Q3 2021 Hasbro Inc Earnings Call
Good morning, welcome to the Hasbro third quarter 2021 earnings conference call.
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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 rich Stoddart, Hasbro's interim Chief Executive Officer, and Deb, Thomas Hasbro's, Chief Financial Officer today, we will begin with rich 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 will 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.
Our discussion will be based on adjusted results, which exclude several items associated with the <unk> acquisition outlined in our release today.
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 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 expectations expressed in these forward looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q in today's press release and in 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 rich Stoddart rich.
Thank you Debbie and welcome to everyone joining us today.
I'm rich Stoddart interim CEO It has me.
Before we officially begin the remarks on the call today.
Wanted to take a moment to reflect on the passing of our beloved leader and friend Brian Goldner.
I know many of you share in our sadness for his untimely passing.
Brian was not only an accomplished CEO.
He was a true visionary, who transformed and almost 100 year old toy and game company into a leading global play and Entertainment company.
But his impact can be felt well beyond Hasbro.
He changed the game completely.
He believed in the power of a story.
The potential for Omnichannel storytelling and content built on powerful brands.
He architected a compelling roadmap for Hasbro as growth in the brand blueprint strategy.
And we're so proud of where it is taken hasbro, but even more so and its power and future potential now with E. One is an integrated part of the family.
I had the privilege to work together with Brian and the Hasbro team for the last seven years.
And sort of on the company Board most recently as lead independent director.
During that time the company transformed its talent.
Culture, its brands and its potential as it executed the brand blueprint.
In my new role as interim CEO I will continue to work with a talented leadership team Brian put in place over the last 13 years, along with the powerful culture that Hasbro to supercharge, the blueprint and build on the Companys strong momentum.
Hasbro is performing at a high level and with a clear well understood strategy.
To ensure our success continues I will be focused on five key priorities.
Supporting the amazing people that Hasbro, ensuring they have what they need to succeed while advancing our purpose driven culture.
Executing the brand blueprint. This strategy is central to continuing hasbro's transformation as a global play and Entertainment company.
We are beginning to see the full blueprint execution come to life with significant potential to grow revenue and profit in the years ahead.
Accelerating the growth of our entertainment and Wizards of the coast businesses, where we have unique and distinct advantages in the market and a differentiated business model relative to our competitors.
Delivering the guidance established for the year, while helping the organization manage through supply chain challenges.
And continuing to drive strong cash generation in the business to pay down debt and fund the dividend.
This should sound familiar to many of you as it is what the leadership team has been focused on as well.
It's fitting that the strong third quarter results reflect the power of the blueprint with significant growth in entertainment as it returns to pre pandemic levels with another strong quarter in both tabletop and digital gaming from Wizards of the coast.
And with only a small decline in our consumer products business as we work to meet robust demand for Hasbro brands despite supply chain disruption.
The diversification of the business enabled us to deliver a very strong quarter.
With 11% revenue growth, 6% adjusted operating profit growth, 5% gains in adjusted EBITDA and earnings and to generate significant cash.
Deb will speak shortly in more detail to the third quarter performance.
A clear proof point of the brand blueprint strategy and the Omnichannel storytelling opportunity for our brands.
He is in the success of the CGI animated feature my Little Pony, our new generation, which debuted on Netflix September 24th.
In its first weekend the movie reached number one on Netflix in the kids top 10 across 86 countries.
It also reached the number one spot for movies, regardless of genre or target demo in 20 countries, including the UK, Germany, Brazil and Mexico.
The success of the film was made possible by the collaboration and partnership of the talented brand teams that Hasbro with the teams at E. One who together created a beautiful engaging film for fans around the world to enjoy.
The film's success is also a testament to their agility to successfully market and launch a picture originally planned for theatrical release on a streaming platform.
The movie success builds deeper connections with consumers driving incredible engagement on social media across Instagram and Tic Toc.
The brands relaunch powered by an all new main five cast of ponies drove revenue growth for the franchise for the second straight quarter and the first positive quarter since the fourth quarter of 2017.
Third quarter point of sale momentum began to rebound as the merchandize tied to the brand Ryan introduction and movie began to hit shelves.
In the four weeks, leading up to the movie.
POS was up mid single digits globally and the week. Following the movie resulted in global Pos gains of more than 150%.
