Q1 2022 Hasbro Inc Earnings Call

Good morning, and welcome to the Hasbro first quarter 2022 earnings conference call.

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And at this time I would 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 Chris Cox, Hasbro's, Chief Executive Officer, and Deb, Thomas Hasbro's, Chief Financial Officer Today, we will begin with Chris and Dan providing commentary on the company's performance. Then we will take your questions. Cynthia Williams President of Wizards of the coast and digital gaming Darrin true President and CEO .

E one and Eric Nyman, Hasbro's, President and Chief operating Officer will join for the Q&A portion of the call 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, we will discuss.

Certain adjusted measures, which exclude these non-GAAP adjustments.

Conciliation 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're 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.

To introduce Chris Cox Crafts.

Good morning.

I'm happy to be joining you today to discuss hasbro's first quarter results and share the efforts our leadership team are undertaking to assess the business and strategic direction of Hasbro.

Deb, Thomas who will speak shortly in detail about our quarterly performance that supports our view of growth for the year.

In Q1, our Hasbro teams executed well growing revenue to 1.1 dollars 6 billion a four.

4% year over year increase and 7% absent our music business, which we sold last year at the beginning of Q3.

Revenues grew in each segment one of the standout performers for the quarter was our latest magic the gathering release comma Gallois Neon dynasty, which is our best selling winter set of all time, beating the prior year's set by 28%.

Neon dynasty as the fifth magics that generate in excess of $100 million and is our third largest that ever.

Our overall games portfolio grew 4% and would have been even stronger. However, we moved our March magic release unfinished each to September to help our supply chain to keep up with robust demand for the base magic business.

Our consumer products segment also showed growth buoyed by my little Pony.

Pig and Hasbro products for the Marvel portfolio and Star Wars.

And our industry, leading entertainment capabilities drove a revenue increase of 4% or 22%, excluding $31 8 million of music revenue from last year.

Television film and animated content drove the growth, including deliveries of the rookie which was just picked up for season five the premier of Transformers bought bought <unk>, which was a top 10 kids series on Netflix in its first week and power Rangers Dino theory, which was also one of the top 10, most watched kids show.

It was on Netflix in all markets it launched.

For the full year, we continue to project top line growth in the low single digits behind continued strength in our highly profitable Wizards and digital gaming business, which we now see growing at the upper end of our previously communicated growth range of mid single digits with the potential to reach low double digits.

We continue to expect the entertainment segment to grow mid single digits absent the music business.

And bind with low single digit growth in the consumer products segment.

Projected growth in consumer products would be mid single digits absent, an approximate $100 million headwind related to Russia.

On a bottom line basis since taking over as CEO . Our team has commenced a comprehensive review of our strategy and operations.

A major theme of this effort is focus and scale.

Focusing on fewer bigger opportunities and scaling those with reinvestment to drive profitable growth and enhanced shareholder return.

We will share a more fulsome update on this strategy at an Investor day, we are scheduling for October 4th, but we are already identifying opportunities to drive enhanced operating profit across the company, particularly when coupled with the continued strong demand we are seeing in our games business for.

For the year, we are increasing our outlook for operating profit and anticipate adjusted operating profit margins of 16% a meaningful improvement versus last year's 15, 5%. I'm also pleased to report based on the solid profitable fundamentals, we see across our company starting in Q2.

We will resume our stock repurchase program with a targeted investments in the $75 million to $150 million range in 2022.

As part of this review games, multi generational play and entertainment and direct to consumer will be key focus areas for us as a company.

In 2021 games with a $2 $1 billion business for Hasbro growing 19% year over year generating an O P margin in excess of 30%.

Last week, we announced the deal with fandom to acquire DMD beyond the Premier digital content platform for Dungeons and Dragons for $146 million.

The addition of DMT beyond to our games portfolio adds a powerful asset to one of our cornerstone gaming brands.

Dean D beyond brings nearly 10 million connected gaming accounts and a highly profitable rapidly growing business into the Hasbro family.

With a three year CAGR of over 50% of projected operating profit margin once combined with Hasbro in excess of 65%.

And powerful new growth vectors as part of Hasbro, including international market expansion enhanced digital play experiences physical digital tie ins all new direct digital exclusive content and new brand partnerships, we see a bright future for Dungeons and Dragons.

And we only see these opportunities growing over time as we invest in an end to end brand blueprint for Dungeons and dragons, including blockbuster films in the streaming TV.

AAA Videogames are major consumer products push and significant marketing tie ins.

D&A beyond as more than just a great business. It will become the digital hub of Dungeons and Dragons play that our brand blueprint will enhance and accelerate.

Multi generational play is a significant growth opportunity for us it.

It may surprise, many that Hasbro generates the majority of our profit among consumers over the age of 13 <unk>.

<unk>. This is generated by gaming, but also buy collectibles and the fan economy, which are one of our fastest growing and most important growth businesses.

We see a big opportunity in embracing the age listeners a play as we unlock more value through play and entertainment across our portfolio among our own brands and our strategically important partner brand portfolio and then the partner IP, we work with for co brands.

Our license partnerships go forward will further unlock and enhance this profitable opportunity.

As an example of this approach we are excited to announce the return of one of the most beloved sports collectible brands of all time starting lineup.

The relaunch of starting lineup gives us a new product line to appeal to fans of all ages and a fast growing category with many more exciting partnership announcements to come in the near future.

Starting lineup joins a collection of some of the most sought after collectors brands in the world, including Fortnite, Disney's Marvel, Indiana, Jones, and Star Wars, and fantasy Juggernauts, the Lord of the Rings and war Hammer 40000.

Our new approach to brand partnerships combines IP with terrific multi generational appeal strong growth profiles supported by evergreen AAA games, and blockbuster entertainment and a superior margin outlook.

Starting lineup and D&A beyond also represent important investments in our direct to consumer capabilities.

<unk> lineup will launch exclusively on Hasbro pulse, our direct to consumer platform and across the fanatics network. This fall.

D&A beyond brings the largest online collection of Dungeons and Dragons players onto our platform owned and operated by Hasbro.

Combined they represent both compelling businesses and a great opportunity to enhance our growing insight into some of our most lucrative and engaged fans.

Before I turn it over to Deb I want to welcome a new member to our senior management team.

Jane Aussie is joining us in may as our new Chief Global supply chain officer reporting to Eric Nyman, Hasbro's, President and COO.

Shane was the SVP and Chief Global supply chain officer at CPG powerhouse, Kimberly Clark and will help us modernize and streamline hasbro's backend operations over the coming quarters.

Im excited to have a supply chain expert of <unk> caliber and experience join our executive leadership team.

And look forward to his contributions in our ongoing strategy review as we focus and scale drive our games business.

Spanned our multi generational play and entertainment opportunities and build out our direct capabilities.

In closing.

<unk> Hasbro executed a solid first quarter punctuated by continued strength in our games business, particularly Wizards and digital gaming, which we view growing at the top end of our previous guidance for 2022 week.

We project continued growth in 2022, and see clear opportunities to enhance the profitability of our business and invest in new direct capabilities like D&A beyond new collectible platforms like starting lineup and enhancing shareholder value with these strategic investments for growth, including our share repurchase program.

It's only been a little over 100 days since my announcement in January but my Hope is you see the same energy and discipline in these investments and focus on our consumers as we pursued across the wizards business for the past six years.

And we are only just beginning our approach to our strategy review will be comprehensive evaluating our brand priorities our cost structure, our capital allocation strategy, and where we need to position Hasbro for long term success and superior shareholder return.

The management team and I are looking forward to sharing more about our plans to focus and scale at our Investor Day. This October .

I would now like to turn the presentation over to Deb to share more details about our performance in the first quarter and our outlook for the year ahead. We will follow this up with a Q&A session, where Cynthia Eric and Darren will join Devin I on the call.

<unk>.

Thanks, Chris and good morning, everyone.

Coming off a strong 2021, the Hasbro team delivered a good start to the year.

Excited to have Chris on board and as he did with lasers to the coast. He's looking at Hasbro with a fresh view to our rich opportunities history bolstered by a disciplined approach to build on the solid foundation in place.

We look forward to sharing more with you as the year progresses and in October at our Investor Day.

First quarter revenue grew 4% and 6% on a constant currency basis.

Each segment had revenue growth the brand portfolio categories grew and television film and entertainment was flat, but grew 19% absent music.

Our total gaming category grew 4% versus the first quarter last year to $379 million.

Total gaming has grown in 10 of the last 12 quarters, reflecting the multi generational power of connecting through gains.

For the full year 2021, our total gains category was over $2 billion in revenue with an O P margin in excess of 30%.

We continue investing.

Grow our gaming capabilities and leadership.

At current exchange rates, we expect full year revenue growth in the low single digits.

As we focus on building scale around our largest and most profitable brands growing our games portfolio and tightly manage our fixed costs. We've increased our operating profit growth guidance to mid single digits and believe we can achieve 16% adjusted op margin.

The first quarter of 2022 experienced the cost pressures, we anticipated and guided to.

Higher capitalized input and freight costs and year end inventory had a negative impact on gross margin.

Freight costs remain high impacting both cost of sales and distribution.

Adjusted operating profit was $141 8 million or 12, 2%.

Down from a year ago, due to higher product input costs and freight.

The mix of entertainment deliveries in the quarter and the sale of the music business mid 2021.

Consumer products segment revenues grew 5% in constant currency and grew 3%, including a negative impact of FX of $13 5 million.

Strength in partner brands, primarily Marvel and Star Wars, and emerging brands, primarily power Rangers and PJ masks led this growth.

Franchise brands slightly declined due to FX with Peppa pig and my little Pony posting good growth.

Hasbro gaming revenues were flat absent FX geographically revenue grew in the Americas, The U S, Canada, and Latin America and declined in Europe .

Absent the impact of FX European revenues were up.

Due primarily to COVID-19 related retail closures and inability to ship product Asia Pacific revenues declined 19% with FX not having a significant impact in these markets.

Adjusted operating profit for the segment declined by $13 $4 million.

The decreased profit reflects higher product costs and freight expense.

As we have previously discussed price increases take effect in the second quarter to help offset higher costs and support our view to growing revenue low single digits and improving adjusted operating profit margin.

Wizards of the coast and digital gaming segment revenues grew 9% in the quarter.

Magic, the gathering and dungeons and Dragons as well as duel Masters contributed to growth.

Foreign exchange had a negative $3 million impact.

Tabletop revenues increased on the strength of <unk> as well as growth in Dungeons and Dragons.

Digital revenues grew by $3 7 million.

This reflects continued growth in last year's magic and Dungeons and Dragons digital gaming launches.

We do not have similar launches this year and we'll have more difficult comparisons for the remainder of 2022.

As Chris mentioned last week, we announced the acquisition of DMD beyond from fandom.

This investment provides a platform for growing the dungeons and Dragons digital business overtime coming in advance of the brands deeper activations, including our March 2023 feature films and significant consumer product plans.

Due to acquisition costs. The transaction is expected to be slightly dilutive to EPS, although immaterial in 2022, but accretive in future years.

Operating profit for this segment declined by $3 6 million or 3% to 45%.

This is due to higher product costs associated with our tabletop business, both in card stock and printing increase.

Increased freight costs and ongoing head count in product development investment to support the growing business, both near and long term.

In order to mitigate significantly higher input costs, we expect to implement price increases mid year.

We continue to expect the second quarter to be the largest of the year, but now expect full year mid single digit to potentially low double digit revenue growth and adjusted operating margin declining slightly from 42, 5% in 2021.

Entertainment segment revenues increased 4%, primarily due to increased deliveries in unscripted and scripted television the resumption of live touring shows and higher content sales related to animated programming.

These increases were largely offset by revenue from the music business, which was $31 8 million in the first quarter of 2021.

As a reminder, the music business was sold midyear 2021.

Forgive comparison will also impact the second quarter.

Absent music revenue in 2021, the segment revenue grew 22%.

Foreign exchange had a negative $1 million impact in the quarter.

For the full year, we continue to expect revenue growth absent the music business in the mid single digits.

Adjusted operating profit in this segment declined by $29 million over 2021.

$12 7 million, excluding the music business.

So really half of this decline in operating profit was due to COVID-19 related cost subsidies received in the first quarter of 2021 and the remainder is due to the mix of lower margin deliveries, particularly in the filament scripted television business.

For the second quarter based on planned deliveries.

Revenue is expected to increase over the 2021 period and adjusted operating profit margin is expected to decline slightly due to music profits in the comparable period.

For the full year adjusted operating profit margin is expected to be in the high single digits.

Looking at our overall, Hasbro P&L gross margin, including cost of sales and program amortization was $15 million and a 5% of net revenues compared with 65, 3% in the first quarter of 2021.

As discussed in the segment increased input costs and higher freight drove a two six percentage point increase as a percent of revenue and cost of goods sold while the mix of entertainment deliveries drove a 3.2 percentage point increase in program amortization.

Based on the expected mix of our business and the timing of price increases taking place.

We expect cost of sales as a percentage of revenue in Q2 to be slightly lower than Q1 with the full year percentage to be in line with full year 2021.

Based on expected deliveries.

Graham amortization as a percentage of revenue is currently expected to be slightly higher than Q2 2021 levels in the second quarter and full year 2022 at a slightly lower level than 2021.

To improve product in stocks. This holiday season versus last we're advancing deliveries of key items in our owned inventory. So that we can ensure it's on hand.

Let's just take advantage of best available rate.

With increased shifting times also ensures that we do not have issues with setting inventory and high consumer demand periods.

Additionally to ensure we have paper stock on hand for strong demand in our high margin growing games business, we've purchased paper product.

Gaming as a strategic growth driver and will continue to ensure we have the right supply and investment behind these brands.

Historically inventory purchases peaked in the August to December timeline and.

In 2022, we expect this peak to occur in the May to July time frame.

Higher cost inventory and an approximately 20% acceleration in purchases in the first quarter are reflected in our inventory balance, which is 17% higher than year end 2021.

We expect to have higher levels on hand or on the water in the earlier part of the year than historically.

Advertising declines were driven by lower spend in entertainment with the sale of the music business as well as lower spend and Wizards and digital gaming for lunch support of both arena mobile and Dark Alliance in 2021.

SG&A for the quarter includes higher marketing and sales and administrative costs associated with salary and benefits in our commercial and brand organizations, increasing travel costs and higher freight and warehousing.

For the full year, we expect SG&A as a percentage of revenue to be similar to 2021.

Other income net was $1 $8 million in.

In 2021, the first quarter included a $25 $6 million gain or <unk> 19 per share from a legal settlement.

Absent that gain other income was slightly lower year over year.

The first quarter tax rate was 24% of adjusted income.

Based on currently enacted tax law, we continue to expect our full year 2022 adjusted rate to be in the 19% to 20% range.

