Q2 2023 Hasbro Inc Earnings Call
Good morning, welcome to the Hasbro second quarter 2023 earnings Conference call.
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At this time I'd like to turn the call over to Mr. Christian Levy Senior manager Investor Relations. Please go ahead.
Thank you and good morning, everyone. Joining me today are Chris Cox, Hasbro's, Chief Executive Officer, and Gina Getter Hasbro's Chief Financial Officer today, we will begin with Chris and Gina providing commentary on the company's performance then we will take your questions.
Our earnings release and presentation slides for today's call are posted on our Investor website.
The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments a reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.
Please note that whenever we discuss earnings per share or a P. S. We are referring to earnings per diluted share.
Before we begin I would like to remind you that during this call and the question and answer session that follows members of Hasbro management may make forward looking statements concerning management's expectations goals objectives and similar matters.
There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward looking statements.
These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q in today's press release and in our other public disclosures.
Today's guidance assumes we retained the noncore entertainment film and TV business Notwithstanding the agreement, we just entered into with Lionsgate to sell this business that transaction is subject to customary closing conditions and regulatory approvals.
Following closing of that transaction, we plan to update our guidance.
We undertake no obligation to update any forward looking statements made today to reflect events or circumstances occurring after the date of this call.
I would now like to introduce Chris Cox Chris.
Thanks, Christian and good morning.
Today I'm pleased to announce that Hasbro has entered into a definitive agreement to sell our E. One film and TV business to Lionsgate for approximately $500 million.
<unk> has cash of $375 million and the assumption of production financing loans.
This purchase will include a team of talented employees.
Content library of nearly 6500 titles.
Active productions for non Hasbro owned IP like the rookie yellow jackets, and naked and afraid franchises.
He runs Canadian film and television operations and the E. One unscripted business, which will include rights for producing Hasbro based shows like Plato squished.
We expect the transaction to complete by the end of 2023.
Hasbro will use the proceeds to retire a minimum of $400 million of floating rate debt by the end of the year and for other general corporate purposes.
Hasbro Entertainment will be the new marquee for ongoing entertainment efforts after the sale closes under the leadership of Olivier Dumont. The current head of E. One family brands.
Hasbro Entertainment his mission is to develop finance and produce entertainment based on the rich vault of Hasbro owned brands.
We'll bring to life, new original ideas designed to fuel all areas of Hasbro's blueprint, including toys publishing gaming license consumer products and location based entertainment.
We'll retain and focused team of creative development and business affairs experts to Shepherd, the 30, plus Hasbro based projects and development working with the best Studios and distribution platforms in Hollywood, including the ongoing development of the Transformers and G I Joe franchises.
They do DND magic, the gathering and our board game portfolio.
As part of the sale, we expect to move to an asset light model for future live action entertainment relying on licensing and partnerships with select co productions like our previously announced Transformers one animated film.
The DND live action television series, both with our partners at Paramount.
The sale of the one is another important milestone in our transformation at Hasbro last year, we articulated a plan to turnaround Hasbro driving growth and fewer bigger more profitable brands in.
Improving our consumer focus execution and innovation and building our operational excellence to fuel our bottom line and create sustainable performance.
At the highest level, it's a plan about re centering Hasbro on what has helped US create one of the most valuable portfolios of brands and toys and games the timeless power of play.
I am pleased to report in Q2, we've made substantial progress against these goals.
Hasbro delivered better than planned operating results for the second quarter, including revenue of $1 2 billion and adjusted operating profit of $137 million, which includes a $25 million charge. We took for the DMD honor among thieves feature film.
The movie is among the best reviewed films of 2023 and has performed well in streaming but the box office didn't meet expectations.
POS in the quarter was at or ahead of market and when factoring exited businesses was ahead of market.
Through the first half Peppa pig Transformers play Doh, DND magic, the gathering and Hasbro games have all grown point of sale.
According to <unk>, the Jeannine global toy and game market declined 7% through year to date June we gained share among the jeannine in three of our five focus categories.
