Q2 2024 Hasbro Inc Earnings Call

July 25, 2024

[inaudible]

Unknown Executive: Good morning, and welcome to Hasbro's second quarter 2024 earnings conference call. At this time, all parties will be in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. This conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the call over to Kern Kapoor, Senior Vice President of University Relations.

Unknown Executive, Christian Cocks, Debbie Hancock

Speaker Change: Good morning and welcome to Hasbro's second quarter 2024 earnings conference call.

Speaker Change: At this time, all parties will be in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the call over to Karan Kapoor, Senior Vice President of Diversity Relations. Please go ahead.

Kern Kapoor: Thank you, and good morning, everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer, and Gina Goetter, 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 adjusted measures. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.

Karan Kapoor: Thank you, and good morning everyone.

Speaker Change: Joining me today are Chris Cox, Hasbro's Chief Executive Officer, and Gina Goetter, Hasbro's Chief Financial Officer.

Speaker Change: Today, we will begin with Chris and Gina providing commentary on the company's performance. Then we will take your questions.

Speaker Change: Our earnings release and presentation slides for today's call are posted on our investor website.

Speaker Change: The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures.

Speaker Change: Our call today will discuss certain adjusted measures, which exclude these non-gap adjustments.

Speaker Change: A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.

Speaker Change: Please note that whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share.

Kern Kapoor: Please note that whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share. Before we begin, I would like to remind you that, during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives, and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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 other public disclosures.

Kern Kapoor: 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 other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I would now like to introduce Chris Cocks.

Speaker Change: 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 Cocks. Chris?

Chris Cocks: Thanks, Kern, and good morning. Q2 was another good quarter. We saw strength in gaming and digital licensing and landed where we expected within consumer products, while increasing operating margin and maintaining healthy inventory. It's nice to come into calls like this and not only deliver what we said, but to start making it a habit.

Chris Cocks: Thanks, Kern, and good morning.

Chris Cocks: Q2 is another good quarter. We saw strength in gaming and digital licensing, and landed where we expected within consumer products, while increasing operating margin and maintaining healthy inventory. It's nice to come into college like this and not only deliver what we said, but to start making it a habit.

Chris Cocks: Across games, IP, and toys, Hasbro is building a more profitable, agile, and operationally excellent company, one dedicated to delighting fans of all ages through the magic of play. Our licensing and IP business continues to be a differentiator for us. In digital, we're seeing mega hits like Monopoly Go demonstrate staying power. We have over 35 entertainment projects in development, and our team continues to drive our IP within consumer products through partners spanning the globe in multiple categories.

Chris Cocks: Across games, IP, and toys, Hasbro is emerging a more profitable, agile, and operationally excellent company. One dedicated to delighting fans of all ages through the magic of play.

Chris Cocks: Our licensing and IP business continues to be a differentiator for us.

Chris Cocks: In digital, we're seeing mega-hits like Monopoly Go demonstrate saying power. We have over 35 entertainment projects in development, and our team continues to drive our IP within consumer products through partners spanning the globe in multiple categories.

Chris Cocks: And as we look at the business of play, it's clear that digital is here to stay and a bigger factor than ever in how successful toy and game companies will grow and strengthen their brands. We're years ahead of our peers, having already spent hundreds of billions of dollars building out our own studio capacity and expanding our brands through digital partnerships. Games like Baldur's Gate 3 show us what the future looks like.

Speaker Change: We're years ahead of our peers, having already spent hundreds of billions of dollars building out our own studio capacity and expanding our brand through digital partnerships. Games like Baldur's Gate 3 show us what the future looks like.

Chris Cocks: And while we're still in the middle of the ballgame on our turnaround efforts in toys, we're seeing signs our innovation is working, particularly where we have a big head start versus the competition. Many companies in the toy and games industry are waking up to the power of fans and the importance of quote unquote, kiddos. Hasbro has long appreciated this audience, driving over 60% of our revenue from consumers 13 and older. And we'll continue to lean in here as we think about innovation across our product portfolio. Looking at the business with the first half of the year in the books, our team delivered, and we're raising our full year guidance as a result.

Speaker Change: Many companies in the toy and games industry are waking up to the power of fans and the importance of quote-unquote kidults.

Speaker Change: Hasbro has long appreciated this audience, driving over 60% of our revenue from consumers 13 and older, and will continue to lean in here as we think about innovation across our product portfolio.

Chris Cocks: Looking at the business with the first half of the year in the books, our team delivered and we're raising our full year guidance as a result.

Chris Cocks: Gina will share more details shortly, and I'll first offer some business highlights across gaming, licensing, and toys. We had another solid quarter from Magic the Gathering on the back of this year's blockbuster set release, Modern Horizons 3. Facing a high bar with last year's Lord of the Rings: Universe is Beyond set, Modern Horizons 3 had a strong start, becoming the fastest selling set in Magic's history.

Chris Cocks: Gina will share more details shortly, and I'll first offer some business highlights across gaming, licensing, and toys.

Chris Cocks: We had another solid quarter from Magic the Gathering on the back of this year's blockbuster set release, Modern Horizons 3.

Gina Goetter: Facing a high bar with last year's Lord of the Rings Universe is Beyond set, Modern Horizons 3 has had a strong start, becoming the fastest selling set in Magic's history.

Chris Cocks: While we expect a tougher comp in the back half for Magic, following the strong first half, and as we lap a greater number of releases from last year, we're seeing good early interest in our first 10-pull set, Bloomboro, releasing next week. And then, in 2025, we anticipate a return to growth for magic driven by two universes beyond sets for Final Fantasy and Marvel that fans are already eagerly anticipating. Within D&D, we're seeing solid pre-orders for the 2024 Core Rules book for the Revised and Expanded 5th Edition.

Chris Cocks: Well, we expect a tougher comp in the back half for Magic following the strong first half, and as we lap a greater number of releases last year, we're seeing good early interest in our first ten-pull set, Bloomboro, releasing next week.

Chris Cocks: And then in 2025, we anticipate a return to growth for magic driven by two universes beyond sets for Final Fantasy and Marvel that fans are already eagerly anticipating.

Chris Cocks: Within D&D, we're seeing solid pre-orders for the 2024 Core Rules book for the Revised and Expanded 5th Edition.

Chris Cocks: D&D also shows how we're increasing digitization across our portfolio. Digital revenue already accounts for over half of the mix due to the success of D&D Beyond. Next week at Gen Con, fans can expect to see more of our 3D role-playing sandbox experience built on Unreal Engine 5, bringing Flayer's favorite franchises to life across PC, console, and mobile.

Chris Cocks: D&D also shows how we're increasing digitization across our portfolio.

Chris Cocks: Digital revenue already accounts for over half of the mix due to the success of D&D Beyond.

Chris Cocks: Next week at Gen Con, fans can expect to see more of our 3D role-playing sandbox experience built on Unreal Engine 5, bringing players' favorite franchises to life across PC, console, and mobile.

Chris Cocks: We look forward to getting it in gamers' hands later this year. D&D Beyond already represents our largest direct consumer platform with 18 million registered users. Along with Pulse, our destination for exclusive collectibles across fan-favorite brands like G.I. Joe and Star Wars, we see an opportunity to unlock more value across our Hasbro DirectBit platform. Licensing was another standout in the quarter. Momentum and Monopoly Go from our partners at Scopely continued into Q2, accelerating our revenue recognition beyond the minimum guarantees and driving healthy upside to both revenue and operating profits. Since launch, the game has grossed over $3 billion in revenue, making Hasbro the top licensor of video games over the past year, according to Aldora.

Chris Cocks: We look forward to getting it in gamers' hands later this year.