This trend has remained very strong in the weeks following.
The movie launch was further supported with a robust licensing program, including a dedicated my little Pony shop on Amazon and cross category campaigns at several major global retailers.
We've seen a favorable response from retailers and consumers and the entertainment plan is only beginning as we are supporting the film with a robust content roadmap from E. One, including Netflix specials in new series as well as digital content in the coming year.
Another significant milestone this quarter with the launch of Hasbro's, Peppa pig and PJ masks toy and games lines in markets around the world.
Brought into the Hasbro portfolio via the E. One acquisition these brands significantly strengthened hasbro's presence in the preschool market.
We develop deep lines for each brand as well expanding their licensed consumer products presence.
Each of these launches are off to strong starts and contributed to growth in the quarter.
But they among many other brand campaigns, we're limited in their upside in the short term due to the supply chain challenges global companies are facing.
In the third quarter, we had orders for approximately $100 million, which did not shipped by quarter end.
The vast majority of this has already been delivered in the fourth quarter.
These factors were more than offset by the contribution of our entertainment business, which is up substantially versus last year's third quarter and up versus 2019.
As well as the continuing momentum in the Wizards of the coast business.
Through our differentiated strategy they delivered the revenue and profit growth for the quarter.
As we look to the fourth quarter and the holiday season, there is strong demand for Hasbro toys and games we.
We are expertly managing the supply chain to ensure the shelves will be filled with Hasbro products. This holiday.
As a result, we believe we will grow revenue in the fourth quarter through the combination of our three businesses business segments and deliver full year double digit revenue growth in the range of 13% to 16%.
Along with adjusted operating profit margins in line with last year's adjusted rate of approximately 15%.
Before turning the call to Deb I want to touch briefly on the plan for naming a permanent CEO.
Our board is and always has been actively engaged in succession planning for the CEO and other senior executive roles.
This work provides a strong foundation for the naming of a new long term leader for Hasbro and is well underway.
Until that time I am working closely with the outstanding group of talented individuals, making up our senior management team.
In addition to Deb joining me today for the Q&A portion, we have Chris Cocks, President and CEO of Wizards of the coast and digital gaming.
Eric Nyman, Chief Consumer Officer, and C O O of Hasbro consumer products and Darren Throop CEO of V. One now.
Now I'll turn the call over to Deb Deb.
Yep.
Good morning, everyone on behalf of Hasbro employees globally.
I'd like to thank rich for stepping up at this time for us.
Our board.
Our shareholders and our company.
The past couple of weeks have been difficult for all of us at Hasbro.
Brian is missed.
Impact he need is unmistakable.
We heard from so many of your remarking on Brian's leadership and your positive personal interactions with him.
Thank you for sharing these memories with us.
Brian empowered me and the executive team to run Hasbro and together, we are and will continue doing that.
Brian was proud of our third quarter results.
This showcased the strength of Hasbro's unique business model with growth in entertainment and it was very simple tabletop and digital gaming.
Our results also show the strength of our global teams as they expertly manage through supply chain disruptions and position us for growth in the fourth quarter and for the year.
Brian believes as we do and investing to go out to unlock hasbro's full potential and create value for our shareholders.
Our priorities remain the same and we are executing against those priorities.
The quarter highlighted our focus on Delevering, our balance sheet as we repaid an additional $400 million of debt, bringing our year to date total to $972 5 million of long term debt retired.
We also paid the dividend, which has been maintained following the <unk> acquisition and throughout the pandemic.
Our quarter end cash on hand was $1 2 billion and we continue to make significant progress toward our goal of returning to our target of two to two and a half times debt to EBITDA and maintaining our investment grade rating.
For the quarter Rev.
Revenue grew 11% versus last year, and 6% versus pro forma 2019.
Magic the gathering my little Pony, Peppa pig and PJ masks were among our largest revenue gaining properties globally in the quarter further supported by significant entertainment deliveries.
These include my little Pony and new generation for Netflix.
Yellow jackets for Showtime.
Fear the walking dead for international markets come from away and sense for Apple TV as well as the rookie for a B C.
Entertainment segment revenues grew 76% with gains in scripted and unscripted TV live action and animated film and animated content.
This performance has us well on our way to reach 2019 levels of entertainment revenue for the full year, excluding the music business over the second half of the year.