Action figures behind growth in Transformers.
Arts and craft with play Doh and in games behind monopoly.
Our direct fan focused business Hasbro pulse increased point of sale by 54% in the quarter.
Transformers rise of the beef is one of the top box office performance of the year and has driven an 83% improvement in Transformers Pos since its release.
Magic the gathering launched what we believe will be the biggest release in our history with Lord of the rings tales of Middle Earth.
T&D generated nearly 2 million new registered users on D&A beyond through the first half of the year.
Our licensing business continues to grow including the release of one of the biggest mobile games in the last five years monopoly go from our partners at scope Lee, which since its debut has been number one in downloads in 87 countries on the Apple App store and 49 countries on Google play.
Our operational excellence efforts have driven over $84 million of cost savings year to date money. We are using to both fund inventory reduction in clearance efforts and key growth initiatives like direct data analytics and digital and.
And speaking of inventory our sales teams have been busy reducing our owned and operated inventory and our toys and games segment by 24% year over year, and our retail inventory by 16%.
While headwinds and uncertainty continue to exist in the toy and game category as a whole.
Better than planned start to the year, so far for Hasbro sets us up for success in the back half.
Gino will share more in her remarks, but at a high level, we're maintaining our guidance for our consumer products segment and raising guidance for Wizards of the coast and digital games segment.
Due to the writers and actors strikes and underperformance of D&B honor among thieves, we are lowering our guidance for entertainment.
Magic is on track for a record Q3 with favorable set release timing Boeing results.
<unk> should have a strong second half powered by excitement for the upcoming PC and console releases of Baldur's gate three from our partners at Larian.
Furby is already a hot seller with initial allocation selling out in under 72 hours.
Most of our toy and game innovations have only just begun to hit shelves, including the new preschool line for Lucasfilm Star Wars Young Jedi Adventures, our new game Twister Air New Blaster innovation with Nerf double punch and hot New game crossovers like Barbie monopoly.
And with much improved inventory levels and the bulk of our inventory management efforts phasing down in Q3, we see an opportunity for meaningful margin improvement as the year progresses, particularly as we go into the fourth quarter.
Net we exited our first half with a solid quarter and positive operating indicators for our second half in our core segments. Our inventories are greatly improved we're growing share in key brands and we're making the improvements necessary to our supply chain and cost structure to see sustained operating margin growth.
Over the mid and long term.
We also are making the necessary choices to rightsize our entertainment footprint.
Strong brands with quality innovation and execution will be more important than ever and are more unpredictable environment.
That's one of the reasons I am excited by the potential of our new leadership team, who are already bringing a more disciplined approach to our operations and a palpable step up in product innovation, we continue to move up into the right on our change curve evolving our cost savings initiatives to a continuous and relentless improvement model our supply.
<unk> is becoming a competitive advantage with costs back down to near pre pandemic levels and positioned favorably versus competition.
We are seeing momentum with key retailers, our digital portfolio is tighter and making rapid strides and we are reinventing our approach to data analytics product development and long term innovation paired.
Paired with our approach to focused entertainment through partners that both inspires and connects to a tight business plan an economic engine, we are positioned well for the medium to long term I.
I'd now like to turn over the call to <unk>, our Chief Financial Officer Gina.
Thanks, Chris and good morning, everyone.
As Chris laid out we delivered a solid quarter with revenue coming in ahead of expectations and proof points emerging across several of our transformation initiatives.
We also announced the sale of the <unk> film and TV business, a step that simplifies our strategy and our focus on toys and games.
As we look to the quarter total Hasbro revenue of $1 $2 billion was down 10% versus last year as we continue to see normalization of inventory lap the exit of certain licensees and markets within the consumer products segment, and we had fewer planned releases for wizards of the coast.
The Entertainment segment revenue was down 3%, primarily due to the exit of noncore businesses in 2022.
Excluding these divestitures the film and television and family brands businesses were up 5% versus prior year.