Chris Cocks: D&D Beyond already represents our largest direct-to-consumer platform with 18 million registered users.

Speaker Change: Along with Pulse, our destination for exclusive collectibles across fan-favorite brands like G.I. Joe and Star Wars, we see an opportunity to unlock more value across our Hasbro direct business.

Speaker Change: Licensing was another standout in the quarter. Momentum and Monopoly Go from our partners at Scopely continued into Q2, accelerating our revenue recognition beyond the minimum guarantees and driving healthy upside to both revenue and operating profit.

Speaker Change: Since launch, the game has grossed over $3 billion in revenue, making Hasbro the top licensor of video games over the past year, according to Aldora.

Chris Cocks: The team continues to have an active pipeline of licensing opportunities across PC, console, mobile, and casino, leveraging our rich IP. In Q2, we announced a new arcade-style game for Power Rangers with our partners at Digital Eclipse. And just this month, we kicked off a Transformers Overwatch 2 crossover. As we continue to invest in our digital gaming efforts, both through partnerships and self-publishing through our own studios, I'm excited that Jon Haidt, former SVP and GM of the Warcraft franchise for Blizzard Entertainment, is joining Hasbro as president of Wizards of the Coast. John is a lifelong Magic and D&D fan and embodies Hasbro's mission to bring people together through play.

Speaker Change: The team continues to have an active pipeline of licensing opportunities across PC, console, mobile, and casino, leveraging our rich IP.

Chris Cocks: In Q2, we announced a new arcade-style game for Power Rangers with our partners at Digital Eclipse. And just this month, we kicked off a Transformers Overwatch 2 crossover.

Speaker Change: As we continue to invest in our digital gaming efforts, both through partnerships and self-publishing through our own studios, I'm excited that Jon Haidt, former SVP and GM of the Warcraft franchise for Blizzard Entertainment, is joining Hasbro as president of Wizards of the Coast.

Speaker Change: John is a lifelong Magic and D&D fan and embodies Hasbro's mission to bring people together through play. Within Consumer Products Licensing, we saw growth in the quarter helped by our new partnership with Kayo Collectible Trading Cards, building on the resurgence of My Little Pony in China.

Chris Cocks: Within consumer products licensing, we saw growth in the quarter, helped by our new partnership with Kayo Collectible Trading Cards, building on the resurgence of My Little Pony in China. And Littlest Pet Shop's international appeal continues to grow, ranked as the number two growth property in playsets, dolls, and collectibles across the G10, according to Circono. We also launched several partner-led, Hasbro-branded properties, including a new Peppa Pig theme park in Germany, as well as the Game Room and Planet Play School in New Jersey, combining for 60,000 square feet of games and STEM-based plays. Finally, turning to toys.

Speaker Change: And Littlest Pet Shop's international appeal continues to grow. Ranked as the number two growth property in plate sets, dolls, and collectibles across the G10, according to Circona.

Speaker Change: We also launched several partner-led Hasbro-branded properties, including a new Peppa Pig theme park in Germany, as well as the Game Room and Planet Play School in New Jersey, combining for 60,000 square foot of games and STEM-based play experiences.

Chris Cocks: As a reminder, we began the year expecting the first half of consumer products to look similar to last year's second half. Through Q2, we've landed where we thought we would. And I'm encouraged by several early reads, notably Beyblade. After a strong launch in Japan, we've begun rolling out Beyblade X Global. We've seen positive early demand, with fans liking the streamlined brand assembly and new accelerator rail stadium that creates epic collisions. And in this year of wider entertainment content, Hasbro is well-positioned with the biggest movie for toys coming to theaters this September, Transformers 1, with our partners at Paramount.

Speaker Change: Finally, turning to toys. As a reminder, we began the year expecting the first half for consumer products to look similar to last year's second half.

Speaker Change: Through Q2, we've landed where we thought we would, and I'm encouraged by several early reads, notably Beyblade. After a strong launch in Japan, we've begun rolling out Beyblade X globally.

Speaker Change: We've seen positive early demand with fans liking the streamlined brand assembly and new accelerator rail stadium that creates epic collisions.

Speaker Change: And in this year of lighter entertainment content, Hasbro is well-positioned with the biggest movie for toys coming to theaters this September , Transformers 1, with our partners at Paramount.

Chris Cocks: We have strong retail alignment and healthy early demand for our fan skews to celebrate the brand's 40th anniversary. You can expect renewed innovation in some of our core CHOI properties as we head back to school. Play-Doh has shown strength all year, and we've gained valuable insights from our digital marketing efforts in the spring that we'll be applying to the fall. We're expanding play styles with new launches, like the first ride-on pizza delivery scooter and aging up with Play-Doh Marvel action figures in partnership with the Walt Disney Company. This fall, we'll also be releasing our latest N-Series for NERFs, which features a proprietary NERF dart.

Speaker Change: We have strong retail alignment and healthy early demand for our fan skews to celebrate the brand's 40th anniversary.

Speaker Change: You can expect renewed innovation in some of our core CHOI properties as we head back to school.

Speaker Change: Plato has shown strength all year, and we've gained valuable insights from our digital marketing efforts in the spring that we'll be applying to the fall.

Speaker Change: We're expanding play styles with new launches like the first ride-on pizza delivery scooter and aging up with Play-Doh Marvel action figures in partnership with the Walt Disney Company.

Speaker Change: This fall, we'll also be ramping our latest N-Series for Nerf, which features a proprietary Nerf dart. Retailer support has been strong since last month's launch.

Chris Cocks: Retailer support has been strong since last month's launch. Our people and culture are critical to the successes I've highlighted during this call. And so before I wrap up, I want to also welcome back Holly Barbakovy, an HR powerhouse who's bringing her pragmatic approach to HR back to Hasbro as our new Chief People Officer. To recap, it was a good quarter with solid performance and profitability led by our strength in games and life.

Speaker Change: Our people and culture are critical to the successes I've highlighted during this call. And so before I wrap up, I want to also welcome back Holly Barbakovy, an HR powerhouse who's bringing her pragmatic approach to HR back to Hasbro as our new Chief People Officer.

Speaker Change: To recap, it was a good quarter, with solid performance and profitability, led by our strength in games and licensing.

Chris Cocks: Toys came in as expected, and we see a path to growth in Q4, driven by innovation and strong alignment with our retail partners. We still have most of the year left to go, and we'll be watching back-to-school closely. But our team's work is starting to make a real difference, and we feel confident in taking our guidance for the full year. I'd like to now turn the call over to Gina to share more about our detailed results.

Speaker Change: Toys came in as expected, and we see a path to growth in Q4, driven by innovation and strong alignment with our retail partners.

Speaker Change: We still have most of the year left to go, and we'll be watching back to school closely. But our team's work is starting to make a real difference, and we feel confident in taking our guidance up for the full year. I'd like to now turn over the call to Gina to share more about our detailed results and updated outlook.

Gina Goetter: Thanks, Chris. And good morning, everyone.

Gina Goetter: Thanks Chris and good morning everyone. In Q2, we made further progress building a healthier foundation for Hasbro as we delivered better profits, moderated the pace of our revenue decline, and continued to up-level our internal processes and systems.

Gina Goetter: In Q2, we made further progress building a healthier foundation for Hasbro as we delivered better profits, moderated the pace of our revenue decline, and continued to improve our internal processes and systems. I'm pleased with our team's execution in the first half as we continue to drive operational rigor across the company. Similar to Q1, we once again saw outperformance in digital licensing, led by a material step-up in contribution from Monopoly Go, as the game's momentum allowed us to exceed the minimum guarantee sooner than expected.