The low rate in Q1 of 2021 was tutors illegal sentiment included in other income, which did not have a tax impact.

In our historically and consistently smallest quarter of the year adjusted earnings per share decreased year over year to 57.

Due to a combination of continued supply chain headwinds nonrecurring events and the shift in our magic release.

At the end of the first quarter, our cash balance was one 6 billion compared with the year end balance of one point to $2 billion in Q1 2021 of $1 43 billion.

Over the last 12 months, we paid down more than $1 billion in debt and returned 376 million to our shareholders in the form of dividends.

Given our cash position and business outlook.

We plan to repurchase $75 million to $150 million of Hasbro shares this year.

We remain on track to achieve our gross debt to adjusted EBITDA target of two to two and a half times in the second half of 2023 or sooner.

Our operating cash flows for the first quarter of 135 million reflect the advanced inventory purchasing I spoke to earlier and an increase in accounts receivable related to our entertainment business revenue.

Our DSO was 73 days compared with 66 days in Q1 2021, when we were only just starting to resume entertainment deliveries after COVID-19 production shutdowns.

Our cash spend on production for the quarter was $169 million and was largely funded through the use of our new short term production facility, which carries lower interest and administrative costs than those of the past and the proceeds of which is included in financing cash flows.

Overall, the team delivered a good first quarter.

Our momentum in strategic growth areas like gaming, coupled with strong product innovation, a robust entertainment slate and a focus on cost discipline gives us confidence in maintaining our revenue guidance of low single digit growth for the full year, while increasing our X.

Spectation for adjusted operating profit margin to reach 16%.

We 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 at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Press Star two if he would like to move to a question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

So let me address questions from as many participants as possible. We ask that you. Please limit yourself to one question and one follow up.

One moment, please while we.

Assemble the queue for questions.

Thank you our.

Our first question will be coming from the line of Eric Handler with MTN partners. Please proceed with your questions.

Good morning, and thanks for the question.

Wondering if you could talk a little bit about some of the supply chain issues, specifically, there's a lot of ships and container ships right now waiting to dock in Shanghai.

Hi.

Wondering if you could just talk about how that's impacting your views and is there any risk there we're getting enough product.

Hi, Good morning, Eric Hey, this is Chris I'm going to turn this one over to Eric who can take you through the supply chain situation that we have overall in the first quarter and what we look at for the outlook for the balance of the year Eric.

Thanks, Chris Eric.

Really pivoted to talk about where our inventories are because that's I think at the heart of your question.

At the start or Hasbro inventories are in good shape at the end of quarter. One we feel good about our position heading into the balance of the year. Our retail inventories are in good shape as well were up a bit in the U S. As noted quality is good as we head into our strongest events for the balance of the year and I'll just remind you of some of them things like Star Wars.

We wanted to Adobe streaming on Disney plus spiderman across the Spider verse, our new my little Pony and Transformers or spark innovation.

Onto forever.

Knowing that we're in pretty good shape. There we feel at this point pretty good Eric about our inventories going into the back half and I'd also note with regards to supply chain as Chris noted and Deb noted in their Upfronts. We're excited to also have a world class leader coming in and joining Hasbro Shane as he is planning on joining Hasbro in may coming from Kimberly.

Mark.

Great and then just a quick follow up or down if possible.

Darren so congratulations on the rookie.

<unk> four <unk>.

Susan that should give you a close to 100 episodes at the end of next year, which should put us in a good position to.

So onto the syndicated.

Syndication market for television I know youre on Hulu, but I'm wondering.

I'm wondering if you could talk about maybe some off network syndication how that market is shaping up.

Where you are with that process.

Yeah sure. Thanks, Thanks, Eric Yeah, So great news on season five of the rookie of the show continues to.

Trend really well and get viewed really well really syndication it turns into when we get those episodes back from the broadcaster we've got an opportunity to go back to market and resell them in a package format. There's all kinds of demand right now Eric of course the.

The streamers are some of our biggest buyers right now in the networks as well so it's a real good opportunity for the group to go back and tap the market again with a with a well loved show. So it's good to see season pass.

Yeah.

Okay. Thank you.

Yes.

Our next question is from the line of our P&L with Cheyenne with UBS. Please proceed with your question.

Hi, Thank you very much I have two quick ones for operating profit margin seems like outlook is better overall kind of higher than previously communicated which is impressive given sort of what we know about supply chain and everything that's going on it seems like Wizard margins slightly lower I was wondering if you could talk about what is.

Better to offset that such that the overall margin outlook is better.

While we continue to see a positive mix shift in our overall revenue mix our piano.

Our games segment has a very nice operating profit profile Wizards, we think is going to grow on the top end of our range potentially is as high as more of our traditional double digit growth rate and when we couple that with the great product lineup, the fantastic Entertainment and storytelling lineup that Eric talked about along with.

Some targeted cost savings that we're doing across the organization, we feel like we can raise that operating profit adjusted operating profit outlook for the year.

Just to add a bit.

Our P&A just as well as you look at the business and the cost pressures. We said, we would have cost pressures in our gross margins for the first quarter and we did.

Price increases in C pace start to hit in the second quarter. It actually they've already started and we will see those to offset some of those higher costs as well as our first price increase.

And magic the gathering in certain sets that come later this year. So as Chris said, it's all balances out that high growth gaming business and that focus.

As well as covering some of the increased costs that we're seeing will help us.

You get to that margin.

Thank you that's Super helpful. And then just a quick one on Pls I know you mentioned P. O S down for Q1, which is not surprising given the Easter shift I was curious if you could share if you have year to date Easter adjusted numbers that includes the first two weeks of Pos in April and then while we're at it do you have a weeks of inventory.

At retail at quarter end.

Handy.

Well, it's still a little early for a full pass read out on the first quarter. What we can say is traditionally Q1 is one of our smallest quarters, we have a fantastic lineup coming up in following quarters, along with a great entertainment lineup and we exited the quarter with Pos on the positive.

Upswing, we like what the trends are and we see that improving as the year goes.

Thank you.

Our next question comes from the line of Mike King with Goldman Sachs. Please proceed with your questions.

Thanks for the question and the increased disclosures around Wizards.

I was just wondering if you could talk a little bit about.

What the swing factors are for this year.

Potentially reached the low double digits top line growth for Wizards.

And then separately I was just wondering if you could talk a little bit about the longer term mix of tabletop versus.

Digital when you need to execute against to achieve that thank you.

Sure I will give a very quick answer and then I'll turn it over to Cynthia Williams, our new president of our Wizards and digital segment.

When we look at Wizards, we look at a combination of magic, both tabletop and digital and D&A and the balance of the portfolio and in Q1 and throughout the rest of the year, we see strength across each of those and so that's kind of what we're looking at as we look at the mix, we see our tabletop revenues being pretty buoyant.

And actually growing above our expectations.

And we continue to invest heavily in digital now that said as Deb mentioned during her upfront.

Have a couple of headwinds on digital in terms of comps we had a very successful release of arena mobile last year, which is kind of settled into a more of a mature kind of growth rate and we also had dark alliance, which was a new video game for DND that came out in late June last year were not going to be comping. Those so we think our.

Digital growth is going to be a little bit more muted, but on balance when we look at the two.

We feel good about where the Wizard segment is going Cynthia.

Turn it over to you on any further color commentary to add.

Yeah. Thanks, Chris I think a few things I'd say is we still have six additional sets. We're gonna be releasing this year two of those will be in the second quarter, which will be our biggest quarter of the year.

Likely seen that we've announced the release of streets of Newco panel, which is a new golden age urban setting for magic players will identify with and play as one of the five.

Demon mob families and beyond the streets of new Cabana Youll see us continue to expand the number of formats and reach new customer segments by expanding our universe is beyond initiatives.

Bringing IP from outside of Magic and two the magic play system.

Cited about universities beyond given the success, we saw last summer with the Dnb things set adventures in the forgotten realm, which set a summer release record.

<unk> also mentioned that we're taking our first price increase in quite a long time on magic, which will take effect on select hard set starting in July .

Yeah, and I would certainly say that.

Comma Gala Nandina C being up 28% year over year and the best selling winter set of all time is quite a bullish signal for us and it should be noted last Winter's set was also the best selling winter set of all time. So its record upon record Mike you had a second half of your question if possible could you could you re.

Articulated for US Yeah. I was just wondering if you had a view on the long term mix of tabletop versus digital and weather.

You see digital becoming an increasing part of the mix what are they going to be the key drivers to get that mix to where you want it to be thank you.

Yes, so I would say for this year, we see a fairly stable mix, if not table actually being a slightly higher mix than it was last year given some of the comps that we have and over the mid to long term, we see both robust growth in tabletop and digital with digital as a growing portion of the mix.

For Wizards and digital segment over time, we don't have a specific goal around what that percentage mix should be.

Both segments are highly profitable gross margin segments, and so we like growth in both.

Excellent thanks, Chris Thanks Cynthia.

Our next question comes from the line of making them Alexander with J P. Morgan. Please proceed with your question.

Hi, Thanks very much.

And just a follow up on retail inventories I know you mentioned there are in good shape up a bit in the U S are you comfortable with where they are at this point I know you talked about later arrival of spring product because that all been been set at this point and do you think Pos is still constrained at all by channel inventories.

Well I would say in Q1, we actually executed ahead of our plan and so we feel pretty good about where we are going into for Q2, Q3, and Q4, which is why we're maintaining our guidance. Despite some market headwinds that we and we think the whole industry is seeing.

We believe that the path to great market, great performance and great growth is through superior execution and great products and as Eric mentioned, we think that inventories filled with great products and it's going to have a lot of fantastic story based execution, both from us and our partners at <unk>, one as well as our license partners.

Like Disney which has just a stacked lineup of entertainment in the second half of this year, Eric any further color to add yeah, Thanks, Chris and Megan.

It bears repeating that we have a tremendous amount of retail support for the second half of the year in support of our innovative new Hasbro products as Chris mentioned million, including a reaction brands like Transformers, where we're launching a new transformer spark innovation later this year, we have a big Nerf Fest event planned for September .

Number nine my little Pony, and Peppa pig launcher, starting lineup, which we announced yesterday, which we're all thrilled about bringing back to the poultry consciousness and and in addition.

<unk> we are in.

Industry, leading games portfolio that Chris noted.

The entertainment is bear repeating as well we have this big Star Wars launch coming up with Obi Wan Kenobi on Disney plus as I mentioned prior Thor Love and Thunder spiderman across despite adverse and we're calling it forever all of which lead into 2023, where we have agreed suite inclusive of Dungeons and Dragons Transformers rise at the beach.

So as we have our inventory buildup, we are ready for that and I think thats why we continue to know that we feel like our inventories are in good position.

That's really helpful and maybe just a quick one for Deb.

You saw some nice leverage in <unk> royalties and advertising both came in a little bit better than where the street was modeling how should we think about those two lines for the full year.

I think from a.

Royalty standpoint, as Eric mentioned, we are excited about some things happening later in the year, but as we mix more to Hasbro on products, we talked about the growth in magic and DMD and Sun.

Terrific growth that we've seen and my little Pony.

With the entertainment, we have we expect royalties to be slightly down year on year from an advertising standpoint, our advertising is focused on.

As always on the all important holiday season, however, different launches that we have during the year it was a bit higher earlier.

Earlier in 2021 due to the digital gaming launches that we talked about earlier in some of the entertainment.

The one thing I would say for Q3, we had a higher advertising balanced because we also had the my little Pony movie launch.

Certainly as we think about entertainment, we would expect that to be the toughest comp for that segment for the year Q3, because of that movie launch and advertising would have been higher in that quarter as well, but overall I think we expect advertising in line too.

Slightly down as a percent of revenue just based on mix for the year.

Awesome. Thank you.

Our next question comes from the line of drew Crum with Stifel. Please proceed with your questions.

Okay. Thanks, Hey, guys good morning.

Just wanted to go back to the margin question, maybe looking ahead to next year can you comment on your expectations there.

You recently suggested 16.

Plus was the goal given that you are targeting 16% this year.

Is there any change your view for next year, and then I'll follow up.

Well for this year, certainly we're targeting 16% and our goal is to always see that rise I'm going to let Deb take you through a little bit more where we see the midterm and long term outlook.

Sure no absolutely and as we said at year end.

We believe that we could get back to 16%. We get asked that question constantly and really with a focus on focus and scale gaming, our multi generational play and entertainment.

We are very.

And looking at our cost in great detail.

We reiterated guidance that we'll get to that 16%. This year, we haven't set out a guidance, but we expect growth from that level.

'twenty 'twenty, three and beyond particularly when you look at what we have coming I mean, we have we're all very excited about dungeons and Dragons and.

And the movie that we have coming early in the year Transformers rise of the beef and all of our partner Entertainment, that's coming as well in.

In particular, we look at the D N D beyond.

Acquisition, which we're excited about we just said that would be accretive in 2023 and beyond it's coming that acquisition gives us a great base and player base as we head into the movie, which will expand the number of people who are out there to play the MTV and so as we look at our total.

<unk> gaming portfolio and all the entertainment we have for 2023 and beyond we're very excited about what we have ahead of us.

Got it thanks, and then my follow up is there a <unk>.

Rates to Europe , just wanted to clarify you mentioned the potential risk of approximately $100 million from Russia or are you <unk>.

Adjusting that you could potentially shipped to Russia. Later this year I just want to understand that and has your view of.

Europe changed in any way. So this is excluding Russia.

Any change in view in terms of outlook for the year. Thanks.

So we have Pos shipments into Russia, and we've been asked the size of our business in the past. So we wanted to quantify that for people.

And that is exactly what we're doing and Eric do you want to comment on the remainder of Europe .

Sure.

As we think about as Ed mentioned for Russia, specifically just to clarify again.

We've paused all shipments into Russia, that's a situation that we're all continuing to evaluate day by day and week by week with regards to the rest of Europe , Our European business is in good shape.

We were up in Pos for the quarter in Europe , specifically and we continue to look forward to that business continuing to grow and improve.

The only item I would add to that is the one thing I just would point out I mean, the we saw in our European business. This quarter was very strong absent FX and the one currency theres really two currencies that have significantly impacted us year on year. One is the euro so a stronger dollar against the Euro I think is down.

9% from our average rate for last year.

And then the yen is the other one which is more significantly impacts our wizards of the coast business, but.

Just for Europe I.

Look at exchange rates could have an impact for us, but I'm kind of constant currency basis.

<unk> is doing very well.

Got it okay. Thanks.

Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your questions.

Thank you good morning, everyone. We wanted to ask two real quick ones on Wizards and maybe this is for Chris and Doug together, just thinking through the revenue sequencing. You mentioned Q2 is going to be the largest quarter Q3 has a difficult compare but help us think through just the cadence and then the same question on the cost and the investment side and the <unk>.