Adjusted operating profit of $137 million was down 43% versus last year in.
In addition to the revenue decline, we incurred higher inventory closeout costs as we continue to rightsize inventory back to healthier levels.
Profit was also negatively impacted by an impairment taken on <unk> and Dragons honor among thieves as a result of box office results coming in below expectations.
Adjusted earnings per share of <unk> 49 was 57% below last year due to the factors noted and includes unfavorable impacts related to taxes and interest expense.
The adjusted results exclude the impact of the $296 million founding TV impairment.
During the second quarter, the ongoing writer and actor strikes have had minimal impact on our results. However, as the strikes continue our 2023 outlook for entertainment has come down.
The adjusted results also exclude incremental costs attributed to the operational excellence program and amortization associated with the <unk> acquisition.
Looking at year to date results revenue of $2 $2 billion was down 12% below last year driven by declines in the consumer products segment and planned timing shifts across entertainment.
<unk> segment revenue is down slightly versus prior year as a result of launch timing and having one fewer release in the front half of this year compared to 2022.
Adjusted operating profit of $184 million was down 52% versus last year as we continued to incur higher costs associated with clearing inventory.
As well as absorb the impact from the Dnb film impairment.
Year to date adjusted EPS is <unk> 49, driven by the factors noted above.
Looking at our brand performance, our franchise brands were down 5% in the quarter and year to date.
These brands represent our biggest and most profitable brands and are just over 60% of our revenue.
Within franchise brands, we delivered significant Q2 revenue growth in Transformers, and Dungeons and Dragons driven by the uplift from the movie releases.
Additionally, <unk> grew as a result of growth in entertainment and digital gaming.
Our partner brand revenue is down 21% for the quarter more than 60% of the loss as a result of the licenses we exited at the end of last year.
Sales at Hasbro products for Spiderman, My Marvel are up with an over 100% increase in Pos since the release of spider-man across the Spider verse and further supported by the preschool series and new product releases.
Partner brands continue to play a vital role in our portfolio for kids fans and retailers around the world.
Across our portfolio brands and the declines are driven by the re prioritization of investment to support the franchise brands as well as discontinuance is across the retail footprint.
However, one of our relaunched portfolio brands Furby is off to a promising start.
Looking at operating margin second quarter adjusted operating margin of 11, 3% was 670 basis points below last year.
The single biggest impact in the quarter is the volume decline in mix of business.
Through the first half of the year, we prioritize cleaning up the portfolio and reducing inventory levels across the CPE business, resulting in higher than normal closeout costs.
Also as planned we had one less magic release within the Wizard segment, which created an unfavorable mix and fixed cost absorption impact.
Additionally, as we shifted to leverage licensed IP within Wizards, we incurred higher royalty expense, resulting in a one seven margin point loss.
Momentum is accelerating and our cost savings program and year to date, we have accumulated $32 million of gross cost savings within supply chain and an additional $52 million of gross cost savings within operating expense the.
The combined $84 million of gross savings are more than offsetting cost inflation and have allowed us to reinvest back into the business to support higher levels of marketing spend fund our inventory reduction efforts and fewer key strategic initiatives required to deliver our long term targets.
Cumulatively since we began the savings program in 2022, we have reduced our cost base and delivered gross savings of $104 million.
And we remain on track to deliver our in year savings goal of $150 million.
And finally to round out the margin drivers, we had a negative 280 basis point impact and other items, which includes the $25 million impairment on the D&B film.
As Chris mentioned, we made significant progress in lowering inventory levels, we reduced total owned inventory, 16% versus prior year, primarily driven by a 24% reduction in the consumer products segment inventory.
From a retail inventory perspective their inventory was also down 16% in the lion's share of the elections are behind us.
Looking more closely at segment performance within the quarter Wizards of the coast and digital gaming segment revenue was down 11%.
Overall tabletop gaming revenue, which includes both magic in D&B declined 17% given release timing.
The decline in tabletop was partially offset by 33% growth in digital gaming, including the addition of D&B beyond which we acquired last may and growth in arena.