Gina Goetter: I'm pleased with our team's execution in the first half as we continue to drive operational rigor across the company.

Gina Goetter: Similar to Q1, we once again saw outperformance in digital licensing, led by a material step-up in contribution from Monopoly Go, as the game's momentum allowed us to exceed the minimum guarantee sooner than expected.

Gina Goetter: This, along with healthy growth in consumer product licensing, growth in magic, and another strong quarter from our supply chain team, drove significant operating margin expansion. And while we still have more than half the year left from a revenue contribution standpoint, we're doing a lot of the right things and are confident from where we sit today to take up our full-year guidance. Our turnaround in toys is well underway.

Speaker Change: This, along with healthy growth in consumer product licensing, growth in magic, and another strong quarter from our supply chain team, drove significant operating margin expansion.

Speaker Change: And while we still have more than half the year left from a revenue contribution standpoint, we're doing a lot of the right things and are confident from where we sit today to take up our full year guidance.

Gina Goetter: Q2 declined similarly to Q1, as we had anticipated, and while Q3 and the back-to-school selling season will be an important gauge, we're entering the second half with clean retail inventory and are seeing encouraging demand signals for our planned innovation, and by putting the right underlying demand and supply planning processes and systems in place. We've been able to bring aged inventory down to historic lows while ensuring we have suitable inventory levels to support sell-through for the holidays.

Speaker Change: Our turnaround in toys is well underway. Q2 declined similar to Q1 as we had anticipated, and while Q3 and the back-to-school selling season will be an important gauge, we're entering the second half with clean retail inventory and are seeing encouraging demand signals for our planned innovation.

Speaker Change: And by putting the right underlying demand and supply planning processes and systems in place, we've been able to bring aged inventory down to historic lows, while ensuring we have suitable inventory levels to support sell-through for the holidays.

Gina Goetter: We've also improved our end-to-end planning capabilities to better align where we source inventory with customer demand. In the first half of this year, we've already had some major wins from our supply chain team. And with that, I'd like to acknowledge Stephanie Beal, who has been instrumental to this transformation, and congratulate her on becoming our new Chief Supply Chain Officer.

Speaker Change: We've also improved our end-to-end planning capabilities to better align where we source inventory with customer demand.

Speaker Change: In the first half of this year, we've already had some major wins from our supply chain team. And with that, I'd like to acknowledge Stephanie Beal, who has been instrumental to this transformation, and congratulate her on becoming our new Chief Supply Chain Officer.

Gina Goetter: Integrated business planning plays an important role as we transform Hasbro into a more profitable and operationally agile company. After the first couple of quarters of implementation, we're seeing greater information flow and faster decision making, which is starting to show up in our results. And just like we're focused on digitization across play patterns, we're also enhancing our digital operations to ensure we're running as efficiently as possible, which is why I'm excited to welcome Dan Shull as our new Chief Digital Information Officer. Dan brings a wealth of Fortune 500 experience and will steer our digital and IT strategy using cutting-edge technology to enhance collaboration, accelerate data analytics, and modernize our infrastructure.

Speaker Change: Integrated business planning plays an important role as we transform Hasbro into a more profitable and operationally agile company.

Speaker Change: After the first couple of quarters of implementation, we're seeing greater information flow and faster decision making, which is starting to show up in our results.

Speaker Change: And just like we're focused on digitization across play patterns, we're also enhancing our digital operations to ensure we're running as efficiently as possible, and it's why I'm excited to welcome Dan Shull as our new Chief Digital Information Officer.

Speaker Change: Dan brings a wealth of Fortune 500 experience and will steer our digital and IT strategy using cutting-edge technology to enhance collaboration, accelerate data analytics, and modernize our infrastructure.

Gina Goetter: Now moving on to Q2 financial results, total Hasbro revenue was $995 million, down 18% versus Q2 of last year. If you exclude the impact of the E-1 divestiture, total revenue was down 6%. Growth of 20% in our Wizards of the Coast segment, led by Magic and licensed digital games, was more than offset by the 20% decline in consumer products, driven by lower closeout volume, reduced entertainment slate, and exited brands. The entertainment segment declined by 90% due to the sale of the E1 film and TV business.

Speaker Change: Now moving on to Q2 financial results.

Speaker Change: Total Hasbro revenue was $995 million, down 18% versus Q2 of last year.

Speaker Change: If you exclude the impact of the E-1 divestiture, total revenue was down 6%.

Speaker Change: Growth of 20% in our Wizards of the Coast segment, led by Magic and licensed digital games, was more than offset by the 20% decline in consumer products, driven by lower closeout volume, reduced entertainment slate, and exited brands.

Speaker Change: The entertainment segment declined 90% due to the sale of the E1 film and TV business. Absent this impact, entertainment revenue decreased 30% driven by timing.

Gina Goetter: Absent Disimpact, Entertainment Revenue Decreased 30% Driven by Timing. Adjusted operating profit was $249 million for an adjusted operating margin of 25%, up nearly 14 points year on year. This substantial improvement was driven by favorable business mix, lower royalty expense, supply chain productivity savings, the E1 divestiture, and about a two and a half point benefit from lapping the D&D movie impairment. Q2 adjusted net earnings were $170 million, with diluted earnings per share of $1.22, up from $0.49 in the year-ago period, driven by the items noted, as well as reduced net interest expense and favorable timing within tax.

Speaker Change: Adjusted operating profit was $249 million for an adjusted operating margin of 25%, up nearly 14 points year on year.

Speaker Change: This substantial improvement was driven by favorable business mix, lower royalty expense, supply chain productivity savings, the E1 divestiture, and about a 2.5 point benefit from lapping the D&D movie impairment.

Speaker Change: Q2 adjusted net earnings were $170 million, with diluted earnings per share of $1.22, up from $0.49 in the year-ago period, driven by the items noted, as well as reduced net interest expense and favorable timing within tax.

Gina Goetter: We returned $97 million to shareholders through the dividend and ended the period with $1.1 billion of cash in short-term investments following May's completion of a $500 million debt offering of notes. The proceeds from the issuance are expected to be used to repay our November 2024 bond maturity.

Speaker Change: We returned $97 million to shareholders through the dividend and ended the period with $1.1 billion of cash in short-term investments following May's completion of a $500 million debt offering of notes.

Speaker Change: The proceeds from the issuance are expected to be used to repay our November 2024 bond maturity.

Gina Goetter: Year-to-date total Hasbro revenue was $1.75 billion, down 21% versus the same period last year. However, if you exclude the impact of the E-1 divestiture, total revenue was down 7% versus a year ago. Growth of 15% in our Wizards of the Coast segment was more than offset by the 20% decline in consumer products and the 87% decline in the entertainment segment due to the sale of the E1 film and TV business. Without film and TV, the entertainment segment is relatively flat.

Speaker Change: Year-to-date total Hasbro revenue was $1.75 billion, down 21% versus the same period last year. If you exclude the impact of the E1 divestiture, total revenue was down 7% versus a year ago.

Speaker Change: Growth of 15% in our Wizards of the Coast segment was more than offset by the 20% decline in consumer products and the 87% decline in the entertainment segment due to the sale of the E1 film and TV business.

Speaker Change: Absent film and TV, the entertainment segment is relatively flat.

Gina Goetter: Year-to-date adjusted operating profit was $397 million for an adjusted operating margin of 22.7%, up over 14 points year over year, mostly driven by cost savings from our Operational Excellence Program, as well as favorable business mix and the E-1 divestiture. In aggregate, we were able to deliver significant margin improvement despite the ongoing volume de-leverage across our toy business. Year-to-date adjusted net earnings were $255 million, with diluted earnings per share of $1.83 driven by the improvement in operating profit, as well as favorable favorability from a stock compensation adjustment and net interest expense reduction.