The segment delivered adjusted operating profit of $42 $1 million or 12, 9% operating profit margin up from an adjusted loss of $3 6 million last year.
We're developing over 200 projects across film and television including content for over 30, Hasbro brands for the coming years.
Year to date through September we've invested approximately $526 million in content development and continue to anticipate a full year spend range of $675 million to $750 million.
For the fourth quarter, we have significant deliveries planned, including grain mail, a new scripted program for Netflix additional episodes of the rookie and yellow jackets and the film's Clifford the big Red Dog and Mrs. Harris goes to Paris.
Wizards of the coast and digital gaming segment revenues increased 32%.
Wizards had a great third quarter, and we expect the business to deliver its goal of doubling from its 2018 revenue by the end of 2021 two years ahead of plan.
Magic, the gathering and Dungeons and Dragons led this growth both in the quarter and over the past few years with gains in both tabletop and digital gaming revenues.
It was the second largest quarter in Wizards history behind only Q2 of this year.
Among the magic releases in the quarter, our third quarter Premier said adventures in the forgotten Realms lunch July 23rd and became our first co branded Premier set.
Fans of both magic and Dungeons and Dragons embraced the product and it's on track to be our best selling summer release of all time.
Importantly, our digital investments are driving revenue growth.
Magic the gathering arena mobile continues to grow.
It's a meaningful source of new players in our releases were bolstered by their engagement in the game.
Our license digital gaming business also delivered strong growth in the quarter.
Operating profit in the segment increased on the higher revenues.
Investments in future game development in support of new game launches as well as increased digital gaming depreciation reduced operating profit margin from last year.
Consumer products revenue declined 3%.
There is strong demand for our brands, but we were unable to fulfill approximately $100 million of product we had orders for during the quarter.
Including these missed shipments revenue would have increased 5%.
In September we shipped the most volume ever domestically in a single month and through today, we shipped the majority of what we didn't deliver in the third quarter.
This achievement is remarkable given it was accomplished in the middle of a global pandemic with unprecedented supply chain challenges across the globe.
As we shared last quarter, we took steps early to mitigate risk, including activating alternate ports in China and the U S.
Expanding our shipping capacity working closely with customers to provide support where we can and prioritize supply based on inventory and customer needs.
And in certain instances using airfreight to ensure delivery.
The team has done an amazing job and continues to work nonstop.
Well the point of sale declined mid single digits.
As we improve our in stock levels and see the effects of a significant increase in advertising spend in auto vial execution, we expect significant improvement.
Within consumer products Hasbro gaming revenues grew in the quarter led by demand across our gaming portfolio and emerging brands revenue was up fueled by our toy and game launches of Peppa pig and PJ masks.
In our franchise brands, which already spoke to the success of my little Pony and how this positions us well in the relaunch of the brand.
Transformers revenue increased in the quarter.
The final chapter of the war for Cyber tonne trilogy launched July 29th on Netflix driving continued demand in our generations fan product.
We also celebrated a new milestone for the Transformers franchise, when Universal Studios Beijing Open Transformers Metro base, the first ever Transformers themed land.
In partnership with Paramount production on Transformers rises obese continues for theatrical release next summer.
Partner brand revenue declined, but Hasbro products for the Marvel portfolio grew including Marvel Legends and the new preschool product line launch supporting Spidey and his amazing friends.
We also introduced new products to support Marvel Studios, Disney plus series and the theatrical release of Marvel Studios Shang Chi and the legend of the 10 rings.
Ghost Busters revenue increased with the primary launch of the toy line in August for the feature film Ghostbusters afterlife from Sony Pictures coming to theaters November 19th.
Operating profit for the consumer products segment decreased $15 $8 million, reflecting the lower revenue and incremental expense for freight and related cost.
Price increases to mitigate the higher expenses in shipping and input costs went into effect in most markets in August and will be fully implemented for the fourth quarter.
Looking at our overall, Hasbro P&L gross margin, including cost of sales and program amortization declined to 130 basis points.
This reflected essentially flat cost of sales dollars.
Given favorable mix and growth in entertainment cost of sales declined 340 basis points as a percent of revenue.
The robust entertainment revenue growth drove an associated increase in program amortization of 470 basis points.