Segment margins declined in line with expectations, driven by higher royalty expense and a step up in investment to support future brand growth and product development.
Moving to the consumer products segment total <unk> revenue was down 11% in the quarter driven by declines in Pos trends and the focus on clearing inventory.
Looking at the key drivers for the quarter five points of the decline was driven by planned license accents.
Another three points of decline was driven by toy and game volume given the broad category trends and retailers, taking a more focused approach with their inventories.
Four points of decline came from pricing and mix driven by additional closeout costs as we worked through higher inventory levels.
And finally, we achieved one point of growth from licensed consumer products as we reenergized focus on leveraging our IP across categories.
In the quarter. The entertainment segment declined 3%, primarily due to business exits late last year.
This was partially offset by 3% growth in film and television behind scripted television growth as well as film revenue from Dungeons and Dragons honor among thieves.
In addition family brands revenue increased 14% driven by content sales, including for Peppa pig.
The adjusted operating loss for the second quarter includes the 25 million dollar dungeon and Dragon honor among thieves production asset impairment charge.
Today, we announced the sale of our <unk> film and TV business to Lionsgate.
Overall, the business that we're selling represented approximately 85% of the revenue and just over 60% of the adjusted operating profit of the total entertainment segment last year.
Wrapping up with Hasbro, Inc. We delivered $119 million of operating cash year to date, which is $29 million behind last year, driven by lower receivables coming out of 2022.
Through June we repaid $91 million of long term debt and spent $112 million on capital expenditures led by investments in Wizards of the coast for future digital gaming releases.
And we've returned $194 million of capital to our shareholders via dividends.
In the quarter, we booked at 26, 3% underlying tax rate, which compares to 21, 6% in Q2 of last year.
The higher rate is driven by our entertainment business losses, and higher withholding taxes, plus a shift in the geographical mix of income.
Additionally, we had $4 $8 million of additional interest expense due to higher interest rates.
Turning to our 2023 guidance and the outlook across the consumer products segment remains on track and Wizards of the coast segment is better than original expectations.
For the Entertainment segment, we are updating guidance to reflect the reality of the writers and actors strikes on our E. One film and TV business.
This updated guidance assumes film and television is included for the entire fiscal year and we will update once the close is complete.
Based on this we now expect total Hasbro, Inc revenue down 3% to 6%.
As we look at the three primary segments. This guidance continues to assume that the CPE business will be down mid single digits, which is consistent with our initial outlook.
We are planning for Pos trends to continue stabilizing in the back half of the year.
This coupled with stronger execution will result in modest back half revenue growth.
Well as assumes that the cost to clear inventory reduces in the back half of the year.
Despite the headwind from the Entertainment segment, we continue to expect 2023, adjusted EBITDA to be relatively flat to prior year.
And based on our current forecast, we continue to expect to generate $600 million to $700 million of operating cash flow.
From a capital allocation standpoint, our priorities are to invest behind the business pay.
Pay down debt and return excess cash to shareholders via dividends.
We expect to use the cash generated from the sale of the E. One film and television to pay down debt, which will accelerate the reduction of our overall debt by a minimum of $400 million and advance our progress towards achieving our two and a half times long term leverage target.
In terms of earnings per share disc.
Despite adjusted EBITDA guidance remaining unchanged.
And TV business has created additional volatility impacting below the line items, including interest expense and tax rate.
Through the second quarter film and television has created an approximate 50 cent negative impact on earnings per share and based on our updated outlook. We anticipate an additional 10 to 20 cents negative impact on the full year.
Given this as well as the divestiture we are withdrawing total Hasbro Inc earnings per share guidance for the year and we'll revisit reintroducing the metric once we have closed the transaction.
Our remaining segments are continuing to grow their EPS contribution versus original expectations and versus last year behind strong lizards growth and cost savings momentum.
I am three months in at Hasbro and everyday I am more excited about the opportunities ahead for this amazing company.