Speaker Change: Year-to-date adjusted operating profit was $397 million, for an adjusted operating margin of 22.7%, up over 14 points year-over-year, mostly driven by cost savings from our Operational Excellence Program, as well as favorable business mix and the E-1 Defectiture.

Speaker Change: In aggregate, we were able to deliver significant margin improvement despite the ongoing volume deleverage across our toy business.

Speaker Change: http://TheBusinessProfessor.com

Speaker Change: Year-to-date adjusted net earnings were $255 million, with diluted earnings per share of $1.83, driven by the improvement in operating profit, as well as favorability from a stock compensation adjustment and net interest expense reduction.

Gina Goetter: Operating cash flow was $365 million year-to-date, a $246 million improvement year-over-year driven by the profitability improvement, the timing of digital licensing collections, as well as the shift in timing of a transition tax payment to Q3. Now, let's look at our two major segments in more detail, starting with Wizards of the Coast and digital gaming. Q2 revenue grew 20% year-over-year, largely behind strength in digital licensing led by Monopoly Go and, to a lesser extent, continued contribution from Baldur's Gate 3. Last quarter, we discussed there could be the ability to book above the minimum guarantee sooner than originally planned.

Speaker Change: Operating cash flow was $365 million dollars year-to-date, a $246 million dollar improvement year-over-year, driven by the profitability improvement, timing of digital licensing collections, as well as the shift in timing of a transition tax payment to Q3.

Speaker Change: Now let's look at our two major segments in more detail, starting with Wizards of the Coast and digital gaming.

Speaker Change: Q2 revenue grew 20% year-over-year, largely behind strength in digital licensing led by Monopoly Go, and to a lesser extent, continued contribution from Baldur's Gate 3.

Gina Goetter: Due to the game's momentum, we were able to earn approximately $35 million above the minimum guarantee of $5 million in the quarter. Segment revenue also benefited from growth in Magic Tabletop behind the successful release of Modern Horizons 3, as well as early shipments for next week's tentpole set, Bloomboro, both of which more than offset last year's Q2 contribution from Lord of the Rings. Digital gaming revenue also saw a roughly $20 million non-cash benefit from a publishing contract with an international partner.

Speaker Change: Last quarter we discussed there could be the ability to book above the minimum guarantee sooner than originally planned. Due to the game's momentum, we were able to earn approximately $35 million above the minimum guarantee of $5 million in the quarter.

Speaker Change: Segment revenue also benefited from growth in Magic Tabletop behind the successful release of Modern Horizons 3, as well as early shipments for next week's tentpool set, Bloomboro, both of which more than offset last year's Q2 contribution from Lord of the Rings.

Speaker Change: Digital gaming revenue also saw a roughly 20 million dollar non-cash benefit from a publishing contract with an international partner.

Gina Goetter: Operating margin for Wizards finished at 54.7%, up nearly 17 points versus last year, mainly driven by a richer digital mix, supply chain productivity gains, and lower royalty expenses as we lapped last year's Magic Lord of the Rings set. Turning to consumer products, Q2 revenue declined 20% year-over-year, driven by reduced closeout volume, exited brands, and lapping a busier entertainment slate, including last year's Consumer Product Licensing was a Bright Spot driven by our partnership with My Little Pony and Kayo Trading Cards. Furby, and the continued momentum in Furblitz, G.I.

Speaker Change: Operating margin for Wizards finished at 54.7% up nearly 17 points versus last year, mainly driven by a richer digital mix, supply chain productivity gains, and lower royalty expenses as we lapped last year's Magic Lord of the Rings set.

Speaker Change: Turning to consumer products, Q2 revenue declined 20% year-over-year, driven by reduced closeout volume, exited brands, and lapping a busier entertainment slate, including last year's Transformers Rise of the Beast.

Speaker Change: Consumer Product Licensing was a bright spot driven by our partnership with My Little Pony and Kayo Trading Cards.

Gina Goetter: Joe and Play-Doh also performed well within toys, while NERC continued to see softness ahead of the back half of the year in an innovation launch. Adjusted operating margin for consumer products came in roughly break even, down about three and a half points compared to last year. Cost savings and the benefit from lower unprofitable closeouts were offset by product mix and volume deleverage. As anticipated, there was also approximately $10 million of operating income attributed to the segment as we reallocated cost savings captured within the corporate segment back to CP.

Speaker Change: Furby and the continued momentum in FurBlitz, G.I. Joe, and Play-Doh also performed well within toys, while NERC continued to see softness ahead of the back half in an innovation launch.

Speaker Change: Adjusted operating margin for consumer products came in roughly break-even, down about three-and-a-half points compared to last year.

Speaker Change: Cost savings and the benefit from lower unprofitable closeouts were offset by product mix and volume deleverage.

Speaker Change: As anticipated, there was also approximately $10 million of operating income attributed to the segment as we reallocated cost savings captured within the corporate segment back to CP.

Gina Goetter: On a year-to-date basis, despite a revenue decline of 20%, segment operating margin declined by only 3 points year-on-year, as we were able to significantly mitigate the deleverage impact by reducing our cost footprint across the supply chain and within operating expenses. Now, turning to our updated guidance for 2024. Given the strong performance in the first half, we are raising our guidance for the full year. And we now expect Total Wizards revenue to go down one to three percent, up from our prior guidance of down 3-5%, driven by the first half outperformance in digital licensing.

Speaker Change: On a year-to-date basis, despite a revenue decline of 20%, segment operating margin declined by only 3 points year-on-year, as we were able to significantly mitigate the deleverage impact by reducing our cost footprint across supply chain and within operating expenses.

Speaker Change: Now turning to our updated guidance for 2024. Given the strong performance in the first half, we are raising our guidance for the full year.

Speaker Change: And we now expect Total Wizard's revenue to go down 1 to 3 percent, up from our prior guidance of down 3 to 5 percent, driven by the first half outperformance in digital licensing.

Gina Goetter: For the full year, Monopoly Go will generate roughly $105 million in revenue. This outlook assumes a modest monthly gross revenue decay rate for the game and consistent marketing support. For Baldur's Gate 3, we now anticipate roughly $30 million for the full year, with the bulk of that revenue having been recorded in the first half. With all of these puts and takes, digital licensing will be down in Q3 as we lap the launch of Gate 3, and we anticipate Q4 to be relatively flat versus last year.

Speaker Change: For the full year, Monopoly GO will generate roughly $105 million in revenue. This outlook assumes a modest monthly gross revenue decay rate for the game and consistent marketing support.

Speaker Change: For Baldur's Gate 3, we now anticipate roughly $30 million for the full year, with the bulk of that revenue having been recorded in the first half.

Speaker Change: With all of these puts and takes, digital licensing will be down in Q3 as we lap the launch of Baldur's Gate 3, and we anticipate Q4 to be relatively flat versus last year.

Gina Goetter: For Magic, we expect some contraction in the second half due to the timing of set releases. While Modern Horizons 3 successfully lapped the initial release of Lord of the Rings, it will not have a comparable launch for last year's holiday bundle.

Speaker Change: For Magic, we expect some contraction in the second half due to the timing of set releases. While Modern Horizons 3 successfully lapped the initial release of Lord of the Rings, it will not have a comparison launch for last year's Holiday Bundle.