Margins incremental margins have been a bit lower than we would've expected. So just wanted to think through the timing of some of the investments and when you expect to realize the benefits of those thank you.

Yeah. So Q1, we expect it to be a good quarter for Wizards and it turned out to be a better than expected good quarter for wizards, Despite even moving a release in September .

Q2, we expect to be the biggest quarter, we've ever had because last Q2 was our biggest quarter as well so.

So we think that'll be comping favorably based on just the number and quality of releases that we have Q3.

We also expect to be a significant quarter, but just based on comping year over year and the types of formats that we have releasing.

It likely will be flat to down and then Q4, we expect.

Another growth quarter for the business as well again, just based on the nature of the formats and type of releases that we have.

And then with respect to the investments as.

As we look over the past, we've invested over $1 billion and the Wizards of the coast and digital gaming business and it has grown over 150%. We continue to make those long term investments we've talked about the investments being in talent, we have the opportunity and we're very excited to have Cynthia on the call with US today is a great new talent just one of many.

That we've been able to bring to wizards of the coast and we will continue to make those investments to drive that long term profitable growth.

Hey, Jeff if I could just for clarification as well the guidance does not include the D&B acquisition is that correct.

Deanne D beyond acquisition is with that is within our guidance.

As you recall they were a good partner of ours before so we did have licensing revenue from them.

As we look to the future, we expect that to be an even greater benefit as we brought them into our group and we have that great talent that came with the acquisition as well.

We expect the acquisition to close in mid to late Q2. So.

Guidance would incorporate Q3 and Q4.

And then a lot of the integrated meaningful integration would be back half loaded or into 2023.

Got it that's helpful. Thank you very much.

Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your questions.

Hi, Good morning, Thanks for taking my questions first can you give us some insight on what you learned in your DJ license process does the Dnb beyond acquisition and how you might utilize that to you.

Penetrate a broader part of the total addressable market with arena.

Yeah.

Well when we looked at the DMT beyond acquisition, we've been partners with we'd.

We've been partnering with D&B beyond since they were founded back in 2000 late 2017 2018.

We were the exclusive licensor and they were a digital distributor for us. So we had a lot of unique insight into the value of that platform the growth of that platform and the nature of the user base on it and so we've been in discussions with sand.

For many quarters in terms of bringing D&A beyond into the Wizards family.

And.

I think we had some great discussions I think we had a really mutually compelling deal.

We're both sides got a lot of value for the asset and we see that asset only accelerating in value under Wizards is ownership.

Having are having our biggest digital content platform paired with the actual content creation.

Team, there's a lot of potential synergies. So theres a lot of international growth factors that we can do there is a lot of new exclusive content, we can do.

We've talked a lot about universe is beyond and magic, which is this concept of thinking about magic is a place system and bringing in outside brands are outside IP into that play system, we see potential for that with DMD as well and we think D&B beyond can be a primary hub for that and then we see a lot of e-commerce and direct opportunities.

Working in partnership with our Hasbro pulse team to have physical digital tie ins that are unique to the platform. So the combination of like those business upside opportunities and then really getting this great tight connection with the 10 million customers, who play on that platform.

Which is the majority of customers, who actively play DND, it's a fantastic learning opportunity for us and to your point very similar to what we've seen with arena, where we build this relationship with our customers. It's a great incremental business opportunity and a fantastic learning learning platform for us to under.

<unk> how people are playing our games, what do they want to purchase and how can we make our products better and I think that's been an important part of our segmentation approach for magic over the last couple of years and I think it's going to become an increasingly important part of our D&A segmentation and product development approach as well and to cap off that off.

2020 March 2023, we're going to have a blockbuster film coming out with Dungeons and Dragons, we have a lot of streaming entertainment on tap that our <unk> team is planning.

Got a big consumer products pushed for 2023, and then we'll add on top of that the 50th anniversary of Dungeons and Dragons and 2024, where that entertainment consumer products and gaming momentum will continue so we see a lot of growth factors and a lot of lifts for DND.

The <unk> platform being central to that.

Okay. That's helpful. And then I am sure you guys don't have any comment, but if there's anything you'd like to share about alpha box with us I'd be curious to hear it. Thanks.

No. We're here to comment on our earnings and we're very focused on that we will not be commenting on at all to Fox.

Perfect. Thank you guys.

Our next question is coming from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.

Hey, guys. Good morning last quarter, you had talked about the expectation that the U S industry growth rate would slow or potentially even decline I'm wondering if you have any updated thoughts on sort of the full year outlook.

Yes.

Our view on the market is theres a lot of factors at play.

There is inflation Thats pinching consumers' pocketbooks Theres continued supply chain headwinds.

And Theres a lot of geopolitical uncertainty in the marketplace right now regardless of if the market goes up or down or is flat. We believe in focus and scaled execution, having great product innovation coupling that with fantastic storytelling and just executing the heck out of that with our channel partners and our gen.

Licensing partners overall, and so we believe that we can grow in any market context, and that's what underlies our overall guidance for the year.

Okay, and then you gave us a little bit of detail just from an inventory sequencing perspective, and how thats going to shake out for the balance of the year, but do you think that we could actually see some change in the revenue recognition cadence is that potentially getting pulled forward just based on conversations that youre, having with retailers or is it sort of similar from a cadence.

Perspective on a year over year basis.

I think the cadence from selling.

Selling into our retailers is very similar year over year, we did have as Eric mentioned earlier, certainly as we look at a direct import business that is coming directly to our retailers and its really their order pattern, they've got a bit more on the water as well as I think about that they may be pulling in a bit earlier, but.

We expect the cadence to be very similar to last year, we want to make sure we have product in our own held inventory. So we don't end up having out of stock issues and that will vary all important holiday season and around all this great Entertainment, we have coming this year.

Yes.

Makes sense thanks, guys.

Yes.

Our next question is from the line of Gerrick Johnson with BMO capital markets. Please proceed with your questions.

Hey, good morning, getting over cold So please bear with me.

You talked about your partner portfolio.

Chris You mentioned that you are evaluating brand positioning and the Disney Princess license Neutrals license or going to your primary competitor just wondering if that's.

A strategic decision to concentrate on your own IP.

Or did you bid on it and they Miss out and how should we think about your commitment to other partner licenses.

I don't think I'll comment on any specific license or any specific partner, but in general as we think about partners and we think about co brands, we see that as a continued important part of our mix, particularly as you think about our themes of games multi generational play and entertainment and direct to consumer as our big investment areas.

Partner co brands will be an increasingly important part of that mix, but dedicated partner lines like our partner brands as we call them. Today. We will also continue to be important and we will be investing across the line on those in particular, we see a lot of great opportunities to bring those brands into what we term as play systems and.

It can be gaming play systems or they can be collectible play systems, I think our nerf business and a monopoly business have been particularly adapted that historically I think the announce of starting lineup has.

Huge platform for fantastic sports partnerships across the World I think our gaming portfolio, particularly magic in DMD offer a lot of fantastic co branding relationships and we'll continue to lean into how we do that on action figures and collectibles across our lineup with Hasbro pulse being a <unk>.

Real focus area for that and so we think when we think about that kind of perspective games multi generational play in direct we see a lot of growth opportunities for partners in our mix and importantly, we see a superior operating profit margin associated with that as well.

Okay, great. Thanks, and Deb, you mentioned price increases have already started it.

It might be early but what are you seeing in terms of elasticity of demand from the consumer.

Well, it's early they just started and we don't have a lot of that Pos data and as we spoke about now but really we're looking to take those price increases on the product just to cover our cost and we've been very thoughtful about what we increase we continue to try to.

Engineered product if we can take if.

If we can change a few things to give better value to the consumer at the lower price. We continue to do that right now garik, we're facing and I'm sure you've read about it.

Per allocations and cardstock allocation. So we're trying to acquire some of that ourselves. So we don't have an issue.

But as we look to have been very very thoughtful about taking price increases to not hurt the consumer.

And to not have elasticity issues with that.

All of our product lines, it's not just the C. P group, but it's also impacting our wizards of the coast.

Business through magic in DMD and duel Masters as well.

Sure Alright, thank you.

Yeah.

Feel better Garik.

Thank you. Our final question today is from the line of <unk> Patel with <unk> capital markets. Please proceed with your questions.

Hey, guys. Thanks for the question.

I wanted to ask about the 16% operating margin target whats, what's built into that target.

Improvement being driven by price measures outweighing cost headwinds or a favorable shift in the sales mix.

Well I think I'll open this up to.

Everyone on the call, but I'll give you a general thematic.

A lot of it is sales mix the type of products that we're driving and again I'll go back to the themes of games multi generational play and entertainment and direct are things that we're definitely leaning into and we see superior operating profit margin outlooks for and then we also are evaluating our business.

Evaluating our structure and reevaluating, where we're making investments and we've seen some cost savings opportunities and reinvestment opportunities in higher margin businesses. As a result of that so when you take those two factors into play.

It gives us confidence in raising our outlook for our our adjusted operating profit margins for the year in terms of pricing.

Pricing is ultimately up to the retailer at point of sale.

And most of our pricing outlook really is to cover costs. Both in terms of freight as well as the bill of materials.

Gotcha that makes sense just a quick follow up so as you guys kind of shift towards becoming a more digitalized gaming oriented company, how does that kind of alter the historically recessionary resilient nature, Hasbro I guess brings another way.

As of the coast and entertainment, how resilient are those segments and an economic downturn.

<unk> two <unk>.

Some of our products.

What wizards of the coast has grown for I think 12 out of the last 13 years and that growth spurt started in 2008 2009, So we see games as pretty economically resilient and generally speaking, we see the toy industry as being a proven.

Economically resilient industry to economic headwinds.

Got you Okay. That's all right. Thank you.

Thanks.

Thank you at this time, we've reached the end of the question and answer session I'll now 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.

Management's prepared remarks will be posted on our website. Following this call. Thank you.

This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.

[music].

[music].

Good morning, and welcome to the Hasbro first quarter 2022 earnings conference call.

At this time, all parties will be in listen only mode.

A question and answer session will follow the formal presentation.

If you'd like to ask a question at that time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

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So that we may address questions here as many participants as possible. We ask that you limit yourself to one question and one follow up question.

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At this time I would 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 Chris Cox, Hasbro's, Chief Executive Officer, and Deb, Thomas Hasbro's, Chief Financial Officer Today, we will begin with Chris and Dan providing commentary on the company's performance. Then we will take your questions. Cynthia Williams President of Wizards of the coast and digital gaming Darren Throop President.

And C E O E, one and Eric Nyman, Hasbro's, President and Chief operating Officer will join for the Q&A portion of the call 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.

We'll discuss certain adjusted measures, which exclude these non-GAAP adjustments a reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, 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 expectation.

<unk> 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.

I would like to introduce Chris Cox Chris.

Good morning, I'm happy to be joining you today to discuss Hasbro's first quarter results and share the efforts our leadership team are undertaking to assess the business and strategic direction of Hasbro.

Deb, Thomas who will speak shortly in detail about our quarterly performance that supports our view of growth for the year.

In Q1, our Hasbro teams executed well growing revenue to 1.1 dollars 6 billion, a 4% year over year increase and 7% absent our music business, which we sold last year at the beginning of Q3.

Revenues grew in each segment one of the standout performers for the quarter was our latest magic the gathering release common Gallois Neon dynasty, which is our best selling winter set of all time, beating the prior year's set by 28% Neon.

<unk> is the fifth magics that generate in excess of $100 million and is our third largest that ever.

Our overall games portfolio grew 4% and would have been even stronger. However, we moved our March magic release unfinished each to September to help our supply chain to keep up with robust demand for the base magic business.

Our consumer products segment also showed growth buoyed by my little Pony.

Pig and Hasbro products from the Marvel portfolio and Star Wars.

And our industry, leading entertainment capabilities drove a revenue increase of 4% or 22%, excluding $31 $8 million of music revenue from last year.

Television film and animated content drove the growth, including deliveries of the rookie which was just picked up for season five the premier of Transformers bought bought <unk>, which was a top 10 kids series on Netflix in its first week and power Rangers Dino Fury, which was also one of the top 10, most watched kids show.

It is on Netflix in all markets it launched.

For the full year, we continue to project topline growth in the low single digits behind continued strength in our highly profitable Wizards and digital gaming business, which we now see growing at the upper end of our previously communicated growth range of mid single digits with the potential to reach low double digits.

We continue to expect the entertainment segment to grow mid single digits absent the music business.

Bind with low single digit growth in the consumer product segment.

Projected growth in consumer products would be mid single digits absent, an approximate $100 million headwind related to Russia.

On a bottom line basis since taking over as CEO . Our team has commenced a comprehensive review of our strategy and operations.

A major theme of this effort is focus and scale.

Focusing on fewer bigger opportunities and scaling those with reinvestment to drive profitable growth and enhanced shareholder return.

We will share a more fulsome update on this strategy at an Investor day, we are scheduling for October 4th, but we are already identifying opportunities to drive enhanced operating profit across the company <unk>.

Particularly when coupled with the continued strong demand we are seeing in our games business for.

For the year, we are increasing our outlook for operating profit and anticipate adjusted operating profit margins of 16% a meaningful improvement versus last year's 15, 5%. I'm also pleased to report based on the solid profitable fundamentals, we see across our company starting in Q2.

We will resume our stock repurchase program with a targeted investments in the $75 million to $150 million range in 2022.

As part of this review games, multi generational play and entertainment and direct to consumer will be key focus areas for us as a company.

In 2021 games was a $2 $1 billion business for Hasbro growing 19% year over year generating an <unk> margin in excess of 30%.

Last week, we announced the deal with fandom to acquire DMD beyond the Premier digital content platform for Dungeons and Dragons for $146 million.

The addition of <unk> beyond to our games portfolio adds a powerful asset to one of our cornerstone gaming brands.

<unk> beyond brings nearly 10 million connected gaming accounts and a highly profitable rapidly growing business into the Hasbro family.

With a three year CAGR of over 50% of projected operating profit margin once combined with Hasbro in excess of 65%.

And powerful new growth vectors as part of Hasbro, including international market expansion enhanced digital play experiences physical digital tie ins all new direct to digital exclusive content and new brand partnerships, we see a bright future for Dungeons and Dragons.

And we only see these opportunities growing over time as we invest in an end to end brand blueprint for Dungeons and dragons, including blockbuster films in the streaming TV.

AAA Videogames are major consumer products Bush and significant marketing tie ins.

D&A beyond as more than just a great business. It will become the digital hub of Dungeons and Dragons play that our brand blueprint will enhance and accelerate.

Multi generational play is a significant growth opportunity for us it.

It may surprise, many that Hasbro generates the majority of our profit among consumers over the age of 13 <unk>.