We have a lot of work ahead of us to deliver the year, but we are making progress and gaining momentum with today's announcement of the sale of the one of film and TV business being the latest milestone.
And with that I'll turn it back over to Chris to wrap up.
Thanks Gena.
While our overall guidance is down for the year.
And takes are contained in the segment that we have found a better home for and accompany adept at driving value.
Our core business is making tangible progress and while the next six months will present entertainment related headwinds, we will emerge a more focused more profitable.
And more predictable business.
It will enable us to continue to fund our category, leading dividend improve our balance sheet and drive value for our shareholders partners and fans of all ages.
We'll now pause to take questions.
Thank you.
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Thank you and our first question is from the line of Andrew Aircrafts with Jefferies. Please proceed with your question.
Hey, great. Thank you.
Good luck joining the gene is it's great to have you on the onboard.
The increase in guidance around watching.
Could you go through the puts and takes there is that driven largely by magic.
Better expectations on Baldur's gate launch.
Launches today or monopoly go because you could go through some of the changes there.
Yes, sure things and thanks, Andrew.
At a high level.
I'd say, it's a bullishness around magic and good progress with our digital licensing portfolio Baldur's Gate monopoly go included.
Turn it over to Gina.
For more details.
Good morning, Andrew.
Thanks for the welcome I don't know that I have additional color to add I do think that our performance in the first part of the year overall or what's in the digital segment has been on our expectation we're seeing some good progress with with Lord of the rings. We're really excited about that launch now that came out in June so the bulk of the revenue game will be a pick up here in Q3 and as Chris.
The launches that we've got scheduled for the back half of the year, we're feeling really good about.
Yes, I should note that Lord of the rings is not a it's not a standard set we think it's been more of an evergreen set that will have a longer tail.
Or in your expectation is that within within seven months of it releasing it'll be the number one set of all time for Magic Institute crossed $200 million before the end of the calendar year.
The last segment did that was monitor horizons too and it took about two years for it to do that.
Got it that's super helpful and great color I appreciate it just kind of thinking about.
The digital strategy going forward or that sits within the coast could you just give us an update.
On your thoughts there. He wants gone now we can kind of start focusing on on the video games and segments.
You have some internal studio so could you just kind of give us an update on where everything stands and what the.
Primary drivers going to be there you know one year out three years out maybe.
Yeah at a high.
High level I'd say, it's a balanced strategy between working with license partners.
Which is very high profit for us and we've been fortunate to have some fantastic partners like Scopoline Larian, who we think are making knock it out of the park games.
And then patiently investing.
Milestone basis, with our own internal studio development and publishing capability development.
When you look at a game like Baldur's gate three.
I view that as a block by the equivalent of a blockbuster movie release, Jeff.
Do you have to put in perspective, we think Baldur's gate three has the potential to be a game of the year contender.
And just to kind of put and financial perspective.
We will likely make more money on Baldur's gate. Three then we have made on all of our film licensing for the last five to 10 years combined.
So it's not only a great brand when it's a great financial win for us.
And I think it's a heavy focus of the company moving forward.
We purposely stated in this release that we're a leading toy and game company.
We are squarely focused on that and I would say the emphasis is on the gaming part of that.
Got it that's really helpful. I appreciate it thanks, Chris.
No worries.
Our next question is from the line of our P&L Kocharyan with UBS. Please proceed with your question.
Hi, good morning, and thank you for the question.
I was wondering if you could help us bridge margin guidance down about 25 basis points at the midpoint, but then what you want to be after its actually up and what you want to be down is actually down year of high margin gaming revenue outlook up but lower margin Entertainment segment revenue actually lower and I know you mentioned margin for Wizard is actually unchanged.
Or better and that incremental headwind from impairment charges. I guess is there anything else that you would point out in bridging that.
Our opinions to mine. This is gena I know I think you've got it square on our margin guide down you know we were a little bit more bullish starting the year at 30 to 60 Bucks depths and now we're saying you know 2020 to 50 and that is really all about the impairment that we took within D&B and what is happening within the film and TV segment itself.