Gina Goetter: We now forecast Wizard's operating margin to be approximately 42%, up from our prior guidance of 38 to 40%, driven by the increased mix of digital licensing revenue. For consumer products, keeping in mind that a big part of the year is ahead of us, we expect revenue will be down 7 to 11%, up slightly from our prior guidance range of down 7 to 12%. This narrowing is driven by encouraging early demand signals and retailer support for a back half product innovation, specifically Beyblade, Play-Doh, and Transformers ahead of the major animated film Transformers 1 in September.

Speaker Change: We now forecast Wizard's operating margin to be approximately 42%, up from our prior guidance of 38-40%, driven by the increased mix of digital licensing revenue.

Speaker Change: For consumer products, keeping in mind that a big part of the year is ahead of us, we expect revenue will be down 7 to 11 percent, up slightly from our prior guidance range of down 7 to 12 percent.

Speaker Change: This narrowing is driven by encouraging early demand signals and retailer support for a back half product innovation, specifically Beyblade, Play-Doh, and Transformers ahead of the major animated film Transformers 1 in September .

Gina Goetter: We are forecasting a low single-digit decline in Q3 before flipping to growth in Q4, with the impact from our divested brands continuing to be a headwind. We maintain our adjusted operating margin guidance of four to six percent for consumer products. Margins in Q3 will be relatively flat versus last year, followed by significant expansion in Q4 as we lap the impact of the inventory cleanup. For entertainment, adjusting for the impact of the E-1 divestiture, we continue to expect revenue to be down approximately $15 million versus last year, an adjusted operating margin of roughly 60 percent.

Speaker Change: We are forecasting a low single-digit decline in Q3 before flipping to growth in Q4, with the impact from our divested brands continuing to be a headwind.

Speaker Change: We maintain our adjusted operating margin guidance of 4 to 6 percent for consumer products. Margins in Q3 will be relatively flat versus last year, followed by significant expansion in Q4 as we lap the impact of the inventory cleanup.

Speaker Change: For entertainment, adjusting for the impact of the E-1 divestiture, we continue to expect revenue to be down approximately $15 million versus last year, an adjusted operating margin of roughly 60%.

Gina Goetter: We remain on track to achieve our target of $750 million of gross cost savings by 2025 and continue to expect $200 to $250 million of net cost savings in 2024. Through the first half of the year, we have delivered $150 million of gross cost savings and $90 million of net savings. With the increased revenue outlook and greater profitability in Wizards, we now expect total Hasbro adjusted EBITDA in the range of $975 million to $1,025,000, up from our prior year guidance of $925,000,000 to $1,000,000.

Speaker Change: Unknown Speaker 05. Okay.

Speaker Change: We remain on track towards our target of $750 million of gross cost savings by 2025 and continue to expect $200 to $250 million of net cost savings in 2024.

Speaker Change: Through the first half of the year, we have delivered $150 million of gross cost savings and $90 million of net savings.

Speaker Change: With the increased revenue outlook and greater profitability in Wizards, we now expect total Hasbro adjusted EBITDA in the range of $975 million to $1,025 million, up from our prior year guidance of $925 million to $1 billion.

Gina Goetter: Given the improvement in our cash flow, we now expect 2024 ending cash to be at roughly similar levels versus 2023. And from a capital allocation standpoint, our priorities remain to first invest in the core business, second to return cash to shareholders via dividends, and third, to continue progressing towards our long-term leverage targets and pay down debt. And with that, we can open the line to questions.

Speaker Change: Given the improvement in our cash flow, we now expect 2024 ending cash to be at roughly similar levels versus 2023.

Speaker Change: And from a capital allocation standpoint, our priorities remain to first invest behind the core business.

Speaker Change: Second, is to return cash to shareholders via the dividends. And third, to continue progressing towards our long-term leverage targets and pay down debt.

Unknown Executive: Thank you, and at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before the questions start.

Speaker Change: And with that, we can open the line for questions.

Unknown Executive: We also ask all participants in the queue to limit themselves to one question and one follow-up to allow others to ask questions. Our first question comes from the line of Eric Handler with Ross Capital. Please proceed with your questions.

Speaker Change: Thank you, and at this time we will be conducting a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: We also ask all participants in the queue to limit yourselves to one question and one follow-up to allow others to ask questions.

Speaker Change: Unknown Executive, Christian Cocks, Debbie Hancock

Speaker Change: Our first question comes from the line of Eric Handler with Ross Capital. Please proceed with your question.

Eric Owen Handler: Good morning, thanks for the question. Chris, what if we talked a little bit about the big picture for Wizards? Your recent hiring of Jon Haidt to take over from Cynthia, obviously a huge video game background for him at Blizzard. You now have four people on your board with video game backgrounds. Can you talk about how you're thinking about internal development of video games and what you're willing to commit to capital for that business?

Speaker Change: Good morning, thanks for the question. Chris, why don't we talk a little bit big picture for Wizards, your recent hiring of Jon Haidt to take over from Cynthia, obviously a huge

Speaker Change: Video games background for him at at Blizzard. You now have

Eric Owen Handler: Four people on your board with video games background, can you talk about how you're thinking about internal development of video games and what you're willing to commit to capital for that business?

Chris Cocks: Sure thing. Good morning, Eric. Thanks for the question. Yeah, John, I think, is a luminary hire. He's had a major hand in a bunch of my favorite gaming franchises, whether it's Warcraft, Hearthstone, God of War, and even going way back to Command and Conquer. He's worked on some great stuff, which I think is perfectly on point with what Wizards of the Coast is all about and what our digital gaming strategy is all about, which is extending a bunch of great mid-core and hard-core brands and expertise in designing for those kinds of audiences and helping us digitize what those brands can do.

Chris: Sure thing. Good morning, Eric. Thanks for the question. Yeah, Jon, I think, is a luminary hire. He's had a major hand in a bunch of my favorite gaming franchises, whether it's Warcraft, Hearthstone,

Speaker Change: God of War and even going way back to Command and Conquer.

Speaker Change: He's worked on some great stuff, which I think is perfectly on point with what Wizards of the Coast is all about and what our digital gaming strategy is all about, which is extending a bunch of great mid-core and hardcore brands and an expertise in designing for those kinds of audiences.

Chris Cocks: You know, I think between our board moves and the talent that we brought on board most recently with John, but even before that, you know, studio leaders, we have like Ames Kirshen, who was in charge of the Batman Arkham series at Warner Brothers, and James Olin, who was the head of creative and design at BioWare, responsible for the first Baldur's Gate, Neverwinter Nights, and Mass Effect. You know, I think Gina's talked a lot about kind of the capital that we've invested. You know, I think our cap, our roughly our capital envelope is about $250 million a year, and about half of that is going into digital games.

Speaker Change: and helping us digitize what those brands can do.

Speaker Change: You know, I think between our board moves and between talent that we brought on board most recently with John , but even before that, you know, studio leaders, we have like Ames Kirshen, who was in charge of the Batman Arkham series of Warner Brothers.

Speaker Change: James Olin, who was the head of creative and design at BioWare, responsible for the first Baldur's Gate, Neverwinter Nights, Mass Effect. We're going all in on becoming a digital play company.

Speaker Change: You know, I think Gina's talked a lot about the kind of the capital that we've invested, you know, I think our cap, our roughly our capital envelope is about $250 million a year, about half of that is going into digital games.

Chris Cocks: We think that's roughly around a steady state for us. Our goal is to be shipping one to two new games per year, starting as early as late 2025, potentially early 2026. And you know, I think we have a balanced approach to that. When you look at our game, when you look at our portfolio of investments in games, whether they're partnerships or JVs that we're doing, or just fully internal investments. And then you look at our whole lineup of licensed games; we have 150 projects that are either active in the market or in development.