Product development increased 17 million led by incremental investments in future tabletop and digital games that Wizards and our ongoing commitment to innovation across the business.
Advertising expense increased $26 million, including promotional activity in support of the my little Pony movie and advertising behind New Wizards game launches.
We have aggressive advertising plans for this holiday season shifting more dollars this year into the fourth quarter to drive point of sale.
We will however closely match this expense with inventory availability.
Adjusted SG&A increased $35 million and continues to reflect higher expenses as the business returns to pre COVID-19 levels.
This includes higher freight costs incremental marketing and sales expense.
Increased depreciation associated with capitalized digital games and increased compensation.
Despite these higher expenses SG&A remained flat as a percentage of revenue.
The adjusted underlying tax rate for the quarter was 23, 4% compared to 19, 9% a year ago.
The rate is mainly driven by a change in the mix of income.
We continue to expect the full year underlying rate to remain at approximately 21%.
Yeah.
Our balance sheet is strong and.
In addition to our cash position at lower debt Dsos were 68 days a reduction of five days compared to Q3 2020, reflecting both higher revenue and good collections. Despite shipping a large volume of products late in the quarter.
Inventory increased slightly year over year, but declined absent FX.
At quarter end, we had less in finished goods on hand than typical and significantly more in transit inventory.
In General total transit times have nearly doubled across all lanes and on certain lanes transit times or as much as 50 days longer compared to pre pandemic levels.
Our strong third quarter and year to date performance has us on track to meet our guidance for double digit revenue growth, which we now are expecting in the range of 13% to 16% for the full year and maintaining an adjusted operating margin of approximately 15%.
We have orders to support the high end of the revenue growth range, but there are supply chain factors out of our control, which could impact our ability to fully achieve the upside.
I am incredibly proud of how the organization has come together this year.
Despite many obstacles.
Our results showcase the strength of our business.
Our strategy and.
Our team.
Our leadership team is 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 in the question queue.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
The interest of time and to accommodate as many analysts as possible you ask one question and one follow up question. Thank you.
Pause a moment to poll for questions.
Thank you and our first question is coming from the line of Steph Wissink with Jefferies. Please proceed with your questions.
Thank you good morning, everyone I just wanted to start by saying for those of US on this side of the call.
Ion is absence in his voice is really felt today. So it was a privilege to know him and our sympathies are with all of you and his family.
Rich My question is for you. So the question, we're getting most from stakeholders right now, which is can you share a little bit more about the search in terms of characteristics background. As you think about the blueprint who is the type of individual that you are looking forward to really guide. The next few years of growth for the company. Thank you.
Thanks, Steph and.
I have to say.
How much we appreciate.
Your sentiments.
Brian didn't just touch Hasbro he touched.
A lot of people in the world and so.
So thank you for that.
So as I said in my remarks.
The search for the permanent CEO is not something that is just beginning now the board is and always has been thinking about succession as a matter of course. It is a responsibility of the board to think through.
And that work that they've been doing I think provides a very strong foundation for the naming of a new long term.
CEO and that process is well underway I will say the the commitment and belief in the brand blueprint as the strategy for Hasbro go forward is greater than it's ever been I.
I think what you saw in this quarter is just the beginning of the potential of the blueprint to drive this company forward.
All I'll say I use of Brian Ism, I guess right now to say this is not eight point of arrival for Hasbro or not a point of departure for Hasbro as a point of sorry, not a point of arrival, but a point of departure right. This is the beginning of the blueprint proving itself out in the world and so I think the character.
<unk> have a leader or a fantastic leader, who believes in this team and this company and this culture.
To take it forward and be someone who continue can continue to expand on the blueprint and.
And drive that vision forward.
Doug can I put it a follow up question for you on the guidance I'm just getting a few emails. This morning on whats built into your operating margin target from a cost and pricing perspective in the fourth quarter have you taken a similarly conservative approach that you did to the sales guidance.
Thanks, Steph I appreciate the question no absolutely as we said we have orders on hand to meet the top end of our guidance range for revenue, but we're showing the cost pressures that the rest of the industry is feeling and we are feel also feeling.
The supply chain pressures that the rest of the world is facing right now it's funny I went to buy something at the grocery store. The other day on the shelf with empathy and I'm like Okay, I'm not going to settle for another brand I'll just go without for now but.