The broader entertainment itself when we look at our core business, our toys business our games business that margin profile is healthy and actually a little bit better than what we expected it to be.
Seeing some nice momentum in our cost savings initiatives, and where you can see that in the margin bridges that we provided you can see that starting to pull through the P&L and that really starts to accelerate as we look to the back half of the year. So the color on the margin all about entertainment all about what happened with the Dnb impairment.
Our core businesses that we are keeping our are doing quite well.
That's very helpful.
And I know you aren't giving EPS guidance at this point, but you mentioned 60 cents of TV film EPS headwind and then additional 10 to 20 cents of headwinds could you maybe go over high level, you know just basic math I'm calculating close to well known.
No more than 25 operating profit that you're giving up with the sale and then that's obviously, partially offset by run rate interest expense cost savings down the road, maybe if you could kind of point out whether that thinking is correct high level and then if you could break down that 50 cent a little bit more.
Sure.
Well I will try my best to answer that last question. So when you are guidance that we originally had given was 445 to $4 55, and what we communicated was that to date. So through the first six months, we've had a 50 cent headwind by the entertainment segment.
And what we anticipate in the back half of the year is that is going to be another 20. So all in our earnings per share guidance, if we weren't continuing to give guidance would come down.
Bye Bye 70 cents all in the film and television all in the Entertainment segment again, our core business toy and game and.
The digital part of our business that is actually performing ahead of expectation and there are some puts and takes within within tax and interest expense. So that that kind of net net against that but the call down in earnings per share all in entertainment.
Super helpful. Thank you.
Yep.
Our next question is from the line of Jamie Katz with Morningstar. Please proceed with your questions.
Hey, Good morning, I know you guys are not really guiding on the sale of one but I'm, hoping that you can frame the size of what will be left after in these <unk>.
Assets are sold will be 10%.
Of the entertainment business and then you know with that scale is there any reason that cost of goods sold and program.
Production costs wouldn't go back closer to 2019 levels, just as we think through sort of the math.
How that how that segment has impacted the overall P&L. Thanks.
Sure Jamie.
In the slide deck that we provided we put a chart in there to try to Dimensionalize. The total entertainment segment and then the piece of the business that is being divested so about 85% of the segment is going with the sale in terms of its revenue in.
And the balance of 15% as is staying with us and it will be embedded in the new kind of new of entertainment and of how we're approaching it moving forward.
In terms of how to think about production costs I'd have to go back to where we were in 2019 to see precisely it.
We're up down or sideways from that but yes, you can assume that the <unk> business was spending you know 500 and $600 million of in production dollars that that will we will not be so they will not be spending that or we will not be spending that amount of money moving forward.
We'll be up versus 2019 simply because.
We continue to invest in some co productions with Paramount like we're doing with transfer.
Transformers, one which is the new animated film that'll come out next year and then we're also doing.
Production for things like a D&B television series now that is a cost plus model that Paramount is fully funding. So we get the production margin from that plus like a licensing fee for being an IP owner on something like that and then also we're retaining the <unk> family brands portion of the purchase.
Which is a.
A big value portion of the purchase with big brands like Peppa pig, and so thats incremental to 2019 as well, but as Gina states, it's far lower than the run rate we've been on for the last several years.
Right and then I think there was some.
Prepared remarks, I said, there was momentum with key retailers. So any further color on that would be helpful. Thanks.
Yes, we won't name them by name, but certainly it's nice to have clean inventories and inventories reduced.
If you look at like our top three or four retailers I feel pretty good about where we're going with with with them. Some of them are taking still a pretty aggressive stance on inventory management and so we're working with them.
But others are really leaning in and seeing an opportunity to build share and have great kind of on shelf.
Availability.
So and E Commerce continues to gallop forward and consume share in the category.
We just had a great Amazon Prime day.
We have had really good discussions with our major retailers around top toys for the holiday.