Speaker Change: We think that's roughly around a steady state for us. Our goal is to be shipping one to two new games per year, starting as early as late 2025 but potentially early 2026.

Speaker Change: And, you know, I think we have a balanced approach to that. When you look at our game, when you look at our portfolio of investments in games, whether they're partnerships or JVs that we're doing, or just fully internal investments,

Speaker Change: And then you look at our whole lineup of licensed games. We have 150 projects that are either active in the market or in development.

Chris Cocks: I think it's important for us to have a hand as a publisher to guide our franchises and to work on the areas of the audiences that we think are hyper important, but I also think it's important for us to work with the best partners in the business and extend those franchises in areas where either we don't have the expertise or we don't have the platform.

Speaker Change: I think it's important for us to have a hand as a publisher.

Speaker Change: to guide our franchises and to work on the areas of the audiences that we think are hyper important.

Speaker Change: But I also think it's important for us to work with the best partners in the business and extend those franchises in areas where either we don't have the expertise or we don't have the platform.

Speaker Change: And I think we've been doing a good job of it. It's no it's no accident why I think we're the number one licensor in the space. And I think we're going to be a top publisher eventually in the space. And we're going to take our time and do it right.

Gina Goetter: Hey, Eric. This is Gina. Eric, I just...

Speaker Change: Hey Eric, this is Gina. Eric, I just have one point of clarification just so that folks grab it as we talk about the capital.

Speaker Change: So that $250 million number that Chris quoted is for the entire company and as he said about half of that is going against these games.

Speaker Change: That is probably the right run rate as we take it forward here. So I just, I do want people to go online to the $250 million. That's representative of the whole company.

Unknown Executive: Okay, that's helpful. And then the follow-up... 3Q in your consumer products business, and toys tend to be a very strong quarter for direct imports. Can you talk about what's happening there and how the supply chain's working for shipping?

Speaker Change: Okay, that's helpful. And then the follow-up, 3Q in your consumer products business and toys tends to be a very strong quarter for direct imports. Can you talk about what's what's happening there and you know how the supply chain is working for for shipping?

Gina Goetter: Yeah, great, great question. I would say, as we move through Q2, we have seen very smooth shipments with our DI. We didn't really see any sort of volatility or bumps in the kind of movement of goods with DI, and we're not anticipating a significant impact as we move through Q3 and Q4. Obviously, we're watching the tightening that we're seeing in some of the spot markets. But again, we're contracted out. We feel really good about our ability to access inventory, and we're feeling confident about our ability to get it on the shelf in time for the holidays. Thank you.

Speaker Change: Yeah, great, great question. I would say

Speaker Change: As we move through Q2...

Speaker Change: We saw very smooth shipments with our DI, we didn't really see any sort of volatility or bumps in

Speaker Change: Unknown Executive, Christian Cocks, Debbie Hancock

Unknown Executive: You're welcome. Thanks, Eric. Thank you. Our next question comes from the line of Megan Alexander with Morgan Stanley. Please proceed with your question.

Speaker Change: Thank you.

Eric Owen Handler: You're welcome. Thanks, Eric.

Speaker Change: Thank you. Our next question comes from the line of Megan Alexander with Morgan Stanley . Please proceed with your question.

Megan Christine Alexander: Hey, good morning. Thanks so much. I wanted to just dig into the guidance raised, if I could, so maybe a couple of part question and happy to repeat anything if it doesn't make sense. But, you know, you raised, I think, call it $35 million at the midpoint, give or take. I think that's also what you said you exceeded from the Monopoly Go minimum guarantee relative to your expectations. So I guess, just to clarify, it was the guidance raised just for the fact that Monopoly Go did come in better in 2Q.

Megan Christine Alexander: Hey, good morning. Thanks so much. I wanted to just dig into the guidance raised, if I could, so maybe a couple part question and happy to repeat anything.

Speaker Change: If it doesn't make sense, but, you know, you raised, I think, by call it $35 million at the midpoint, give or take. I think that's also what you said you exceeded from the Monopoly Go minimum guarantee relative to your expectations. So I guess just to clarify, it was the guidance raised just for the fact that Monopoly Go came in better in 2Q.

Megan Christine Alexander: And then the second part is, you know, it does seem related to that like Magic is perhaps doing better than you expected. You did call out some benefit from an international publishing deal in the second quarter. So, you know, if there's any way to quantify that and how that flows through to the guidance, that would be helpful as well. Thank you.

Speaker Change: And then the second part is, you know, it does seem related to that, like magic is perhaps doing better than you expected.

Speaker Change: You did call out some benefit from an international publishing deal in the second quarter, so if there's any way to quantify that and how that flows through to the guidance, that would be helpful as well. Thank you.

Gina Goetter: Sure, absolutely. Good morning, Megan.

Megan: Sure, absolutely. Morning, Megan.

Speaker Change: So as we think about the overall guide, I think you've got the simple way, in terms of the upside from Monopoly Go, really just translating all the way down to our EBITDA update. That's the primary driver of the raise, I mean obviously the margin is richer, we're feeling a little bit more bullish on the consumer product side, but that's the main headline.

Gina Goetter: So, as we think about the overall guide, I think you've got this simple way in terms of the upside from Monopoly GO, really just translating all the way down to our EBITDA update. That's the primary driver of the raise. I mean, obviously, the margin is richer. We're feeling a little bit more bullish on the consumer product side, but that's the main headline. In terms of magic performance, specifically within the quarter, yeah, it is doing better than we had expected. Really, Modern Horizons 3 has proven to be a fair competitor against Lord of the Rings within the quarter.

Megan: In terms of Magic performance, specifically within the quarter,

Megan: expected really that Modern Horizons 3 has proven to be a fair comp against Lord of the Rings within the quarter. That was a positive. In terms of the contract, it was roughly $20 million of benefit that came in. We're calling it out because it was $20 million.

Gina Goetter: That was a positive. In terms of the contract, it was roughly 20 million dollars of benefits that came in. We're calling it out because it was 20 million dollars. It's a normal course of business. We have those same kind of puts and takes. You just heard Chris talk about all of the number of deals and partnerships that we have in the works. So, over the course of the year, it will prove to be immaterial, but for this quarter, it was a big revenue game.

Speaker Change: It's a normal course of business. We have those same kind of puts and takes. You just heard Chris talk about all of the number of deals and partnerships that we have in the works. So over the course of the year, it will prove to be immaterial, but for this quarter, it was a big revenue gain.

Unknown Executive: Got it. Okay, that's helpful.

Speaker Change: [inaudible]

Speaker Change: Got it. Okay, that's helpful. And then maybe if I could just dig in on Monopoly Go a bit, you know, again, it seems like...

Gina Goetter: And then, and then maybe if I could just dig in on Monopoly a bit, you know, again, seems like 5 million minimum guarantee, you got 35 million. I think if I'm doing my math right, there's maybe 65 million implied in the back half. So, a little bit of a step down on a quarterly basis, but I think it is in line with the way you were thinking about it to start the year.

Speaker Change: 5 million minimum guarantee. You got 35 million. I think if I'm doing my math right, there's maybe 65 million implied in the back half, so a little bit of a step down on a quarterly basis, but I think it's in line with the way you were thinking about it to start the year.

Speaker Change: It would be helpful if you could just talk about kind of what you're seeing, what you saw over the quarter from a revenue perspective and Scopely's marketing investment and how you're thinking about the second half and whether that's changed at all.

Gina Goetter: So it would be helpful if you could just talk about kind of what you're seeing, what you saw over the quarter from a revenue perspective, and, and scopely's marketing investment and how you're thinking about the second half and whether that's changed at all.

Speaker Change: Yeah, good question. Yeah, so let's level set on the map.