But the important thing is we've got everything in place. So there will be Hasbro toys and games on the shelves. This holiday season. The team has put a lot of process in place some of which includes airfreight. Our airfreight expense was much higher in the third quarter than it typically is and we do expect it to be higher in the fourth quarter we.
Don't intend to take additional price increases this year. So what we have built in is what is there to cover our costs. So overall, we still our belief firm belief and firm belief that.
Sorry that we can hit our guidance of double digit revenue growth at 13% to 16% we have orders for the high end, but some things will be beyond our control and we believe that we can achieve operating profit levels in line with last year for the full year as well.
Thank you very much.
Our next question is from the line of Eric Handler with <unk> Partners. Please proceed with your question.
Good morning, Thanks for the question.
Wonder if we could talk a little bit about magic the gathering.
Curious if you'd be able to give us maybe a little insight into sort of the balance of revenue between.
Physical play and digital play what's been the impact on let's say daily average users.
Now that mobile as you know has had time to ramp up a little bit.
Yes, thanks for the question Eric.
So I know this is a.
A question you've been poking at in the past and I want to reiterate what I think the team has been saying in the past which is that.
These the mobile and digital gaming and tabletop gaming are not neither cannibalistic nor separate they really are an ecosystem that mutually supports it. So we are continuing to grow.
Magic Arena, the mobile platform is.
Critical source of new users for Magic Arena and at the same time tabletop is increasing as well and I think what youre seeing is the power of that expanded omnichannel experience.
Maybe though Chris I'll, just ask you if you want it.
Comment any further on Eric's question.
Sure. Thanks, Rich hired yes.
The magic business had a very strong Q3 and has ever all had a very strong 2021.
By the end of Q3 in fact magic is already bigger this year than it was in all of 2020, which was a record year for us.
Arena is a major contributor to that mobile has been a terrific source of new users for the brand and we see a very healthy crossover between users who've come onboard digitally.
And migrate to tabletop and likewise tabletop players who want.
I want to play some more magic and play both on mobile and PC and so I think the combination of those factors plus the segmentation you can keep in driving our business has done an excellent job in terms of growing our overall user base enhancing our engagement with fans.
And driving our average revenue per user.
Great and just as a follow up I know you know.
During the pandemic as a number of hobby stores were closed.
E Commerce was beneficial for selling physical sets.
I'm curious now that hobby stores are fully reopened.
Seeing more.
And store tournaments are you starting to see an oversized rebound.
With the physical sets at all.
Chris do you want to take that risk.
Yes sure.
Yeah.
We were very impressed with our hobby channel partners and how they rallied.
With the with the realities of the pandemic prior to April of 2020, only about 35% of our hobby stores offered any kind of online solution or curbside solution and over the last 18 months. We now have over 80% of them are offering their word on <unk>.
And as a trip site solution and so our overall mix of business has actually stayed remarkably similar during the overall pandemic hobby is brown, our online and E Commerce partners to ground.
Our mass partners have also grown and I think it's a testament to kind of like the strong foundation that is underlying both the magic business as well as with DMD business and our ability to partner with all of those partners across different channel mixes.
Yeah.
Great. Thank you very much.
The next question is from the line of <unk> Kocharyan with UBS. Please proceed with your question.
Thanks very much. Thank you. Please accept our heartfelt condolences, we were very saddened by Brian's passenger will be very much missed.
To follow up on earlier question.
Even our top end of guidance for Q4.
Would imply perhaps less than 10% operating profit margin first is my calculation correct and I know, there's some moving parts like Prime day comps and magic card release sort of cadence, but could you perhaps spend a few minutes going over kind of puts and takes I know W.
A good chunk of it already but if you could sort of size.
Size it for us that would be great and I have a quick quick follow up thank you.
Sure well, we talked a lot about the.
<unk> product that we have to deliver and as a matter of fact, the 100 million that shifted from Q3 into Q4, we talked about most of that has already been delivered and in fact, if you look at just our inventory never mind retail inventory, 40% of our inventory balance at the end of the quarter within transit. So that's here.
Now and we can ship that so we're very excited about the opportunity we have plenty of things on the water. We are going to continue to use air freight for the quarter and the team has done a terrific job.
Actually making sure that we will have full shelves of product Hasbro toys and games for the holiday season.