So I'm cautiously optimistic that you're going to see Hasbro gained share in terms of what our key retailers announced and we're already starting to talk them about 2024 and 2025.
And with our new management team I think we've tightened up the innovation muscle quite a bit.
And we will have some momentum going into that year, particularly as we see what folks like take Hilton who is our new leader of our toy team has up the sleeve in terms of new product innovation.
Thank you very helpful.
Our next question is from the line of Eric Handler with Roth I'm. Kim. Please proceed with your question.
Good morning.
Thanks for the question.
I believe you said that Hasbro pulse.
POS was up 54% I Wonder if you could talk a little bit about that business.
And size it and talk about some of the growth plans for that.
Yes, sure and good morning, Eric.
I stuck.
So Hasbro pulse as we talked about back in October at our Investor day direct to consumer is important to us.
It's a great way for us to learn from our consumers see how they shop see what they want.
And our initial efforts are very focused on kind of like that dedicated fans segment, both what we do for secret layer.
And Thats performed Super well.
With.
Business Theres a lot of Star Wars that go through there there's a lot of Marvel Theres lot of Super High end <unk>.
<unk> transforming grim lock that we just recently announced.
Opportunity for us to sell high end items I would scope the business right now.
And I think we see significant upside for that.
Call It <unk>.
Potentially a tam or Tam opportunity for double maybe two five times that over the next couple of years and as we start to build critical mass and capabilities in that segment I think youll also see us evolve our perspective on what we can do there.
We'll start with fan focus and then we'll evolve that and hopefully start going out in concentric circles overtime.
Respecting the fact that we have a lot of great third party retail relationships.
And making sure that we model kind of the mix of products appropriately.
Great that's helpful and also.
I Wonder if you could just talk about retailer sentiment.
As you go.
As orders start coming in for the holiday season, and how do you think retailers.
Our feeling right now as they think about.
The last month and a half of the year.
Well I think it depends on the retailer.
We have a couple of retailers, who are really leaning in and see a share building opportunity.
We are a retailer or two who are taking a cautious view towards consumer discretionary as a whole and aggressively managing their inventory and I think a little bit of an over under on our guidance moving forward and why we're not raising our guidance and consumer products is just making sure that we understand where those retailers are ultimately going to position I definitely.
In Q4 is going to be a more traditional Q4 kind of a 2018 2019, it's going to be very.
<unk> ended the quarter focused.
I think black Friday is going to be important I think the lead up and the drumbeat into Chris.
Christmas is going to be important and then also I think.
Array of bullishness that we have in the quarter as we have basically an extra couple of days of shopping prior to Christmas and then for our fiscal year, we have an extra week because we ended our fiscal year last year I think on December 26. So we have a full extra week of potential shopping, which is probably about $60 million to $70 million of incremental Pos.
Our next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.
Hey, guys I just wanted to come back to Wizards, and if we think back to Investor day last fall and I totally recognize a lot of this change, but it felt like DMT was a big piece of the plans to double the Wizards business and if we just think about the film impairments and the softer box office does that put.
Those targets at risk or is there enough traction and momentum in some other areas to offset that.
No.
Good morning, Brad.
Say the.
The underlying thesis of our <unk> business was all about digital.
Digital allows us to do is to kind of take that tabletop roleplaying game Tam that we have in the world which is <unk>.
We'll be about 80 million people, who participate in those hobbies and frequent that kind of channel.
Take our brand like <unk> to 800 million people, who play role playing games and so I think Baldur's gate. Three is just the first of several new digital initiatives youre going to see from us that spanned how we can trying to transform tabletop roleplaying gaming to an even richer kind of theater of the mind experience too.
More traditional video games from Us and partners like Larian.
Makes sense and then on the supply chain side. It feels like you guys have really emphasized that for the past few quarters. I'm wondering if you could just frame sort of where you see the supply chain today versus where you think it could be and maybe what that ultimately means for the consumer products marching over the next few years.