<unk>. This is generated by gaming, but also buy collectibles and the fan economy, which are one of our fastest growing and most important growth businesses.

We see a big opportunity in embracing the age listeners of play as we unlock more value through play and entertainment across our portfolio among our own brands and our strategically important partner brand portfolio and then the partner IP, we work with for co brands.

Our license partnerships go forward will further unlock and enhance this profitable opportunity.

As an example of this approach we are excited to announce the return of one of the most beloved sports collectible brands of all time starting lineup.

The relaunch of starting lineup gives us a new product lines to appeal to fans of all ages and a fast growing category with many more exciting partnership announcements to come in the near future.

Starting lineup joins a collection of some of the most sought after collectors brands in the world, including Fortnite, Disney's Marvel, Indiana, Jones, and Star Wars, and fantasy Juggernauts, the Lord of the Rings and war Hammer 40000.

Our new approach to brand partnerships combines IP with terrific multi generational appeal strong growth profiles supported by evergreen AAA games, and blockbuster entertainment and a superior margin outlook.

Starting lineup and D&A beyond also represent important investments in our direct to consumer capabilities.

<unk> lineup will launch exclusively on Hasbro pulse, our direct to consumer platform and across the fanatics network. This fall.

And D&A beyond brings the largest online collection of Dungeons and Dragons players onto our platform owned and operated by Hasbro.

Combined they represent both compelling businesses and a great opportunity to enhance our growing insight into some of our most lucrative and engaged fans.

Before I turn it over to Deb I want to welcome a new member to our senior management team.

Jane Aussie is joining us in may as our new Chief Global supply chain officer reporting to Eric Nyman, Hasbro's, President and COO.

Shane was the SVP and Chief Global supply chain officer at CPG powerhouse, Kimberly Clark and will help us modernize and streamline hasbro's backend operations over the coming quarters.

I am excited to have a supply chain expert of <unk> caliber and experience join our executive leadership team.

And look forward to his contributions in our ongoing strategy review as we focus and scale drive our games business expand our multi generational play and entertainment opportunities and build out our direct capabilities.

In closing.

<unk> Hasbro executed a solid first quarter punctuated by continued strength in our games business, particularly Wizards and digital gaming, which we view growing at the top end of our previous guidance for 2022, we.

We project continued growth in 2022, and see clear opportunities to enhance the profitability of our business and invest in new direct capabilities like D&A beyond new collectible platforms like starting lineup and enhancing shareholder value with these strategic investments for growth, including our share repurchase program.

It's only been a little over 100 days since my announcement in January but my Hope is you see the same energy and discipline in these investments and focus on our consumers as we pursued across the wizards business for the past six years.

And we are only just beginning our approach to our strategy review will be comprehensive evaluating our brand priorities our cost structure, our capital allocation strategy, and where we need to position Hasbro for long term success and superior shareholder return.

The management team and I are looking forward to sharing more about our plans to focus and scale at our Investor Day. This October .

I would now like to turn the presentation over to Deb to share more details about our performance in the first quarter and our outlook for the year ahead. We will follow this up with a Q&A session, where Cynthia Eric and Darren will join Devin I on the call.

<unk>.

Thanks, Chris and good morning, everyone.

Coming off a strong 2021, the Hasbro team delivered a good start to the year.

Excited to have Chris on board and as he did with voices to the coast. He is looking at Hasbro with a fresh view.

Two our rich opportunities in stream bolstered by a disciplined approach to build on the solid foundation in place we will.

Look forward to sharing more with you as the year progresses and in October at our Investor Day.

First quarter revenue grew 4% and 6% on a constant currency basis.

Each segment had revenue growth the brand portfolio categories grew and television film and entertainment was flat, but grew 19% absent music.

Our total gaming category grew 4% versus the first quarter last year to $379 million.

Total gaming has grown in 10 of the last 12 quarters, reflecting the multi generational power of connecting through gains.

For the full year 2021, our total gains category was over $2 billion in revenue with an <unk> margin in excess of 30%.

We continue investing to grow our gaming capabilities and leadership.

At current exchange rates, we expect full year revenue growth in the low single digits.

As we focus on building scale around our largest and most profitable brands growing our games portfolio and tightly manage our fixed costs. We've increased our operating profit growth guidance to mid single digits and believe we can achieve 16% adjusted op margin.

The first quarter of 2022 experienced the cost pressures, we anticipated and guided to.

Higher capitalized input and freight costs and year end inventory had a negative impact on gross margin.

Freight costs remain high impacting both cost of sales and distribution.

Adjusted operating profit was $141 8 million or 12, 2%.

Down from a year ago, due to higher product input costs and freight the.

The mix of entertainment deliveries in the quarter and the sale of the music business mid 2021.

Consumer products segment revenues grew 5% in constant currency and grew 3%, including a negative impact of FX of $13 5 million.

Strength in partner brands, primarily Marvel and Star Wars, and emerging brands, primarily power Rangers and PJ masks led this growth.

Franchise brand slightly declined due to FX with Peppa pig and my little Pony posting good growth.

Hasbro gaming revenues were flat absent FX geographically revenue grew in the Americas The U S.

Canada, and Latin America and declined in Europe .

Absent the impact of FX European revenues were up.

Due primarily to COVID-19 related retail closures and inability to ship product Asia Pacific revenues declined 19% with FX not having a significant impact in these markets.

Adjusted operating profit for the segment declined by $13 4 million.

The decreased profit reflects higher product costs and freight expense.

As we have previously discussed price increases take effect in the second quarter to help offset higher costs and support our view to growing revenue low single digits and improving adjusted operating profit margin.

Wizards of the coast and digital gaming segment revenues grew 9% in the quarter.

Magic, the gathering and dungeons and Dragons as well as duel Masters contributed to growth.

Foreign exchange had a negative $3 million impact.

Tabletop revenues increased on the strength of <unk> as well as growth in Dungeons and Dragons.

Digital revenues grew by $3 7 million.

This reflects continued growth in last year's magic and Dungeons and Dragons digital gaming launches.

We do not have similar launches this year and we'll have more difficult comparisons for the remainder of 2022.

As Chris mentioned last week, we announced the acquisition of D&A beyond from fandom.

This investment provides a platform for growing the dungeons and Dragons digital business over time coming in in advance of the brands deeper activation, including our March 2023 feature film and significant consumer product plans.

Due to acquisition costs. The transaction is expected to be slightly dilutive to EPS, although immaterial in 2022, but accretive in future years.

Operating profit for this segment declined by $3 6 million or 3% to 45%.

This is due to higher product costs associated with our tabletop business both in card stock and printing increased freight costs and ongoing head count in product development investment to support the growing business, both near and long term.

In order to mitigate significantly higher input costs, we expect to implement price increases mid year.

We continue to expect the second quarter to be the largest of the year, but now expect full year mid single digit to potentially low double digit revenue growth and adjusted operating margin declining slightly from 42, 5% in 2021.

Entertainment segment revenues increased 4%, primarily due to increased deliveries in unscripted and scripted television the resumption of live touring shows and higher content sales related to animated programming.

These increases were largely offset by revenue from the music business, which was $31 8 million in the first quarter of 2021.

As a reminder, the music business was sold mid year 2021.

Negative comparison will also impact the second quarter.

Absent music revenue in 2021, the segment revenue grew 22%.

Foreign exchange had a negative $1 million impact in the quarter.

For the full year, we continue to expect revenue growth absent the music business in the mid single digits.

Adjusted operating profit in this segment declined by $29 million over 2021, and $12 7 million, excluding the music business.

Approximately half of this decline in operating profit was due to COVID-19 related cost subsidies received in the first quarter of 2021 and the remainder is due to the mix of lower margin deliveries, particularly in the filament scripted television business.

For the second quarter based on planned deliveries revenue is expected to increase over the 2021 period and adjusted operating profit margin is expected to decline slightly due to music profits in the comparable period.

For the full year adjusted operating profit margin is expected to be in the high single digits.

Looking at our overall, Hasbro P&L gross margin, including cost of sales and program amortization was $15 million and a 5% of net revenues compared with 65, 3% in the first quarter of 2021.

As discussed in the segment increased input costs and higher freight drove a two six percentage point increase as a percent of revenue and cost of goods sold.

While the mix of entertainment deliveries drove a three two percentage point increase in program amortization.

Based on the expected mix of our business and the timing of price increases taking place we expect cost of sales as a percentage of revenue in Q2 to be slightly lower than Q1 with the full year percentage to be in line with full year 2021.

Based on expected deliveries program amortization as a percentage of revenue is currently expected to be slightly higher than Q2 2021 levels in the second quarter and full year 2022 at a slightly lower level than 2021.

To improve product in stocks. This holiday season versus last we're advancing deliveries of key items in our owned inventory. So that we can ensure it's on hand.

This lets us take advantage of best available rate, but with increased shifting times also ensures that we do not have issues with setting inventory and high consumer demand periods.

Additionally to ensure we have paper stock on hand for strong demand in our high margin growing games business, we've purchased paper product.

Gaming as a strategic growth driver and will continue to ensure we have the right supply and investment behind these brands.

Historically inventory purchases peaked in the August to December timeline.

In 2022, we expect this peak to occur in the May to July time frame.

Higher costs in inventory and an approximately 20% acceleration in purchases in the first quarter are reflected in our inventory balance, which is 17% higher than year end 2021.

We expect to have higher levels on hand or on the water in the earlier part of the year than historically.

Advertising declines were driven by lower spend in entertainment with the sale of the music business as well as lower spend in Wizards and digital gaming for lunch support of both arena mobile and Dark Alliance in 2021.

SG&A for the quarter includes higher marketing and sales and administrative costs associated with salary and benefits in our commercial and brand organizations, increasing travel costs and higher freight and warehousing.

For the full year, we expect SG&A as a percentage of revenue to be similar to 2021.

Other income net was $1 $8 million.

In 2021, the first quarter included a $25 $6 million gain or <unk> 19 per share from a legal settlement.

Absent that gain other income was slightly lower year over year.

The first quarter tax rate was 24% of adjusted income.

Based on currently enacted tax law, we continue to expect our full year 2022 adjusted rate to be in the 19% to 20% range.

The low rate in Q1 of 2021 was due to the legal sentiment included in other income, which did not have a tax impact.

In our historically and consistently smallest quarter of the year adjusted earnings per share decreased year over year to 57.

Due to a combination of continued supply chain headwinds nonrecurring events and the shift in our magic release.

At the end of the first quarter, our cash balance was one 6 billion compared with the year end balance of $1 2 billion in Q1 2021 of 143 billion.

Over the last 12 months, we paid down more than $1 billion in debt and returned $376 million to our shareholders in the form of dividends.

Given our cash position and business outlook.

We plan to repurchase $75 million to $150 million of Hasbro shares this year.

We remain on track to achieve our gross debt to adjusted EBITDA target of two to two five times in the second half of 2023 or sooner.

Our operating cash flows for the first quarter of $135 million reflect the advanced inventory purchasing I spoke to earlier and an increase in accounts receivable related to our entertainment business revenue.

Our DSO was 73 days compared with 66 days in Q1 2021, when we were only just starting to resume entertainment deliveries after COVID-19 production shutdowns.

Our cash spend on production for the quarter was 169 million and was largely funded through the use of our new short term production facility, which carries lower interest and administrative costs than those of the past and the proceeds of which is included in financing cash flows.

Overall, the team delivered a good first quarter.

Our momentum in strategic growth areas like gaming, coupled with strong product innovation, a robust entertainment slate and a focus on cost discipline gives us confidence in maintaining our revenue guidance of low single digit growth for the full year, while increasing our X.

Spectation for adjusted operating profit margin to reach 16%.

We 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 at this time. Please press star one from 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 move to your question from the queue.

For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

So let me address questions from as many participants as possible. We ask that you. Please limit yourself to one question and one follow up.

One moment, please while we.

Assemble the queue for questions.

Thank you our first question will be coming from the line of Eric Handler with <unk> partners. Please proceed with your questions.

Good morning, and thanks for the question.

Wondering if you could talk a little bit about some of the supply chain issues, specifically, there's a lot of ships container ships right now waiting to dock in.

Outside of Shanghai.

Wonder if you could just talk about how that's impacting your view is there any risk there with getting enough product.

Good morning, Eric Hey, this is Chris I'm going to turn this one over to Eric who can take you through the supply chain situation that we have overall in the first quarter and what we look at the outlook for the balance of the year Eric.

Thanks, Chris Eric.

Really pivot to talk about where our inventories are because that's I think at the heart of your question.

At the start our Hasbro inventories are in good shape at the end of quarter. One we feel good about our position heading into the balance of the year. Our retail inventories are in good shape as well were up a bit in the U S. As noted quality is good as we head into our strongest events for the balance of the year and I'll just remind you of some of them things like Star Wars.

We wanted to Adobe streaming on Disney plus spiderman across the Spider verse, our new my little Pony and Transformers Earth, <unk> animation, and we'll conduct forever.

Knowing that we're in pretty good shape. There we feel at this point pretty good Eric about our inventories going into the back half and I'd also note with regards to supply chain as Chris noted and Deb noted in their Upfronts. We're excited to also have a world class leader coming in and joining Hasbro is Shane as he is planning on joining Hasbro in may coming from Kimberly.

Mark.

Great and then just a quick follow up or down if possible.

So congratulations on the rookie getting renewed for a fifth season.

To give you a close to 100 episodes at the end of next year, which should put it into good position too.

So onto the syndicated.

Syndication market for television I know youre on Hulu, but.

Wondering if you could talk about maybe some.

Off network syndication, how that market is shaping up.

Where you are with that process.

Yes sure. Thanks, Thanks, Harry Yes so.

Great News on season five of the rookie of the show continues to.

Trend really well and get viewed really well really syndication it turns into when we get those episodes back from the broadcaster we've got an opportunity to go back to market and resell them in a package format. There's all kinds of demand right now Eric of course the the.

The streamers are with some of our biggest buyers right now in the networks as well so it's a real good opportunity for the group to go back and tap the market again with a with a well loved show. So it's good to see season pass.

Okay. Thank you.

Our next question is from the line of our P&L with Cheyenne with UBS. Please proceed with your questions.

Hi, Thank you very much I have two quick ones.

For operating profit margin seems like outlook, it's better overall kind of higher than previously communicated which is impressive given sort of what we know about supply chain and everything thats going on it seems like reserve margin is slightly lower I was wondering if you could talk about what is better to offset that such that the overall margin outlook.

It's better.

While we continue to see a positive mix shift in our overall revenue mix our piano.

Our games segment has a very nice operating profit profile Wizards, we think is going to grow on the top end of our range potentially is as high as more of our traditional double digit growth rate and when we couple that with the great product lineup, the fantastic Entertainment and storytelling lineup that Eric talked about along.