That being said some of that cost a bit more and we've also talked a bit about advertising. It's very important that the consumer comes and takes away that product. So in an effort to make sure that the POS is there that we're reaching the consumer will have higher advertising expense in the quarter as well. So some of the puts and takes some of the costs are going to be.
Higher which is why we said we believe our overall gross margin will be more in line with 2019 than our pro forma 2019, and 2020 because of the excellent deliveries that we expect on the entertainment side.
They're good mix from our Wizards of the coast business, but also our consumers product come products business, which does have some pressures on the cost side as well so all of those things.
Brought together, which is the beauty of our portfolio and our advanced business strategy. We have three businesses that work together that are going to allow us to achieve that revenue growth and operating profit margins that are in line with a year ago at about 15% that being said we also believe.
And our medium term guidance that there is no inherent reason why we can't have operating profit margins over 16% and we're well on our way to managing that we're just dealing with some short term issues that the rest of the world are dealing with as well.
Right right no. Thank you.
Are you able to share what percentage of your volume you expect to go to direct imports in Q4.
If not no problem. Thank you.
So overall, our direct import business, we do expect it will be around similar levels to a year ago I will say.
With the supply chain issues that the world is facing our customers aren't immune to that as well and we've been working very closely with them to ensure they have the products they need on shelves at the right time as a matter of fact partnering with them. If we can get containers and they can for example, so overall.
Our direct import business may be down a tick from a year ago, but overall in line not significantly different.
Thank you very much.
Our next question is coming from the line of Jamie Katz with Morningstar. Please proceed with your questions.
Hi, good morning, and just on that at all with the controlling things that have already been sent.
<unk>.
But I'm, hoping you can comment on capital allocation, particularly the continued reduction of debt in the lock back to investment grade is there an ability now to get back to that investment grade target faster than originally planned.
You know that three to four years.
Oh, Thanks, Jamie Yeah. So we're really proud that we are an investment grade company and we've maintained our investment grade status. Even after the acquisition of <unk>, it's been very important to us and we've worked very closely with the rating agencies to make sure. They know our plans and how we're stepping along the way our capital allocation priorities really are the same.
First and foremost we invest in our own business you see that in the growth in entertainment. This quarter you see it in the growth and Wizards you see it behind all the wonderful innovation in our consumer products business. So we too believe in investing in ourselves first beyond that we are committed to getting back to the two to two and a.
Five times debt to EBITDA right now that is the right place for US we believe that lets us keep investing for the future and continuing the growth trajectory that Hasbro has been on and then thirdly, we'll return excess cash to our shareholders. We have had maintained.
Our dividend even after the acquisition of <unk>, we maintained our dividend throughout the pandemic, that's important to us and to our board as well. So we continue to have our capital allocation strategy.
To be consistent with the way it's been in the past and we are proud to be an investment grade company.
Thank you I'm, sorry, I misspoke I meant to say it would be leverage target rather than investment grade.
And then.
Are there any idiosyncrasy as we can be.
Be aware of on the cadence of spend for programming over the next few quarters that could.
Opex think through how that cross metric might change.
So from a spend standpoint, we still expect to be between the 600 $750 million for the full year. This year, probably a little bit closer to the high end. If you look at where were sitting this year and as you know that spin will translate to revenue in future years. So.
This year as well, we've got great deliveries planned for the fourth quarter and maybe Darren you could talk a little bit about some of the deliveries and what we have planned for 2022.
Yes sure. Thanks.
Yes through the fourth quarter.
As mentioned, we've got more deliveries coming for the rookie season for we've got yellow jackets deliveries through this quarter. We've got the second season of Moonshine deliveries, we've got lots of children's animation product delivery pepper season nine.
We've got Clifford the big Red dog coming to theaters in November. So we've got a lot of activity delivering a lot of the programming that we've been producing throughout this year as we roll into 2022, we see strong cadence of continued production both on returning series, but also on new series.
Obviously since the acquisition we've been.
Really working hard on Hasbro content.
It was mentioned before in the call Theres over 30 brands and development and Theres multiple entertainment streams being developed against those brands, meaning in some regards like for Transformers. For instance, we've got a feature film production. We've also got animated content coming in and other.
Programs planned for Transformers, and Youll see that across the entire.
Hasbro.
