to revenue for the full for the full year of based on what we're kind of launch, but really growing that and growing up to that 80% of the interest line by 2020 twos, so with the revenue.
Ramping.
Product as we go forward and margins close to our franchise brands and we're really excited about the future of Pepper and P. J and we'll continue to work with some of our great licensing licensees that.
Do a terrific job out there as well.
Thank you.
Our final question today is coming from the line of Shawn Collins from Citigroup.
Amping what is proceed with your question.
Great. Thanks, Good morning, Brian and Deb Hope you're well.
My question is on expectations for our consumer products.
The Q as we emerge from the pandemic at least and the U S and the developed world people are likely to travel more.
And get out of their houses and more importantly, it looks like this August and September we should have a back to school experience.
There are some toy buyers debt that we talked to that the.
And could result in industry retail sales in <unk> being flat year over year, and then bouncing back for the usual for Q holiday season can you comment.
Comment on any expectations around the <unk> retail performance.
Well I'll look of let me give you a most notably as we've come through.
We call the Covid wall of those 8 weeks, where there were very strong sell through but our inability to supply product and Q2, but were seeing and the last for.
For weeks and you take our North American business for example.
POS was up 11% of our games business was up and the high teens, we're seeing good growth in regions like Latin America.
We have a lot of new initiatives coming for that period of Q3 lots of.
The new product associated with.
Colony, as well as our partner brands and Ah.
The whole new lineup for nerf in the elite and the ultra lines. So you know again of we believe we can grow and we said in line or ahead of the industry because of our innovation and storytelling and content and commerce.
And so I won't comment specifically.
Q3, except to say, we expect that we will have a very good year and consumer products, we have the innovation and the strong product lineup to achieve our objectives.
I'm, you know again, believing and seeing what consumers are doing and the they really are participating in the categories.
A little bit if you look at kids and preschool. If you look at older Kids with our Nerf business. If you look at.
Still older Kids and young adults into our games business like magic and the D&B.
We're seeing great engagement, and we would expect that to continue.
Great great. Thank.
For the time and insight.
Thank you at this time and I'll turn the call 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 2 hours and management's prepared remarks will be posted.
Our site following this call. Thank you.
Thank you to all participants of this concludes today's conference you may now disconnect your lines at this time.
Yeah.