With some targeted cost savings that we're doing across the organization. We feel like we can raise that operating profit adjusted operating profit outlook for the year.

Just to add a bit.

Our <unk> just as well as you look at the business and the cost pressures. We said, we would have cost pressures in our gross margins for the first quarter and we did.

Price increases in CPA start to hit in the second quarter. It actually they've already started and we will see those to offset some of those higher costs as well as our first price increase.

And magic the gathering in certain sets that come later this year, so as Chris said, it all balances out that high growth gaming business and that focus.

As well as covering some of the increased costs that we're seeing will help us.

To get to that margin.

Thank you that's Super helpful. And then just a quick one on Pls I know you mentioned Pos down for Q1, which is not surprising given the Easter shift I was curious if you could share if you have year to date Easter adjusted numbers that includes the first two weeks of Pos in April and then while we're at it do you have a weeks of inventory.

At retail at quarter end.

Handy.

Well, it's still a little early for.

For a full pass read out on the first quarter. What we can say is traditionally Q1 is one of our smallest quarters, we have a fantastic lineup coming up in following quarters, along with the great Entertainment lineup and we exited the quarter with Pos on the positive upswing, we like what the trends are and we see that improving.

As the year goes.

Thank you.

Our next question comes from the line of Mike King with Goldman Sachs. Please proceed with your questions.

Thanks for the question and the increased disclosures around Wizards.

I was just wondering if you could talk a little bit about.

What the swing factors are for this year.

Potentially reached the low double digits topline growth for Wizards.

And then separately I was just wondering if you could talk a little bit about the longer term mix of tabletop versus.

Digital all of what you need to execute against to achieve that thank you.

Sure I will give a very quick answer and then I'll turn it over to Cynthia Williams, our new president of our Wizards and digital segment.

When we look at Wizards, we look at a combination of magic, both tabletop and digital and DMD and the balance of the portfolio and in Q1 and throughout the rest of the year, we see strength across each of those and so that's kind of what we're looking at as we look at the mix, we see our tabletop revenues being pretty buoyant.

And actually growing above our expectations.

And we continue to invest heavily in digital now that said.

As Deb mentioned during her upfront we have a couple of headwinds on digital in terms of comps. We had a very successful release of arena mobile last year, which is kind of settled into a more of a mature kind of growth rate and we also had dark alliance.

Which was a new video game for DND that came out in late June last year were not going to be comping. Those so we think our digital growth is going to be a little bit more muted, but on balance when we look at the two we feel good about where the Wizard segment is going Cynthia I'll.

I'll turn it over to you on any further color commentary to add.

Yes, Thanks, Chris I think a few things I'd say is we still have six additional sets we're going to be releasing this year two of those will be in the second quarter, which will be our biggest quarter of the year.

Likely seen that we've announced the release of the streets of new <unk>, which is a new golden age urban setting for magic players will identify with them play as one of the five.

Damon mob families and beyond streets of new Cabana Youll see us continue to expand the number of formats and reach new customer segments by expanding our universe is beyond initiatives.

Which brings IP from outside of Magic and two the Magic play system. We are excited about universe beyond given the success. We saw last summer with the Dnb thing set adventures in the forgotten realm, which set a summer release record.

Deb also mentioned that we're taking our first price increase in quite a long time on magic, which will take effect on select cards that starting in July .

Yeah, and I'd, certainly say that.

Comma Gala Nandina C being up 28% year over year and the best selling winter set of all time is quite a bullish signal for us and it should be noted last Winter's set was also the best selling winter set of all time. So its record upon record Mike you had a second half of your question if possible could you could you.

We articulated for us yes.

Just wondering if you had a view on the long term mix of tabletop versus digital and weather.

You see digital becoming an increasing part of the mix what are they going to be the key drivers to get that mix to where you want it to be thank you.

Yes, so I would say for this year, we see a fairly stable mix, if not table actually being a slightly higher mix than it was last year given some of the comps that we have and over the mid to long term, we see both robust growth in tabletop and digital with digital as a growing portion of the mix.

For our Wizards and digital segment over time, we don't have a specific goal around what that percentage mix should be.

Both segments are highly profitable gross margin segments, and so we like growth in both.

Excellent thanks, Chris Thanks Cynthia.

Our next question comes from the line of making them Alexander with Jpmorgan. Please proceed with your questions.

Hi, Thanks very much.

Just a follow up on retail inventories I know you mentioned they are in good shape.

A bit in the U S are you comfortable with where they are at this point I know you talked about later arrival of spring product because that all been been set at this point and do you think Pos is still constrained at all by channel inventories.

Well I would say in Q1, we actually executed ahead of our plan and so we feel pretty good about where we are going into for Q2, Q3, and Q4, which is why we're maintaining our guidance. Despite some market headwinds that we and we think the whole industry youre seeing.

We believe that the path to great market, great performance and great growth is through superior execution and great products and as Eric mentioned, we think that inventory is filled with great products and it's going to have a lot of fantastic story based execution, both from us and our partners at <unk>, one as well as our license partners.

Like Disney which has just a stacked lineup of entertainment in the second half of this year, Eric any further color to add yeah, Thanks, Chris and Megan I think it bears repeating that we have a tremendous amount of retail support for the second half of the year in support of our innovative new Hasbro products as Chris mentioned, Michigan.

Including a reaction brands like Transformers, where we're launching our new transformer spark innovation later this year, we have a big Nerf Fest event planned for September nine my little Pony and Peppa pig launcher, starting lineup, which we announced yesterday, which we're all thrilled about bringing back to the pop culture consciousness.

And in addition, we have industry, leading games portfolio that Chris noted in the entertainment.

Bear repeating as well we have this big Star Wars launch coming up with Obi Wan Kenobi on Disney plus as I mentioned prior Thor love his Thunder spiderman across despite adverse and we'll kind of forever all of which lead into 2023, where we have agreed suite inclusive of Dungeons and Dragons Transformers rise of the bees. So.

Have our inventory buildup, we are ready for that and I think that's why we continue to know that we feel like our inventories are in good position.

That's really helpful and maybe just a quick one for Deb.

You saw some nice leverage in <unk> on royalties and advertising both came in a little bit better than where the street was modeling how should we think about those two lines for the full year.

I think from a <unk>.

Royalty standpoint, as Eric mentioned, we are excited about some things happening later in the year, but as we mix more to Hasbro on products, we talked about the growth in magic and DMD.

Todd.

Terrific growth that we've seen and my little Pony.

With the entertainment, we have we expect royalties to be slightly down year on year from an advertising standpoint, our advertising is focused on.

As always on the all important holiday season, however, different launches that we have during the year it was a bit higher earlier.

Earlier in 2021 due to the digital gaming launches that we talked about earlier in some of the entertainment.

The one thing I would say for Q3, we had a higher advertising balanced because we also had the my little Pony movie launch.

So certainly as we think about entertainment, we would expect that to be the toughest comp for that segment for the year Q3, because of that movie launch and advertising would have been higher in that quarter as well, but overall I think we expect advertising in line.

Two.

Slightly down as a percent of revenue just based on mix for the year.

Awesome. Thank you.

Our next question comes from the line of drew Crum Stifel. Please proceed with your questions.

Okay. Thanks, Hey, guys good morning.

Just want to go back to the margin question, maybe looking ahead to next year can you comment on your expectations there.

You recently suggested 16.

Plus was the goal given that you are targeting 16% this year.

Is there any change your view for next year, and then I'll follow up.

Well for this year, certainly we're targeting 16% and our goal is to always see that rise I'm going to let Deb take you through a little bit more where we see the midterm and long term outlook.

Sure no absolutely and as we said at year end.

We believe that we could get back to 16%, we get asked that question constantly and really with a focus on.

On focus and scale gaming, our multi generational play and entertainment.

We are very.

And looking at our cost in great detail.

We reiterated guidance that we'll get to that 16%. This year, we haven't set out a guidance, but we expect growth from that level in 2023 and beyond particularly when you look at what we have coming I mean, we have we're all very excited about dungeons and Dragons and the movie that we have coming early in the year of Transformers.

Rise of the beef and all of our partner Entertainment, that's coming as well.

In particular, we look at the D&B beyond <unk>.

Acquisition, which we're excited about we just said that would be accretive in 2023 and beyond coming that acquisition gives us a great base and player base as we head into the movie, which will expand the number of people who are out there to play the NPV and so as we look at our total.

Gaming portfolio and all the entertainment we have for 2023 and beyond we're very excited about what we have ahead of us.

Got it thanks, and then my follow up as it relates to Europe I just wanted to clarify you mentioned the potential risk of approximately $100 million from Russia or are you.

Suggesting that you could potentially shipped to Russia. Later this year I just want to understand that and has your view.

Europe changed in any way. So this is excluding Russia.

Any change in view in terms of outlook for the year. Thanks.

So we have Pos shipments into Russia, and we've been asked the size of our business in the past. So we wanted to quantify that for people and that is exactly what we're doing and Eric do you want to comment on the remainder of Europe .

Sure.

As we think about as Ed mentioned for Russia, specifically just to clarify again.

She paused all shipments into Russia, that's a situation that we're all continuing to evaluate day by day and week by week with regards to the rest of Europe , Our European business is in good shape.

We were up in Pos for the quarter in Europe , specifically and we continue to look forward to that business continuing to grow and improve.

The only item I would add to that is the one thing I just would point out I mean, the we saw in our European business. This quarter was very strong absent FX and the one currency theres really two currencies that have significantly impacted us year on year. One is the euro so a stronger dollar against the Euro I think it's down about.

9% from our average rate for last year.

And then the yen is the other one which is more significantly impacts our wizards of the coast business, but.

Just for Europe .

We look at exchange rates could have an impact for us, but I'm kind of constant currency basis. The business is doing very well.

Got it okay. Thanks.

Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your questions.

Thank you good morning, everyone. We wanted to ask two real quick ones on Wizards and maybe its just a quick question Deb together just thinking through the revenue sequencing. You mentioned Q2 is going to be the largest quarter Q3 has a difficult compare but help us think through just the cadence and then the same question on the cost and the investment side the Mark.

Incremental margins have been a bit lower than we would've expected. So just wanted to think through the timing of some of the investments and when you expect to realize the benefits of those thank you.

Yes, So Q1, we expect it to be a good quarter for Wizards and it turned out to be a better than expected good quarter for wizards, despite even moving.

Our release in September .

Q2, we expect to be a biggest quarter that we've ever had because last Q2 was our biggest quarter as well.

So we think that'll be comping favorably based on just the the number and quality of releases that we have Q3.

We also expect to be a significant quarter, but just based on comping year over year and the types of formats that we have releasing.

It likely will be flat to down and then Q4, we expect.

Another growth quarter for the business as well again, just based on the nature of the formats and type of releases that we have.

And then with respect to the investments as.

As we look over the past, we've invested over $1 billion and the Wizards of the coast and digital gaming business and it has grown over 150%. We continue to make those long term investments we've talked about the investments being in talent, we have the opportunity and we're very excited to have Cynthia on the call with US today is a great new talent just one of many.

That we've been able to bring to wizards of the coast and we will continue to make those investments to drive that long term profitable growth.

Hey, Dave if I could just for clarification as well the guidance does not include the D&B acquisition is that correct.

Deanne D beyond acquisition is with that is within our guidance.

As you recall they were a good partner of ours before so we did have licensing revenue from them.

As we look to the future, we expect that to be an even greater benefit as we brought them into our group and we have that great talent that came with the acquisition as well.

We expect the acquisition to close in mid to late Q2. So.

Guidance would incorporate Q3 and Q4.

And then a lot of the integrated meaningful integration would be back half loaded or into 2023.

Got it that's helpful. Thank you very much.

Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your questions.

Hi, Good morning, Thanks for taking my questions first can you give us some insight on what you learned in your DJ elegance process of the Dnb beyond acquisition and how you might utilize that to you.

Penetrate a broader part of the total addressable market with arena.

Well when we looked at the DMD beyond acquisition, we've been partners with.

We've been partnering with D&B beyond since they were founded back in 2000 late 2017 2018.

And we were the exclusive licensor and they were a digital distributor for us. So we had a lot of unique insight into the value of that platform the growth of that platform and the nature of the user base on it and so we've been in discussions with sand.

For many quarters in terms of bringing D&A beyond into the Wizards family.

And.

I think we had some great discussions I think we had a really mutually compelling deal.

We're both sides got a lot of value for the asset and we see that asset only accelerating in value under Wizards is ownership.

Having are having our biggest digital content platform paired with the actual content creation.

Team, there's a lot of potential synergies so theres a lot of international growth vectors that we can do there is a lot of new exclusive content, we can do.

We've talked a lot about universes beyond in magic, which is this concept of thinking about magic is a place system and bringing in outside brands are outside IP into that play system, we see potential for that with DMD as well and we think D&B beyond can be a primary hub for that and then we see a lot of e-commerce and direct opportunities.

Working in partnership with our Hasbro pulse team to have physical digital tie ins that are unique to the platform. So the combination of like those business upside opportunities and then really getting this great tight connection with the 10 million customers, who play on that platform.

Which is the majority of customers, who actively play DND, it's a fantastic learning opportunity for us and to your point very similar to what we've seen with arena, where we build this relationship with our customers. It's a great incremental business opportunity and a fantastic learning learning platform for us to under.

Stand how people were playing our games, what do they want to purchase and how can we make our products better and I think that's been an important part of our segmentation approach for magic over the last couple of years and I think it is going to become an increasingly important part of our D&A segmentation and product development approach as well and to cap all of that off.

In 2020 March of 2023, we're going to have a blockbuster film coming out with Dungeons and Dragons, we have a lot of streaming entertainment on tap that our <unk> team is planning.

Got a big consumer products push for 2023, and then we'll add on top of that the 50th anniversary of Dungeons and Dragons and 2024, where that entertainment consumer products and gaming momentum will continue so we see a lot of growth factors and a lot of lifts for DND.

The <unk> platform being central to that.

Okay. That's helpful. And then I'm sure you guys don't have any comment if there's anything you'd like to share about Alco box. So that's I'd be curious to hear it. Thanks.

We're here to comment on our earnings and we're very focused on that we will not be commenting on ultra Fox today.

Perfect. Thank you guys.

Our next question is coming from the line of Fred Wightman with Wolfe Research. Please proceed with your question.

Hey, guys. Good morning last quarter, you had talked about the expectation that the U S industry growth rate would slow or potentially even decline I'm wondering if you have any updated thoughts on sort of the full year outlook.

Yes.

Our view on the market is theres a lot of factors at play.

There is inflation, that's pinching consumers' pocketbooks Theres continued supply chain headwinds.

And Theres a lot of geopolitical uncertainty in the marketplace right now regardless of if the market goes up or down or is flat. We believe in focus and scaled execution, having great product innovation coupling that with fantastic storytelling and just executing the heck out of that with our channel partners and our gen.