Portfolio. So a lot planned for the fourth quarter, but 2022 looks to be very very strong year coming as well and you'll see those deliveries as Deb said supported net investment in content spend through 2021 and 2022.
Thank you.
The next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Hey, guys. Good morning, Dave I, just wanted to follow up on your commentary about the medium term operating margin getting back to over 16%. When you look at a lot of what you've dealt with this year in terms of the input costs.
Are you viewing those as far as transitory versus structural and what do you think that means for pricing going forward could we need to price a little bit more over the next few years to offset that how does that all shake out for that margin trajectory going forward.
Hi, good morning, Fred.
Yeah, Youre right, everyone. The whole world I think are seeing input costs going up right. Now you know trends have been good lately, we've seen them coming down a bit in the last short period. However, the beauty of our consumer products Potline is a lot of that product line is new every single year. So we can engineer our product to.
Hit certain price points.
That being said, we do believe that there's going to be that with the cost inflation. We've seen is going to continue for a period of time.
You know looking at inflation, we're dealing in inflationary markets in most places and again I'll go back to what I could find on the shelves at the grocery store was more expensive right. So it's a matter of I think the all industries are facing a bit of that right now, but we do have the opportunity to reinvent our product line the majority of.
Our product line every year and therefore, we can just take cost out of it as we do that we've been working very closely with our manufacturing partners.
To ensure they've got the right components to make the product and have it that's what's most important and then we will ensure that its made the right way and priced appropriately for the market as well.
It makes sense, then I guess, specifically on the fourth quarter, if we think about the timing of when those price increases hit.
August how should we be thinking about the consumer product margins, specifically in the fourth quarter.
Yeah.
So for the fourth quarter, we continue to see escalating costs from when we put our price increases in place. So if you just think about the cost of airfreight and the cost of freight everyone has talked about supply chain and the cost of shipping right in ocean channels.
What's in place for.
Acquiring additional transport cost to get product.
Holiday, which we will have but that does put some near term pressure on some of the margins or the full impact of our price increases will take effect in the fourth quarter and overall, we still believe our total gross margin, which includes our program amortization, which is representative of our deliveries as well on the.
Entertainment side as well as our Wizards of the coast business, which we've seen the digital side of that business grow that's why our diversified business model really lets say, we think our gross margins will be in line with 2019, but more 2019, and then 2020.
Great. Thank you.
Okay.
Our next question is from the line of Karen Johnson with BMO capital markets. Please proceed with your questions.
Great. Thank you and good morning, I'd like to express my team's condolences as well Brian was the toy goat and my favorite sparring partner, so you'll definitely be missed.
Jeff I wanted to ask you about.
Peppa pig and PJ masks the in sourcing of those products what did those contribute in terms of say net revenue gain in net operating profit gain by bringing those in house in the quarter. Thank you.
Well, thank you Gary and thank you for your sentiments, we appreciate everyone's butt.
You may have been Brian's favorites foreign partner as well so.
We all really appreciate your comments very much all of you. So thank you and thank you for all the nice notes that you thought that meant the world to us and.
Everyone here.
Hum.
Peppa pig and we're so excited about Peppa pig and PJ masks, we started shipping product for our line for Peppa and P. J in the third quarter some of the supply challenges we had did.
Impact those lines, but there they are here now.
And on the way.
You know it's from the quarter standpoint, we just started shipping in the third quarter. So we expect to see a bigger impact in the fourth quarter. As we've said, we think that the total impact for the year would be 70, <unk> $75 million to $85 million I think we said and we're on track.
For that for the impact for the full year and Pepper and P. J together have.
Operating profit margins very similar to our franchise brands. So you think high teens low twenties operating profit margins. So we're really excited about the brands. The lines, we fully integrated our consumer products business now will continue to have external licensing partners through next year and beyond that as well because there are some <unk>.
<unk> that we won't we won't take on ourselves that we have great licensees that are doing that so we successfully integrated most of that business. We will continue seeing.
More of the business integrated in 2022, and we're really excited that pop on P. J, a part of the Hasbro family.
Great. Thank you Doug.
Our next question is from the line of Michael <unk> with Goldman Sachs. Please proceed with your question.
Thank you for the question first I'd also like to express my condolences on behalf of our team to Hasbro and Brian's family and friends for their loss.