Good morning, Fred I would say, we're making really good progress within the supply chain and I know that the company has talked about that in previous quarters.
This quarters, especially you can see the benefits starting to flow through within logistics. So a lot of the focus from the team has been around our logistics network, how we're planning for inventory.
And kind of our order patterns working with our retailers all around inventory and order management and you can start to see that really play through.
Where it will be there as well as working with all of our partners and getting a little bit closer to the operation with all of our manufacturers.
That that would provide another opportunity for us more so in 2024, then in 2023.
Makes sense, thanks, a lot.
Okay.
Hey, good morning, and thanks for taking my questions I wanted I was hoping to follow up on some of the numbers that were given a earlier in the year regarding some of the headwinds you're facing.
Excess retail inventory. So I was curious apologies if I missed it but how much of that had to be worked through so.
So far this year.
Yeah. So I don't have a specific number to quantify the $135 million, but our retailer inventory is down 16% year over year.
Think we feel like our retailer inventory is at a pretty productive level.
I would say that through the balance of the year, our retailer inventory will end the year down, but probably not 16% down our own inventory.
Still are a little bit elevated versus what we would typically be but we are down quite a bit versus 2021 about 24% or so and I think we will end the year at around that level both for consumer products.
And for Wizards of the coast.
And that will get us to something thats more consistent to like what we ended at 2021 and.
Within range of a more traditional level.
Got it that's helpful. Another figure I think it was tied to that but it was.
You had said that there's $300 million of headwinds I think it was from exited licenses FX and then also that inventory.
The expectation was about you'd see about 60% of that headwind in the first half. So I was curious if that so far.
To realize as you had expected.
Yeah.
If you look at our Pos for the first half of the year.
We are down.
High single digits in Pos, but when you take out those exited licenses were down low single digits.
And as we get into the back half of the year impact of those licenses lessen because we were our sell in was a little heavier as a percentage in the front half of the year and as we were getting ready to kind of exit them and our retailers, we're kind of taking their inventory positions down to prepare for other master toy licenses to enter.
It just makes it just makes sense that way.
And Jason just to add some color on the excellent new number I would say of that $300 million, we're about halfway through that with the balance to come in the back half.
That's great. Thank you.
Thank you. Our next question is from the line of Steven Lasik with Goldman Sachs. Please proceed with your question.
Okay, great. Thank you maybe Gina with this being your first earnings call since getting settled and I was wondering if you could maybe talk a little bit more about your framework for thinking through the leverage capital allocation on the go forward, especially with you on how the.
Cheryl do you want now behind Us in particular would be curious if you see any incremental opportunities on the investment or capital returns front over there.
Next few years. Thank you.
Sure morning, Steven Yeah, the sale of the one absolutely helps us in terms of getting getting down to our leverage target. So we will use the majority of the proceeds from that sale to pay down our floating rate debt and start getting our balance sheet in a healthier position as we move forward as we think about capital allocation first and foremost our.
He is to invest back into the business.
Second priority is to keep cleaning up that balance sheet and getting that leverage leverage ratio down and then the third piece is is to continue giving money back to our shareholders. Our primary vehicle has been dividends will be paid out a dividend to the first part of the year, we expect to continue paying out dividends in the back half of the year as we turn the corner into 'twenty four and beyond I think we will we will.
Most likely add share repurchases back into the mix of capital allocation, but for now and in the near term here. Our first three levers are invest pay down debt.
And give that money to pay dividends.
Got it and then for.
Chris I'm not sure if you've given this metric before but since you mentioned it around borders gains I was wondering if you could remind us how much money you've made in film licensing over the last five or 10 years.
Any approximate sizing would be helpful.
We would have to get back to you, Steve and I don't have that off the top of my head.
It's not tremendous.
Understood. Thank you.
Thank you at this time, we've reached the end of the question and answer session I'll turn the call back over to Christian for closing remarks.
Thank you 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 Hasbro management will be participating in the Goldman Sachs <unk> and technology Conference on September 6th Hope to see you there.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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