<unk> licensing partners overall, and so we believe that we can grow in any market context, and that's what underlies our overall guidance for the year.

Okay, and then you gave us a little bit of detail just from an inventory sequencing perspective, and how that's going to shake out for the balance of the year, but do you think that we could actually see some change in the revenue recognition cadence is that potentially getting pulled forward just based on conversations that you're having with retailers or is it sort of similar from a cadence.

Our perspective on a year over year basis.

I think the cadence from.

Selling into our retailers is very similar year over year, we did have as Eric mentioned earlier.

As we look at a direct import business that is coming directly to our retailers and its really their order pattern.

A bit more on the water as well as I think about that they may be pulling in a bit earlier, but we expect the cadence to be very similar to last year, we want to make sure we have product in our own held inventory. So we don't end up having out of stock issues and that will vary all important holiday season and around all this great entertain.

That we have coming this year.

Makes sense thanks, guys.

Our next question is from the line of Gerrick Johnson with BMO capital markets. Please proceed with your questions.

Hey, good morning, getting over cold So please bear with me.

You talked about your partner portfolio. Chris you mentioned that you are evaluating brand positioning and the Disney Princess license Neutrals license or going to your primary competitor just wondering if pets.

A strategic decision to concentrate on your own IP.

Or did you bid on it and Miss out and how should we think about your commitment to other partner licenses.

I don't think I'll comment on any specific license or any specific partner, but in general as we think about partners and we think about co brands, we see that as a continued important part of our mix, particularly as you think about our themes of games multi generational play and entertainment and direct to consumer as our big investment areas.

Yeah.

Partner co brands will be an increasingly important part of that mix, but dedicated partner lines like our partner brands as we call them. Today. We will also continue to be important and we will be investing across the line on those in particular, we see a lot of great opportunities to bring those brands into what we term as play systems and those can be gaming.

Systems or they can be collectible play systems, I think our nerf business and a monopoly business have been particularly adapted that historically I think the announce of starting lineup has.

Huge platform for fantastic sports partnerships across the World I think our gaming portfolio, particularly magic in DMD offer a lot of fantastic co branding relationships and we'll continue to lean into how we do that on action figures and collectibles across our lineup with Hasbro pulse being a.

A real focus area for that.

So we think when we think about that kind of perspective games multi generational play in direct we see a lot of growth opportunities for partners in our mix and importantly, we see a superior operating profit margin associated with that as well.

Okay, great. Thanks.

You mentioned price increases have already started it.

It might be early but what are you seeing in terms of elasticity of demand from the consumer.

Well, it's early they just started and we don't have a lot of that Pos data and as we spoke about now but really we're looking to take those price increases on the product just to cover our cost and we've been very thoughtful about what we increase we continue to try to.

Engineered product if we can take if.

If we can change a few things to give better value to the consumer at the lower price. We continue to do that right now Eric we are facing and I'm sure you've read about it.

For allocations and cardstock allocations. So we're trying to acquire some of that ourselves. So we don't have an issue.

But as we look to have been very very thoughtful about taking price increases to not hurt the consumer.

And to not have the elasticity issues with that.

All of our product lines, it's not just the CP group. It is also impacting our wizards of the coast business through magic in DMD and duel Masters as well.

Sure Alright, thank you.

Sure.

Feel better Garik.

Thank you. Our final question today is from the line of <unk> Patel with <unk> capital markets. Please proceed with your questions.

Hey, guys. Thanks for the question.

I wanted to ask about the 16% operating margin target.

Built into that target.

<unk> being driven by price measures outweighing cost headwinds or favorable shift in the sales mix.

Well I think I'll open this up to everyone on the call, but I'll give you a general thematic.

A lot of it is sales mix the type of products that were driving and again I'll go back to the themes of games multi generational play and entertainment and direct are things that we're definitely leaning into and we see superior operating profit margin outlooks for them.

And then we also are evaluating our business evaluating our structure and reevaluating, where we're making investments and we've seen some cost savings opportunities and reinvestment opportunities in higher margin businesses. As a result of that so when you take those two factors into play.

It gives us confidence in raising our outlook for our operate our adjusted operating profit margins for the year in terms of pricing.

It's ultimately up to the retailer at point of sale.

And most of our pricing outlook really is to cover costs. Both in terms of freight as well as the bill of materials.

Gotcha that makes sense just a quick follow up so as you guys kind of shift towards becoming a more digitalized gaming oriented company, how does that kind of alter the historically recessionary resilient nature of Hasbro I guess brings another way.

Wizards of the coast and entertainment, how resilient are those segments and an economic downturn compared to consumer products.

What wizards of the coast has grown for I think 12 out of the last 13 years.

And that growth spurt started in 2008 2009.

So we see games as pretty economically resilient and generally speaking, we see the toy industry as being a proven economically resilient industry to economic headwinds.

Got you Okay. That's helpful. Thank you.

Thanks.

Thank you at this time, we've reached the end of the question and answer session I'll now 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.

This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation good morning, and welcome to the Hasbro first quarter 2022 earnings Conference call.

At this time, all parties will be in listen only mode.

<unk> and answer session will follow the formal presentation.

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At this time I'd like to turn the call over to MS. Debbie Hancock Senior Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Joining me today are Chris Cox, Hasbro's, Chief Executive Officer, and Deb, Thomas Hasbro's, Chief Financial Officer Today, we will begin with Chris and Deb, providing commentary on the company's performance. Then we will take your questions. Cynthia Williams President of Wizards of the coast and digital gaming, Darren Throop, President and <unk>.

CEO of <unk>, and Eric <unk>, Hasbro's, President and Chief operating officer will join for the Q&A portion of the call.

Our earnings release and presentation slides for today's call are posted on our Investor website.

Press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures our call today, we 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. 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.

<unk> 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 I'd like to introduce Chris Cox correct.

Good morning, I'm happy to be joining you today to discuss Hasbro's first quarter results and share the efforts our leadership team are undertaking to assess the business and strategic direction of Hasbro Deb.

Deb, Thomas who will speak shortly in detail about our quarterly performance that supports our view of growth for the year.

In Q1, our Hasbro teams executed well growing revenue to 1.1 dollars 6 billion.

4% year over year increase and 7% absent our music business, which we sold last year at the beginning of Q3.

Revenues grew in each segment one of the standout performers for the quarter was our latest magic the gathering release comma Gallois Neon dynasty, which is our best selling winter set of all time, beating the prior year's set by 28%.

<unk> is the fifth magics that generate in excess of $100 million and is our third largest set ever.

Our overall games portfolio grew 4% and would have been even stronger. However, we moved our March magic release unfinished to September to help our supply chain to keep up with robust demand for the base magic business.

Our consumer products segment also showed growth buoyed by my little Pony.

Pig and Hasbro products from the Marvel portfolio and Star Wars.

And our industry, leading entertainment capabilities drove a revenue increase of 4% or 22%, excluding $31 $8 million of music revenue from last year.

Television film and animated content drove the growth, including deliveries of the rookie which was just picked up for season five the premier of Transformers bought bought <unk>, which was a top 10 kids series on Netflix in its first week and power Rangers Dino Fury, which was also one of the top 10, most watched kids show.

On Netflix in all markets it launched.

For the full year, we continue to project top line growth in the low single digits behind continued strength in our highly profitable Wizards and digital gaming business, which we now see growing at the upper end of our previously communicated growth range of mid single digits with the potential to reach low double digits.

We continue to expect the entertainment segment to grow mid single digits absent the music business.

Bind with low single digit growth in the consumer products segment.

Projected growth in consumer products would be mid single digits absent, an approximate $100 million headwind related to Russia.

On a bottom line basis since taking over as CEO . Our team has commenced a comprehensive review of our strategy and operations.

A major theme of this effort is focus and scale.

Focusing on fewer bigger opportunities and scaling those with reinvestment to drive profitable growth and enhanced shareholder return.

We will share a more fulsome update on this strategy at an Investor day, we are scheduling for October 4th, but we are already identifying opportunities to drive enhanced operating profit across the company <unk>.

Particularly when coupled with the continued strong demand we are seeing in our games business for.

For the year, we are increasing our outlook for operating profit and anticipate adjusted operating profit margins of 16% a meaningful improvement versus last year's 15, 5%. I'm also pleased to report based on the solid profitable fundamentals, we see across our company starting in Q2.

We will resume our stock repurchase program with a target investments in the $75 million to $150 million range in 2022.

As part of this review games, multi generational play and entertainment and direct to consumer will be key focus areas for us as a company.

In 2021 games with a $2 $1 billion business for Hasbro growing 19% year over year generating an <unk> margin in excess of 30%.

Last week, we announced the deal with fandom to acquire DMD beyond the Premier digital content platform for Dungeons and Dragons for $146 million.

The addition of <unk> beyond to our games portfolio adds a powerful asset to one of our cornerstone gaming brands.

A&D beyond brings nearly 10 million connected gaming accounts and a highly profitable rapidly growing business into the Hasbro family.

With a three year CAGR of over 50% of projected operating profit margin once combined with Hasbro in excess of 65% and powerful new growth vectors as part of Hasbro, including international market expansion enhanced digital play experiences physical digital tie ins all new.

Direct digital exclusive content and new brand partnerships, we see a bright future for Dungeons and Dragons.

And we only see these opportunities growing over time as we invest in an end to end brand blueprint for Dungeons and dragons, including blockbuster films and streaming TV.

AAA Videogames are major consumer products push and significant marketing tie ins.

D&A beyond as more than just a great business. It will become the digital hub of Dungeons and Dragons play that our brand blueprint will enhance and accelerate.

Multi generational play is a significant growth opportunity for us it.

It may surprise, many that Hasbro generates the majority of our profit among consumers over the age of 13 <unk>.

<unk>. This is generated by gaming, but also buy collectibles and the fan economy, which are one of our fastest growing and most important growth businesses.

We see a big opportunity in embracing the age listeners a play as we unlock more value through play and entertainment across our portfolio among our own brands and our strategically important partner brand portfolio and then the partner IP, we work with for co brands.

Our license partnerships go forward will further unlock and enhance this profitable opportunity.

As an example of this approach we are excited to announce the return of one of the most beloved sports collectible brands of all time starting lineup.

The relaunch of starting lineup gives us a new product line to appeal to fans of all ages and a fast growing category with many more exciting partnership announcements to come in the near future.

Starting lineup joins a collection of some of the most sought after collectors brands in the world, including Fortnite, Disney's Marvel, Indiana, Jones, and Star Wars, and fantasy Juggernauts, the Lord of the Rings and war Hammer 40000.

Our new approach to brand partnerships combines IP with terrific multi generational appeal strong growth profiles supported by evergreen AAA games, and blockbuster entertainment and a superior margin outlook.

Starting lineup and D&B beyond also represent important investments in our direct to consumer capabilities.

<unk> lineup will launch exclusively on Hasbro pulse, our direct to consumer platform and across the fanatics network. This fall.

<unk> beyond brings the largest online collection of Dungeons and Dragons players onto our platform owned and operated by Hasbro.

Combined they represent both compelling businesses and a great opportunity to enhance our growing insight into some of our most lucrative and engaged fans.

Before I turn it over to Deb I want to welcome a new member to our senior management team.

Jane Aussie is joining us in may as our new Chief Global supply chain officer reporting to Eric Nyman, Hasbro's, President and COO.

Shane was the SVP and Chief Global supply chain officer at CPG powerhouse, Kimberly Clark and will help us modernize and streamline hasbro's backend operations over the coming quarters.

I am excited to have a supply chain expert of Shane caliber and experience join our executive leadership team and look forward to his contributions in our ongoing strategy review as we focus and scale drive our games business.

Spanned our multi generational play and entertainment opportunities and build out our direct capabilities.

Yes.

In closing Hasbro executed a solid first quarter punctuated by continued strength in our games business, particularly Wizards and digital gaming, which we view growing at the top end of our previous guidance for 2022.

We project continued growth in 2022, and see clear opportunities to enhance the profitability of our business and invest in new direct capabilities like D&B beyond new collectible platforms like starting lineup and enhancing shareholder value with these strategic investments for growth, including our share repurchase program.

It's only been a little over 100 days since my announcement in January but my Hope is you see the same energy and discipline in these investments and focus on our consumers as we pursued across the wizards business for the past six years.

And we are only just beginning our approach to our strategy review will be comprehensive evaluating our brand priorities our cost structure, our capital allocation strategy, and where we need to position Hasbro for long term success and superior shareholder return.

The management team and I are looking forward to sharing more about our plans to focus on scale at our Investor Day. This October .

I would now like to turn the presentation over to Deb to share more details about our performance in the first quarter and our outlook for the year ahead. We will follow this up with a Q&A session, where Cynthia Eric and Darren will join Devin I on the call depth.

Thanks, Chris and good morning, everyone.

Coming off a strong 2021, the Hasbro team delivered a good start to the year.

We're excited to have Chris on board and as he did with Wizards of the coast. He's looking at Hasbro with a fresh view to our rich opportunities in stream.

Bolstered by our disciplined approach to build on the solid foundation in place.

We look forward to sharing more with you as the year progresses and in October at our Investor Day.

First quarter revenue grew 4% and 6% on a constant currency basis.

Each segment had revenue growth.

The brand portfolio categories grew and television film and entertainment was flat, but grew 19% absent music.

Our total gaming category grew 4% versus the first quarter last year to $379 million.

Total gaming has grown in 10 of the last 12 quarters, reflecting the multi generational power of connecting through gains.

For the full year 2021, our total games category was over $2 billion in revenue with an O P margin in excess of 30%.

We continue investing.

Grow our gaming capabilities and leadership.

At current exchange rates, we expect full year revenue growth in the low single digits.

As we focus on building scale around our largest and most profitable brands growing our games portfolio and tightly manage our fixed cost we've increased our operating profit growth guidance to mid single digits and believe we can achieve 16% adjusted op margin.

The first quarter of 2022 experienced the cost pressures, we anticipated and guided to.

Higher capitalized input and freight costs and year end inventory had a negative impact on gross margin.

Freight costs remain high impacting both cost of sales and distribution.

Adjusted operating profit was $141 8 million or 12, 2%.

Down from a year ago, due to higher product input costs and freight.

The mix of entertainment deliveries in the quarter and the sale of the music business mid 2021.

Consumer products segment revenues grew 5% in constant currency.

<unk> grew 3%, including a negative impact of FX of $13 5 million.

Strength in partner brands, primarily Marvel and Star Wars, and emerging brands, primarily power Rangers and PJ masks led this growth.

Franchise brand slightly declined due to FX with Peppa pig and my little Pony posting good growth.