Gina Goetter: Yeah, good question. Yeah, so let's level set on the map. For the first half of the year, we had $45 million of revenue booked into our P&L. So $5 million was just the minimum guarantee that came into Q1. And then we had $40 million in Q2. So $35 was that over delivery, and then $5 was the minimum guarantee.

Speaker Change: For the first half of the year, we had $45 million of revenue book into our P&L. So $5 million was just the minimum guarantee that came into Q1, and then we had $40 million in Q2. So $35 million was that over-delivery, and then $5 million was the minimum guarantee.

Gina Goetter: What's modeled in our back half then is $60 million. And to your point, it is a step down from what we saw play out in Q2. So as we thought about our modeling in the back half, we were thinking of the decay rate, that monthly decay rate of call it 3% to 5%. And consistent marketing is what I think I said in my prepared remarks. That consistent marketing can range anywhere from call it 25% up to 35%.

Speaker Change: What's modeled in our back half then is $60 million, and to your point, it is a step down from what we saw play through in Q2.

Speaker Change: So as we thought about our modeling, in the back half, you know, we're thinking of the decay rate, that monthly decay rate of, call it three to five percent.

Gina Goetter: And to your point, what we've seen Scopely do as we move through the first half is kind of within that range. Obviously, those two pieces, the decay rate and the marketing, are variables that we don't control. I mean, we kind of understand where Scopely is headed with marketing, but ultimately, it is their decision in terms of how much they spend and at what end of that range. But for us, you know, as we thought about the modeling, we know that Monopoly GO is going to be a material contributor to our P&L this year and for many years to come. So, as we thought about it, we just didn't really want to get out on our skis in terms of the forecast.

Speaker Change: and consistent marketing is what I think I said in my prepared remarks. That consistent marketing can range anywhere from, call it 25%, up to 35%. And to your point of what we've seen Scope Lead do as we move through the first half is kind of within that range.

Speaker Change: Obviously, those two pieces, the decay rate and the marketing, are variables that we don't control. I mean, we kind of understand where Scopely is headed with marketing, but ultimately it is their decision in terms of how much they spend and at what end of that range.

Speaker Change: But for us, you know, as we thought about the modeling, we know that Monopoly GO is going to be a material contributor to our P&L this year and for many years to come. So as we thought about it, we just didn't really want to get out over our skis in terms of the forecast.

Gina Goetter: I mean, all of you are looking at the same data that we are almost at the same time. And so if you were watching the sensor tower data play out over the last couple of months, it was a little bit bumpy when it came to the decay rate. So we absolutely kind of took that into consideration as we were modeling the back half of the year. So, as we go, I mean, the thing that we'll remain committed to is being super transparent about the assumptions, both around decay rate and marketing, so that we can all stay on the same page of what we're expecting for this year. And as we head into 2025, yeah, I think so.

Speaker Change: I mean all of you are looking at the same data that we are almost at the same time and so if you what we're watching the sensor tower data play through in the last couple of months.

Speaker Change: It was a little bit bumpy when it came to the decay rate.

Speaker Change: So we absolutely kind of took that into consideration as we were modeling the back half of the year.

Speaker Change: So as we go, I mean, the thing that we'll remain committed on is being super transparent about the assumptions both around decay rate and marketing so that we can all stay on the same page of what we're expecting for this year and as we head into 2025.

Chris Cocks: Yeah, I think the only thing I'd add, Megan, is seasonality, which we don't quite understand yet in the game. So, you know, if we're being, if we're erring on the side of caution a little bit, it's because we don't quite understand seasonality yet.

Speaker Change: Yeah, I think the only thing I'd add, if Megan is...

Megan: seasonality we don't quite understand yet on the game so you know if we're being if we're erring on the side of caution a little bit it's because we don't quite get the seasonality yet however where I do think we have some bullishness is on the mid and long term for the game

Gina Goetter: However, where I do think we have some bullishness is in the mid and long term for the game. You know, when you look at games that reach this hyperscale, like Monopoly Go has, and you look at just like the sensor tower data for North America and Europe, 10 of the 20 best performing games have been out for five or more years. So this is a game that's going to be a really strong and positive annuity for us for a long time to come. We're still learning a little bit from quarter to quarter what our contribution will be.

Megan: You know, when you look at games that reach this hyperscale, like Monopoly Go has, and you look at just like the sensor tower data for North America and Europe , 10 of the 20 best performing games have been out for five or more years.

Megan: So this is a game that's going to be a really strong and positive annuity for us for a long time to come. We're still learning a little bit quarter to quarter what the contribution will be.

Megan Christine Alexander: That's really helpful. Thanks so much.

Speaker Change: That's really helpful. Thanks so much.

Speaker Change: Thank you. Thank you.

Speaker Change: Our next question comes from the line of Arpine Kocharyan with UBS. Please proceed with your question.

Unknown Executive: Hi, thank you for taking my question. Hi, good morning. Dave Porter, congratulations.

Arpine Kocharyan: Hi, thanks for taking my question. Hi, good morning. Congratulations.

Unknown Executive: Thank you. Has anything changed in your outlook, and thank you for the answers to the initial questions that answered a bunch of my questions? So I was just wondering, has anything changed in your outlook for Magic the Gathering's underlying business, if we were to exclude, obviously, the digital aspects of Puts and Takes for the back half? In terms of today's guidance revision, is there any change in the underlying outlook, either towards better or slightly worse as it relates to the analog part of the business? And then I have a quick follow-up.

Arpine Kocharyan: Has anything changed in your outlook, and thank you for the answers to the initial questions, that answered a bunch of my questions. So I was just wondering, has anything changed in your outlook for Magic the Gathering's underlying business, if we were to exclude, obviously, the digital?

Speaker Change: Aspects of Puts and Takes for the Backoff. In terms of today's guidance revision, is there any change in the underlying outlook, either towards better or slightly worse as it relates to the analog part of the business, and then I have a quick follow-up.

Chris Cocks: No, I mean, the analog part of the business is doing better than I think we would have expected. It was up around 5% for Wizards in the first half of the year. You know, when you look at the toy category as a whole, it's really Magic and LEGO that I think are outperforming and really kind of driving the overperformance in the category for trading card games and building sets. And we don't see a reason for that to abate in the second half of the year. I think when we think about Magic, we think a little bit about what the release cadence looks like.

Speaker Change: and we don't see a reason for that to abate in the second half of the year.

Chris Cocks: It's going to be lighter this year than it was last year. And we look at the quality of the sets, and we think those are very strong. If you just look at pre-orders for Bloomboro on Amazon.com and just look at the new release chart of the top performers, it's one of the best performing sets we've seen for Magic in several years.

Speaker Change: And we look at the quality of the sets, and we think those are very strong. If you just look at, like, pre-orders for Bloomboro on Amazon.com, and look at, like, the new release chart of the top performers, it's one of the best-performing sets we've seen for Magic in several years. So we're pretty bullish on that.

Chris Cocks: So we're pretty bullish on that. You know, I think the second half is going to be lighter this year than it was last year, just because of the release cadence. But I think you're going to see a nice uptick in 2025 with a really stacked lineup that we have starting relatively early in the year with Final Fantasy, and I think we have a nice complement to that with our first Marvel release.

Speaker Change: You know, I think the second half is going to be lighter this year than it was last year, just because of the release cadence.

Speaker Change: with a really stacked lineup that we have starting, you know, relatively early in the year with Final Fantasy. And I think having a nice coda to that with our first Marvel release.