I just have one question for Chris or Deb I was just wondering if you could talk a little bit about.
The cadence of magic the gathering cards that releases.
For the rest of the year and how that might impact our revenue growth and then could you also just comment on the content and gaming outlook for 2022 for Wizards of the coast more broadly thank you very much.
Chris why don't you take that.
Sure thing so in 2021, we expanded our number of major releases from six in 2020 to seven in 2021.
Our next big relief will be in Q4, which is called in a stride Crimson valve a vampire themes that that's part of a twofer right that we released the first part.
And that's driving a nice run in.
In Q3.
And we expect continued growth in Q4, but as Jeff mentioned in the upfront remarks, we think that'll be moderated just based on set timing releases and competition.
For 2022, and we also expect to have seven major releases comp in 2021.
Set releases will vary slightly in timing and composition, but based on the early fan reactions that we received in Q3, we feel very good about the quality of those assets and our fans are responding to them and they include everything from.
Returning to old classics like common goals.
Dominant area and the brothers works you exploring new themes like a gangster team set for the spring and called the streets of new container.
And then continuing to expand the number of formats and segments of consumers we're going after.
Including an expansion of our universe is beyond initiative, which is taking outside IP for magic and bringing it into the magic place system like we did in Q3 with Dnb and Magic with Adventures and then forgotten realms, which was which set a record for us in terms of.
Our summer releases it was the biggest summer set release, we've ever had.
So we feel good about the balance of the year and we feel very good about the initial reactions to our 2000 22022 set release schedule.
Thank you for all the thoughts Chris.
Uh huh.
Our next question is coming from the line of drew Crum with Stifel. Please proceed with your question.
Okay, Thanks, and our condolences to Brian's family and the Hasbro team. So my question is on the sales guidance with the language for 13% to 16% growth. This year is there any more precision you can offer at the segment level I guess more specifically you were previously forecasting consumer.
Up mid single digits for the year.
Is that something you see is still achievable.
So overall, we do expect growth in all of our segments for the fourth quarter that being said there are some things on the supply chain side that really are beyond our control I mean, we've all read about every industry being impacted by them.
Ships floating outside of ports that being said, we've increased a lot of ports.
And Eric why don't you actually talk a little bit about what we have put in place to ensure that we'll be able to get product on the shelf for this holiday sure. We feel confident that there'll be plenty of Hasbro toys and games here for the holidays and I think thats. The headline we want to stress, we've already talked about the headwind of $100 million ship.
<unk> from Q3 to Q4 and I do want to highlight as Deb mentioned the majority of that has already shipped to.
To our customers around the world, which is really just highlighting that this is a phasing issue not an issue of lost orders or lost sales.
With regards to mitigation, we are proud of our teams we took several steps to mitigate some of the challenges that we saw happening earlier in the year, we activated new ports in both China and the U S. We've added multiple ocean carrier contracts to increase capacity around the world, we've expanded our truckload capacity as well, which.
It helps move products to warehouses all over the world and we are ready for Q4 with plans lined up to meet as much demand as possible to deliver peak shipments during the peak season. So I feel we're ready to go and we appreciate the question.
Thank you.
Our next question is from the line of <unk> Patel with Bloomberg. Please proceed with your question.
Hi, Thanks for taking my question I was wondering if you guys can comment a little bit on some of the price increases that were supposed to be in effect in Q3, how have they materialize versus expectations and with POS up strong is there more room to pass.
On some of the cost to the consumers and the retailers.
Yes. So the first thing I'd say is just to remember right retailers set the pricing.
We did those price increases went into effect in August and so we're really seeing the full impact of that pricing in Q4.
So Doug I don't know if you have anything to add to that.
Yeah, I agree rich I think you hit it on the head the retailer actually sets the price to the consumer we don't so we won't be taking further price increases in 2021 that would be very disruptive to our retail partners.
As well as if you think about the cost of running a company to implement something like that at this point, it's very difficult right.
So we want our retailers have predictability for their season as well.
However, they set the ultimate price to the consumer and there'll be plenty of Hasbro toys and games for the consumer to buy this holiday season.
Got you. Thanks, that's all that.
Thank you at this time, if each end of our question and answer session I'll turn the call over 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 in approximately two hours. Additionally, management's prepared remarks will be posted on our website. Following this call. Thank you.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Okay.