Hasbro gaming revenues were flat absent FX geographically revenue grew in the Americas, The U S, Canada, and Latin America and declined in Europe .

Absent the impact of FX European revenues were up.

Due primarily to COVID-19 related retail closures and inability to ship product Asia Pacific revenues declined 19% with FX not having a significant impact in these markets.

Adjusted operating profit for the segment declined by $13 4 million.

The decreased profit reflects higher product costs and freight expense.

As we have previously discussed price increases take effect in the second quarter to help offset higher costs and support our view to growing revenue low single digits and improving adjusted operating profit margin.

What is it to the coast and digital gaming segment revenues grew 9% in the quarter.

Magic, the gathering and dungeons and Dragons as well as duel Masters contributed to growth.

Foreign exchange had a negative $3 million impact.

Tabletop revenues increased on the strength of <unk> as well as growth in Dungeons and Dragons.

Digital revenues grew by $3 7 million.

This reflects continued growth in last year's magic and Dungeons and Dragons digital gaming launches.

We do not have similar launches this year and we will have more difficult comparisons for the remainder of 2022.

As Chris mentioned last week, we announced the acquisition of <unk> beyond from fandom.

This investment provides a platform for growing the dungeons and Dragons digital business over time coming in in advance of the brands deeper activations, including our March 2023 feature film and significant consumer product plans.

Due to acquisition costs. The transaction is expected to be slightly dilutive to EPS, although immaterial in 2022, but accretive in future years.

Operating profit for the segment declined by $3 6 million or 3% to 45%.

This is due to higher product costs associated with our tabletop business, both in card stock and printing ink.

Increased freight costs and ongoing head count and product development investment to support the growing business, both near and long term.

In order to mitigate significantly higher input costs, we expect to implement price increases mid year.

We continue to expect the second quarter to be the largest of the year, but now expect full year mid single digit to potentially low double digit revenue growth and adjusted operating margin declining slightly from 42, 5% in 2021.

Entertainment segment revenues increased 4%, primarily due to increased deliveries in unscripted and scripted television the resumption of live touring shows and higher content sales related to animated programming.

These increases were largely offset by revenue from the music business, which was $31 8 million in the first quarter of 2021.

As a reminder, the music business was sold mid year 2021.

Thank you Dave comparison will also impact the second quarter.

Absent music revenue in 2021, the segment revenue grew 22%.

Foreign exchange had a negative $1 million impact in the quarter.

For the full year, we continue to expect revenue growth absent the music business in the mid single digits.

Adjusted operating profit in this segment declined by $29 million over 2021.

And $12 $7 million, excluding the music business.

Nearly half of this decline in operating profit was due to COVID-19 related cost subsidies received in the first quarter of 2021 and the remainder is due to the mix of lower margin deliveries, particularly in the filament scripted television business.

For the second quarter based on planned deliveries revenue is expected to increase over the 2021 period and adjusted operating profit margin is expected to decline slightly due to music profits in the comparable period.

For the full year adjusted operating profit margin is expected to be in the high single digits.

Looking at our overall, Hasbro P&L gross margin, including cost of sales and program amortization was $15 million and a 5% of net revenues compared with 65, 3% in the first quarter of 2021.

As discussed in the segment increased input costs and higher freight drove a two six percentage point increase as a percent of revenue and cost of goods sold while the mix of entertainment deliveries drove a three two percentage point increase in program amortization.

Based on the expected mix of our business and the timing of price increases taking place.

We expect cost of sales as a percentage of revenue in Q2 to be slightly lower than Q1 with the full year percentage to be in line with full year 2021.

Based on expected deliveries.

Graham amortization as a percentage of revenue is currently expected to be slightly higher than Q2 2021 levels in the second quarter and then full year 2022 at a slightly lower level than 2021.

To improve product in stocks. This holiday season versus last we're advancing deliveries of key items in our owned inventory. So that we can ensure it's on hand.

Lets us take advantage of best available rate, but with increased shipping times also ensures that we do not have issues with setting inventory and high consumer demand periods.

Additionally to ensure we have paper stock on hand for strong demand in our high margin growing games business, we've purchased paper product.

Gaming as a strategic growth driver and will continue to ensure we have the right supply and investment behind these brands.

Historically inventory purchases peaked in the August to December timeline.

In 2022, we expect this peak to occur in the May to July time frame.

Higher cost inventory and an approximately 20% acceleration in purchases in the first quarter are reflected in our inventory balance, which is 17% higher than year end 2021.

We expect to have higher levels on hand or on the water in the earlier part of the year than historically.

Advertising declines were driven by lower spend in entertainment with the sale of the music business as well as lower spend and Wizards and digital gaming for launch support of both arena mobile and Dark Alliance in 2021.

SG&A for the quarter includes higher marketing and sales and administrative costs associated with salary and benefits in our commercial and brand organizations, increasing travel costs and higher freight and warehousing.

For the full year, we expect SG&A as a percentage of revenue to be similar to 2021.

Other income net was $1 $8 million.

In 2021, the first quarter included a $25 $6 million gain or <unk> 19 per share from a legal settlement.

Absent that gain other income was slightly lower year over year.

The first quarter tax rate was 24% of adjusted income.

Based on currently enacted tax law, we continue to expect our full year 2022 adjusted rate to be in the 19% to 20% range.

The low rate in Q1 of 2021 was due to the illegal sentiment included in other income, which did not have a tax impact.

In our historically and consistently smallest quarter of the year adjusted earnings per share decreased year over year to 57.

Due to a combination of continued supply chain headwinds nonrecurring events and the shift in our magic release.

At the end of the first quarter, our cash balance was one 6 billion compared with the year end balance of $1 2 billion in Q1 2021 of 143 billion.

Over the last 12 months, we paid down more than $1 billion in debt and returned $376 million to our shareholders in the form of dividends.

Given our cash position and business outlook.

We plan to repurchase $75 million to $150 million of Hasbro shares this year.

We remain on track to achieve our gross debt to adjusted EBITDA target of two to two five times in the second half of 2023 or sooner.

Our operating cash flows for the first quarter of $135 million reflect the advanced inventory purchasing I spoke to earlier and an increase in accounts receivable related to our entertainment business revenue.

Our DSO was 73 days compared with 66 days in Q1 2021, when we were only just starting to resume entertainment deliveries after COVID-19 production shutdowns.

Our cash spend and production for the quarter was $169 million and was largely funded through the use of our new short term production facility, which carries lower interest and administrative costs than those of the past and the proceeds of which is included in financing cash flows.

Overall, the team delivered a good first quarter.

Our momentum in strategic growth areas like gaming, coupled with strong product innovation, a robust entertainment slate and a focus on cost discipline gives us confidence in maintaining our revenue guidance of low single digit growth for the full year, while increasing our X.

Spectation for adjusted operating profit margin to reach 16%.

We 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 at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to move your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

So let me address questions from as many participants as possible. We ask that you. Please limit yourself to one question and one follow up.

One moment, please while we assemble the queue for questions.

Thank you.

Our first question will be coming from the line of Eric Handler with <unk> partners. Please proceed with your questions.

Good morning, and thanks for the question.

Wondering if you could talk a little bit about some of the supply chain issues, specifically, there's a lot of ships container ships right now waiting to dock in.

Outside of Shanghai.

Wonder if you could just talk about how that's impacting your views and is there any risk there we're getting enough product.

Good morning, Eric Hey, this is Chris I'm going to turn this one over to Eric who can take you through the supply chain situation that we have overall in the first quarter and what we look at for the outlook for the balance of the year Eric.

Thanks, Chris Eric.

Really pivoted to talk about where our inventories are because that's I think at the heart of your question.

At the start or Hasbro inventories are in good shape at the end of quarter. One we feel good about our position heading into the balance of the year. Our retail inventories are in good shape as well were up a bit in the U S. As noted quality is good as we head into our strongest events for the balance of the year and I'll just remind you of some of them things like Star Wars.

One kenobi streaming on Disney plus Spider man across the Spider verse, our new my little Pony, and Transformers, or spark innovation and we'll conduct forever.

Knowing that we're in pretty good shape. There we feel at this point pretty good Eric about our inventories going into the back half and I'd also note with regards to supply chain as Chris noted and Deb noted in their Upfronts. We're excited to also have a world class leader coming in and joining Hasbro is Shane as he is planning on joining Hasbro in may coming from Kimberly.

Mark.

Great and then just a quick follow up for Darrin if possible.

Darren so congratulations on the rookie getting renewed for a fifth season.

To give you close to 100 episodes at the end of next year, which should put us in a good position to.

So onto the syndicated.

Syndication market for television I know youre on Hulu, but.

Wondering if you could talk about maybe some.

Off network syndication, how that market is shaping up.

Where you are with that process.

Yes, sure Thanks, Eric Yeah. So.

Great News on season five of the rookie of the show continues to.

Trend really well and get viewed really well really syndication it turns into when we get those episodes back from the broadcaster we've got an opportunity to go back to market and resell them in a package format. There's all kinds of demand right now Eric of course the the.

The streamers are some of our biggest buyers right now in the networks as well so it's a real good opportunity for the group to go back and tap the market again with a with a well loved show. So it's good to see season pass.

Okay. Thank you.

Yes.

Our next question is from the line of a PMA Kocharyan with UBS. Please proceed with your questions.

Hi, Thank you very much two.

Two quick ones.

For operating profit margin seems like the outlook is better overall kind of higher than previously communicated which is impressive given sort of what we know about supply chain and everything thats going on it seems like Wizard margins slightly lower I was wondering if you could talk about what is better to offset that such that your overall margin outlook.

It's better.

While we continue to see a positive mix shift in our overall revenue mix our piano.

Our games segment has.

Very nice operating profit profile Wizards, we think is going to grow on the top end of our range potentially is as high as more of our traditional double digit growth rate and when we couple that with the great product lineup, the fantastic Entertainment and storytelling lineup that Eric talked about along with some targeted cost savings that we're doing in <unk>.

Ross the organization, we feel like we can raise that operating profit adjusted operating profit outlook for the year.

Just to add a bit.

Our P&A just as well as you look at the business and the cost pressures. We said, we would have cost pressures in our gross margins for the first quarter and we did.

Price increases in CPA start to hit in the second quarter. It actually they've already started and we will see those to offset some of those higher cost as well as our first price increase.

And magic the gathering in certain sets that come later this year, so as Chris said, it all balances out that high growth gaming business and that focus.

As well as covering some of the increased costs that we're seeing will help us.

Get to that margin.

Thank you that's Super helpful. And then just a quick one on Pls I know you mentioned Pos down for Q1, which is not surprising given the Easter shift I was curious if you could share if you have year to date Easter adjusted numbers that include the first two weeks of Pos in April and then while we're at it do you have a weeks of inventory.

At retail at quarter end.

Handy.

Well, it's still a little early for a full pass read out on the first quarter. What we can say is traditionally Q1 is one of our smallest quarters, we have a fantastic lineup coming up in following quarters, along with the great Entertainment lineup and we exited the quarter with Pos on the positive.

Swing, we like what the trends are and we see that improving as the year goes.

Thank you.

Our next question comes from the line of Mike King with Goldman Sachs. Please proceed with your questions.

Thanks for the question and the increased disclosures around Wizards.

I was just wondering if you could talk a little bit about.

What the swing factors are for this year.

Potentially reached the low double digits topline growth for Wizards.

And then separately I was just wondering if you could talk a little bit about the longer term mix of tabletop versus.

Digital when you need to execute to achieve that thank you.

Sure I will give a very quick answer and then I'll turn it over to Cynthia Williams, our new president of our Wizards and digital segment.

When we look at Wizards, we look at a combination of magic, both tabletop and digital and <unk> and the balance of the portfolio.

And in Q1 and throughout the rest of the year, we see strength across each of those and so that's kind of what we're looking at as we look at the mix, we see our tabletop revenues being pretty buoyant and actually growing above our expectations.

And we continue to invest heavily in digital now that said as Deb mentioned during her upfront we have a couple of headwinds on digital in terms of comps. We had a very successful release of arena mobile last year, which is kind of settled into a more of a mature kind of growth rate and we also had dark alliance.

Which was a new video game for DND that came out in late June last year were not going to be comping. Those so we think our digital growth is going to be a little bit more muted, but on balance when we look at the two <unk>.

Feel good about where the Wizard segment is going Cynthia I'll.

I'll turn it over to you on any further color commentary to add.

Yes, Thanks, Chris I think a few things I'd say is we still have six additional sets. We're gonna be releasing this year two of those will be in the second quarter, which will be our biggest quarter of the year.

Likely seen that we've announced the release of streets of Newco panel, which is a new golden age urban setting for magic players will identify with them play as one of the five.

Demon mob families and beyond streets of new companion Youll see us continue to expand the number of formats and reach new customer segments by expanding our universe is beyond initiatives.

Which brings IP from outside of the Magic and two the magic play system.

Excited about universe beyond given the success, we saw last summer with the Dnb things set adventures in the forgotten realm, which set a summer release record.

Deb also mentioned that we're taking our first price increase in quite a long time on magic, which will take effect on select carts that starting in July .

Yeah, and I'd, certainly say that.

<unk> being up 28% year over year and the best selling winter set of all time is quite a bullish signal for us and it should be noted last Winter's set was also the best selling winter set of all time, so its record upon record.

You had a second half of your question if possible could you could you re articulated for US. Yes. I was just wondering if you had a view on the long term mix of tabletop versus digital and weather.

<unk>.

You see digital becoming an increasing part of the mix what are they going to be the key drivers to get that mix to where you want it to be thank you.

Yeah. So I would say for this year, we see a fairly stable mix, if not table actually being a slightly higher mix than it was last year given some of the comps that we have and over the mid to long term, we see both robust growth in tabletop and digital with digital as a growing portion of the mix.

For our Wizards and digital segment over time, we don't have a specific goal around what that percentage mix should be.

Both segments are highly profitable gross margin segments, and so we like growth in both.

Excellent thanks, Chris Thanks Cynthia.

Our next question comes from the line of making Alexander with Jpmorgan. Please proceed with your questions.

Hi, Thanks very much.

Just a follow up on retail inventories I know you mentioned they are in good shape.

A bit in the U S are you comfortable with where they are at this point I know you talked about later arrival of spring product because that all been been set at this point and do you think Pos is still constrained at all by channel inventories.

Well I would say in Q1, we actually executed ahead of our plan and so we feel pretty good about where we're going into for Q2, Q3, and Q4, which is why we're maintaining our guidance. Despite some market headwinds that we and we think the whole industry is seeing.

We believe that the path to great market, great performance and great growth is through superior execution and great products and as Eric mentioned, we think that inventory is filled with great products and it's going to have a lot of fantastic story based execution, both from us and our partners at <unk>, one as well as our license partners.

Disney which has just a stacked lineup of entertainment in the second half of this year, Eric any further color to add yeah, Thanks, Chris and Megan I think it bears repeating that we have a tremendous amount of retail support for the second half of the year in support of our innovative new Hasbro products as Chris mentioned.

Including our action brands like Transformers, where we're launching our new transformer spark innovation later this year, we have a big Nerf Fest event planned for September nine my little Pony and Peppa pig launcher, starting lineup, which we announced yesterday, which we're all thrilled about bringing back to the pop culture consciousness for fans.

And in addition, we have industry, leading games portfolio that Chris noted.

The entertainment.

Bear repeating as well we have this big Star Wars launch coming up with Obi Wan Kenobi Disney plus as I mentioned prior Thor loving Thunder spiderman across despite adverse and we'll conduct forever all of which lead into 2023, where we have agreed sleep inclusive of Dungeons and Dragons Transformers rise of the bees. So.

Have our inventory buildup, we are ready for that and I think that's why we continue to know that we feel like our inventories are in good position.

That's really helpful and maybe just a quick one for Deb.

You saw some nice leverage in <unk> on royalties and advertising both came in a little bit better than where the street was modeling how should we think about those two lines for the full year.

I think from a <unk>.

Royalty standpoint, as Eric mentioned, we are excited about some things happening later in the year, but as we mix more to Hasbro on products, we talked about the growth in magic and DMD.

Terrific growth that we've seen and my little Pony.

The entertainment, we have we expect royalties to be slightly down year on year.

From an advertising standpoint, our advertising is focused on.

As always on the all important holiday season, however, different launches that we have during the year it was a bit higher earlier.

Earlier in 2021 due to the digital gaming launches that we talked about earlier in some of the entertainment.

One thing I would say for Q3, we had a higher advertising balanced because we also had the my little Pony movie launch. So certainly as we think about entertainment, we would expect that to be the toughest comp for that segment for the year Q3, because of that movie launch and advertising would have been higher in that quarter as well.

Overall, I think we expect advertising in line too.

Slightly down as a percent of revenue just based on mix for the year.

Awesome. Thank you.

Our next question comes from the line of drew Crum with Stifel. Please proceed with your questions.

Okay. Thanks.

Good morning.

Just want to go back to the margin question, maybe looking ahead to next year can you comment on your expectations there.

You recently suggested 16.

Plus was the goal given that you're targeting 16% this year.

Is there any change your view for next year, and then I'll follow up.

Well for this year, certainly we're targeting 16% and our goal is to always see that rise I'm going to let Deb take you through a little bit more where we see the midterm and long term outlook.

Sure no absolutely and as we said at year end.

We believe that we could get back to 16%, we get asked that question constantly and really with a focus on.

On focus and scale gaming, our multi generational play and entertainment.

We are very.

And looking at our cost in great detail.

We reiterated guidance that we'll get to that 16%. This year, we haven't set out a guidance, but we expect growth from that level.

In 2023 and beyond particularly when you look at what we have coming I mean, we have we're all very excited about dungeons and Dragons.

And the movie that we have coming early in the year Transformers rise of the beef and all of our partner Entertainment, that's coming as well.

In particular, we look at the D&B beyond.

Acquisition, which we're excited about we just said that would be accretive in 2023 and beyond is coming that acquisition gives us a great base and player base as we head into the movie, which will expand the number of people who are out there to play the NPV and so as we look at our total.

<unk> gaming portfolio and all the entertainment we have for 2023 and beyond we are very excited about what we have ahead of us.

Got it thanks, and then my follow up is there a <unk>.

Rates to Europe , just wanted to clarify you mentioned the potential risk of approximately 100 million from Russia, Our U C.

Adjusting that you could potentially shipped to Russia. Later this year I just want to understand that and has your view of.

Europe changed in any way. So this is excluding Russia any change in view in terms of outlook for the year. Thanks.

So we have Pos shipments into Russia, and we've been asked the size of our business in the past. So we wanted to quantify that for people.

And that is exactly what we're doing and Eric do you want to comment on the remainder of Europe .

Sure.

As we think about as I mentioned for Russia, specifically just to clarify again.

We've paused all shipments into Russia, that's a situation that we're all continuing to evaluate day by day and week by week with regards to the rest of Europe , Our European business is in good shape.

We were up in Pos for the quarter in Europe , specifically and we continue to look forward to that business continuing to grow and improve.

The only item I would add to that is the one thing I just would point out I mean, the we saw in our European business. This quarter was very strong absent FX.

And the one currency theres really two currencies that have significantly impacted us year on year. One is the euro so a stronger dollar against the Euro I think it's down about 9% from our average rate for last year.

And then the yen is the other one which is more significantly impacts our wizards of the coast business, but.

For just for Europe .

Look at exchange rates could have an impact for us, but I'm kind of constant currency basis. The business is doing very well.

Got it okay. Thanks.

Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your questions.

Thank you good morning, everyone. We wanted to ask two real quick ones on Wizards and maybe this is for Chris and Doug together, just thinking through the revenue sequencing. You mentioned Q2 is going to be the largest quarter Q3 has a difficult compare but help us think through just the cadence and then the same question on the cost and the investment side and the <unk>.

Margins incremental margins have been a bit lower than we would've expected. So just wanted to think through the timing of some of the investments and when you expect to realize the benefits of those thank you.

Yes, So Q1, we expect it to be a good quarter for Wizards and it turned out to be a better than expected good quarter for wizards, despite even moving.

Release into September .

Q2, we expect to be a biggest quarter that we've ever had because last Q2 was our biggest quarter as well so.

So we think that'll be comping favorably based on just the the number and quality of releases that we have Q3.

We also expect to be a significant quarter, but just based on comping year over year and the types of formats that we have releasing.

It likely will be flat to down and then Q4, we expect.

Another growth quarter for the business as well again, just based on the nature of the formats and type of releases that we have.

And then with respect to the investments as.

As we look over the past, we've invested over $1 billion and the Wizards of the coast and digital gaming business and its grown over 150%. We continue to make those long term investments we've talked about the investments being in talent, we have the opportunity and we're very excited to have Cynthia on the call with US today, who is a great new talent just one of many.

That we've been able to bring to wizards of the coast and we will continue to make those investments to drive that long term profitable growth.

Hey, Jeff if I could just for clarification as well the guidance does not include the D&B acquisition is that correct.

D&A beyond acquisition is with that is within our guidance.

As you recall they were a good partner of ours before so we did have licensing revenue from them.

However, as we look to the future we expect that to be an even greater benefit as we brought them into our group and we have that great talent that came with the acquisition as well.

We expect the acquisition to close in mid to late Q2, So our guidance would incorporate Q3 and Q4.

And then a lot of the integration meaningful integration would be back half loaded or into 2023.

Got it that's helpful. Thank you very much.

Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your questions.

Hi, Good morning, Thanks for taking my questions first can you give us some insight on what you learned in your due diligence process of the Dnb beyond acquisition and how you might utilize that to you.

Penetrate a broader part of the total addressable market with arena.

Well when we looked at the DMT beyond acquisition, we've been partners with.

We've been partnering with D&B beyond since they were founded back in 2000 late 2017 2018.

We were the exclusive licensor and they were a digital distributor for us. So we had a lot of unique insight into the value of that platform the growth of that platform and the nature of the user base on it and so we've been in discussions with fandom.

For many quarters in terms of bringing D&B beyond into the Wizards family.

And.

I think we had some great discussions I think we had a really mutually compelling deal.

We're both sides got a lot of value for the asset and we see that asset only accelerating in value under Wizards is ownership.

Having are having our biggest digital content platform paired with the actual content creation.

Team, there's a lot of potential synergies there is a lot of international growth vectors that we can do there is a lot of new exclusive content, we can do.

We've talked a lot about universe is beyond and magic, which is this concept of thinking about magic is a play system and bringing in outside brands are outside IP into that play system, we see potential for that with DMD as well and we think D&B beyond can be a primary hub for that and then we see a lot of e-commerce and direct opportunities.

Working in partnership with our Hasbro pulse team to have physical digital tie ins that are unique to the platform. So the combination of those business upside opportunities and then really getting this great tight connection with the 10 million customers, who play on that platform.

<unk>, which is the majority of customers, who actively play D&B, it's a fantastic learning opportunity for us and to your point very similar to what we've seen with arena, where we build this relationship with our customers. It's a great incremental business opportunity and a fantastic learning learning platform for us to.

Your stand how people were playing our games, what do they want to purchase and how can we make our products better and I think that's been an important part of our segmentation approach for magic over the last couple of years and I think it is going to become an increasingly important part of our D&A segmentation and product development approach as well and to cap all of that off.

In 2020 March of 2023, we're going to have a blockbuster film coming out with Dungeons and Dragons, we have a lot of streaming entertainment on tap that our <unk> team is planning.

Got a big consumer products push for 2023, and then we will add on top of that the 50th anniversary of Dungeons and Dragons and 2024, where that entertainment consumer products and gaming momentum will continue so we see a lot of growth vectors and a lot of lifts for DND.

With the Dnb beyond platform being central to that.

Okay. That's helpful. And then I'm sure you guys don't have any comment if there's anything you'd like to share about alpha box with us I'd be curious to hear it. Thanks.

No. We're here to comment on our earnings and we're very focused on that we will not be commenting on ultra Fox today.

Perfect. Thank you guys.

Our next question is coming from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.

Hey, guys. Good morning last quarter, you had talked about the expectation that the U S industry growth rate would slow or potentially even decline I'm wondering if you have any updated thoughts on sort of the full year outlook.

Yes.

Our view on the market as there is a lot of factors at play.

There is inflation, that's pinching consumers' pocketbooks, there's continued supply chain headwinds.

And Theres a lot of geopolitical uncertainty in the marketplace right now regardless of if the market goes up or down or is flat, we believe in focus and scale of execution.

Having great product innovation coupling that with fantastic storytelling, and just executing the heck out of that with our channel partners and our general licensing partners overall and so we.

We believe that we can grow in any market context, and that's what underlies our overall guidance for the year.

Okay, and then you gave us a little bit of detail just from an inventory sequencing perspective, and how that's going to shake out for the balance of the year, but do you think that we could actually see some change in the revenue recognition cadence is that potentially getting pulled forward just based on conversations that you're having with retailers or is it sort of similar from a cadence.

This perspective on a year over year basis.

I think the cadence from.

Selling into our retailers is very similar year over year, we did have as Eric mentioned earlier.

Certainly as we look at a direct import business that is coming directly to our retailers and its really their order pattern.

Got a bit more on the water as well as I think about that they may be pulling in a bit earlier, but we expect the cadence to be very similar to last year, we want to make sure we have product in our own held inventory. So we don't end up having out of stock issues and that will vary all important holiday season and around all this great Entertainment.

That we have coming this year.

Makes sense thanks, guys.

Our next question is from the line of Gerrick Johnson with BMO capital markets. Please proceed with your questions.

Hey, good morning, getting over cold So please bear with me.

I want to talk about your partner portfolio. Chris You mentioned that you are evaluating brand positioning.

The Disney Princess license Neutrals license or going to your primary competitor just wondering if thats.

A strategic decision to concentrate on your own IP.

Or did you bid on it and they Miss out and how should we think about your commitment to other partner licenses.

Well I don't think I'll comment on any specific license or any specific partner, but in general as we think about partners and we think about co brands, we see that as a continued important part of our mix, particularly as you think about our themes of games multi generational play and entertainment and direct to consumer as our big investment areas.

Yes.

Partner co brands will be an increasingly important part of that mix, but dedicated partner lines like our partner brands as we call them. Today. We will also continue to be important and we will be investing across the line on those in particular, we see a lot of great opportunities to bring those brands into what we term as play systems and those can be gaming.

Place systems or they can be collectible play systems, I think our nerf business and a monopoly business have been particularly adept at that historically I think the announced the starting lineup has is a huge platform for fantastic sports partnerships across the world I think our gaming portfolio, particularly magic and <unk>.

<unk> offer a lot of fantastic co branding relationships and we'll continue to lean into how we do that on action figures and collectibles across our lineup with Hasbro pulse being a real focus area for that and so we think when we think about that kind of perspective games multi generational play in direct we see a lot of growth opportunities.

<unk> for partners in our mix and importantly, we see a superior operating profit margin associated with that as well.

Okay, great. Thanks, and you mentioned price increases have already started.

It'd be early but what are you seeing in terms of elasticity of demand from the consumer.

Well, it's early they just started and we don't have a lot of that Pos data and as we spoke about now but really we're looking to take those price increases on the product just to cover our cost and we've been very thoughtful about what we increase we continue to try to.

Engineered product if we can take if we can change a few things to give better value to the consumer at the lower price. We continue to do that right now Eric we are facing and I'm sure you've heard about it paper.

Paper allocations and card stock allocation. So we're trying to acquire some of that ourselves. So we don't have an issue.

But as we look to have been very very thoughtful about taking price increases to not hurt the consumer.

And to not have the elasticity issues with that in all of our product lines. It's not just the CP group. It is also impacting our our wizards of the coast business through magic in DMD and duel Masters as well.

Sure Alright, thank you.

Yes.

Feel better Garik.

Thank you. Our final question today is from the line of <unk> Patel with <unk> capital markets. Please proceed with your questions.

Hey, guys. Thanks for the question.

I wanted to ask about the 16% operating margin target.

What's built into that target.

Improvement being driven by price measures outweighing cost headwinds or favorable shift in sales mix.

Well I think I'll open this up to.

Everyone on the call, but I'll give you a general thematic.

A lot of it is sales mix the type of products that were driving and again I'll go back to the themes of games multi generational play and entertainment and direct are things that we're definitely leaning into and we see superior operating profit margin outlooks for and then we also are evaluating our business.

Evaluating our structure and reevaluating, where we're making investments and we've seen some cost savings opportunities and reinvestment opportunities in higher margin businesses. As a result of that so when you take those two factors into play.

It gives us confidence in raising our outlook for our our adjusted operating profit margins for the year in terms of pricing.

Pricing is ultimately up to the retailer at point of sale.

And most of our pricing outlook really is to cover costs. Both in terms of freight as well as the bill of materials.

Got you that makes sense just a quick follow up so as you guys kind of shift towards becoming a more digitalized gaming oriented company, how does that kind of alter the historically recessionary resilient nature of Hasbro.

Springs another way.

As of the Cokes and entertainment, how resilient are those segments and an economic downturn compared to consumer products.

Well Wizards of the coast has grown for I think 12 out of the last 13 years and that growth spurt started in 2008 2009, So we see games as pretty economically resilient and generally speaking, we see the toy industry as being a proven.

Economically resilient industry to economic headwinds.

Got you Okay. That's helpful. Thank you.

Thanks.

Thank you at this time, we appreciate the question and answer session I'll now 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.

This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.