Chris Cocks: That's very helpful, thank you. And then Chris, I have a bit of a bigger picture or rather a very long-term question related to the nuanced shift to kind of Hasbro being a games company that makes toys from toys and games companies before. If you think about the success of Monopoly Go and Upside from that franchise, that was primarily sort of due to lower customer acquisition costs, right? To do with the strength of that franchise that really essentially stands from a traditional toy. How does a longer-term kind of departure from traditional toys position Hasbro to continue to win in digital? I'm not sure if my question makes sense, but it's a sort of long-term, big picture question.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Due to lower customer acquisition costs, right, due to the strength of that franchise.

Speaker Change: that really essentially stand from a traditional toy.

Chris Cocks: Now, I think I get the crux of where you're going, and Gina might want to add as well. You know, when I talk about games, IP, and toys being the core of Hasbro, what I really mean is that's what I think a healthy, great, modern toy company is ultimately going to become. So it's about skating to where the puck is going as opposed to where the puck has been. I think physical products for kids will always be important. But when you look at what the megatrends are inside of the business of play, play is aging up, and it is becoming more international. It's going more digital. It's going more direct.

Speaker Change: Now I think I get the crux of where you're going, and Gina might want to open as well. You know, when I talk about games, IP, and toys being the core of Hasbro,

Gina Goetter: What I really mean is, that's what I think a healthy, great, modern toy company is ultimately going to become.

Gina Goetter: So it's about skating to where the puck is going as opposed to where the puck has been.

Gina Goetter: I think physical products, kids will always be important, but when you look at what the megatrends are inside of the business of play.

Speaker Change: Slay is aging up.

Gina Goetter: Play is going more international. It's going more digital. It's going more direct

Chris Cocks: And partners are becoming more and more important to be able to extend brands into additional aisles, whether that's the toy category or outside of the toy category, and additional experiences. And I think our strategy is all about those. You know, we still have a bit of a turnaround work to do on our core toy business. You know, we've been losing some volume on that the last couple of, several quarters. But I feel good about how we're getting our arms wrapped around this, particularly the cost side.

Gina Goetter: And partners are becoming more and more important to be able to extend brands into additional aisles, whether that's the toy category or outside of the toy category, and additional experiences.

Gina Goetter: And I think our strategy is all in across each of those.

Gina Goetter: You know

Gina Goetter: We still have a bit of turnaround work to do on our core toy business.

Gina Goetter: We've been losing some volume on that the last couple, several quarters.

Chris Cocks: I think you're going to see that core toy business start to get to growth in the later stages of Q3 and more decisively in Q4 of 2025. But when I look at the cards that Hasbro has and I look at where the megatrends are in terms of the business of play, I feel really good about how we're positioned and what our long-term prospects are.

Gina Goetter: But I feel good about how we're getting our arms wrapped around that, particularly the cost side. I think you're going to see that core toy business start to get to growth in the later stages of Q3 and more decisively in Q4 in 2025.

Gina Goetter: But when I look at the cards that Hasbro has, and I look at where the megatrends are in terms of the business of play, I feel really good about how we're positioned and what the long-term prospects for the company is.

Unknown Executive: Thank you very much. Thank you.

Gina Goetter: Matt, just to build on that, because I think that was an excellent setup, we all owe you a broader conversation about where we're headed, and coming up in the new year will be an investor day where we'll sit down and talk through all of this, because our strategy is shifting, as you heard Chris say, and it's following the growth trends, which follow profit and business models too. You can see in our results that we're headed to a much more profitable place as we're leaning into games and IP, and then all of the effort that we're making on the toy turnaround. Our focus there is really on getting back to profitability and getting back to growing share in the categories where we're competing. I think our IP, our businesses, and our brands are set up very well for where we're headed.

Speaker Change: Thank you very much. Thank you. Oh, go ahead. Just to build, because I think that was an excellent setup.

Speaker Change: You know, we all owe you a broader conversation about where we're headed and, you know, to come in the new year will be an investor day where we'll sit down and talk through all of this.

Speaker Change: Because our strategy is shifting, as you heard Chris say, and it's...

Speaker Change: Following the growth trends which follow.

Chris: The Profit and the Business Models, too. So, I mean, you can see a playthrough in our results where we're headed is a much more profitable place as we're leaning into games and IP.

Chris: and then all of the effort that we're making on the toy turnaround.

Chris: Our focus there is really on getting back to profitability and getting back to growing share in the categories where we're competing. So I think our IP, our businesses, our brands are set up very well for where we're headed.

Unknown Executive: Thank you both. Very helpful. Thank you.

Speaker Change: Thank you both. Very helpful. Thank you.

Christopher Michael Horvers: Our next question comes from the line of Christopher Horvers with JPMorgan Chase & Company. Please proceed with your question.

Chris: Thank you.

Speaker Change: Our next question comes from the line of Christopher Horvers with JPMorgan Chase & Company. Please proceed with your question.

Unknown Executive: Thanks and good morning. So my first question is, can you talk about the headwind that the Transformers movie lap presented here in the second quarter and also the exit in business headwind as we try to tease out what the underlying business trend is in the consumer products business and then bridge that to your assumption for the inflection ahead in the third and fourth quarter and perhaps reconcile that back to what you're seeing on the POS side.

Christopher Michael Horvers: Thanks and good morning. So my first question is, can you talk about the headwind that the Transformers Movie Lab presented here in the second quarter and also the exit in business headwind as we try to tease out, you know, what the underlying business trend is in the consumer products business?

Speaker Change: And then bridge that to your assumption for the inflection ahead in the third and fourth quarter and perhaps reconcile that back to what you're seeing on the POS side.

Chris Cocks: Chris, I'll give you the English major answer first and then you'll get the Kwan answer from Gina following. I think good morning, by the way.

Chris: Chris, I'll give like the I'll give the English major answer and then you'll get the Kwan answer from Gina following And good morning, by the way, so it's back in half the second quarter of last year You know, we had quite a number of releases both from our partners at Disney

Gina Goetter: as well as the Transformers movie.

Speaker Change: Transformers POS was up something like 90% in Q2 of 2023. It's down a bit this year, it's down like five or six percent through the first half of the year which is remarkable because we haven't had a lot of content since that movie.

Chris Cocks: So, if I could have the second quarter of last year, you know, we had quite a number of releases, both from our partners at Disney, as well as the Transformers movie, and Transformers POS was up something like 90% in Q2 of 2023. So, we see a surge in Transformers POS likely starting in the August, September timeframe going into Q4 around the release of Transformers 1. Every indication we have from early screenings and tracking is that that movie is going to be a real fan favorite with some nice legs into families.

Speaker Change: So we see a surge in Transformers POS.

Speaker Change: Likely starting in the August-September time frame, going into Q4, around the release of Transformers 1. Every indication we have from early screenings and tracking is that that movie is going to be a real fan favorite with some nice legs and families.

Speaker Change: We think it'll sell a lot of toys, as Transformers movies tend to have done.

Speaker Change: And then we like also the back half of the year in terms of new content that we have for Beyblade.

Speaker Change: Deadpool and Wolverine is shaping up to be a nice big movie. I don't think we're going to be selling a lot of preschool product for that, but certainly there's a nice collector's business associated with it.

Speaker Change: And so, you know, when we think about Q3 and we think about growth.

Chris Cocks: And then a lot of the new resets that we did in Q2 for things like NERF and for things like Beyblade, you'll really start to see the impact of those in August and September as the sets start to roll out past some initial quantities in a hundred or a couple hundred stores to several thousand stores.

Speaker Change: We see that entertainment window kind of popping up in the September time frame and extending into Q4. And then a lot of the new resets that we did in Q2 for things like NERF and for things like Beyblade, you'll really start to see the impact of those in August and September as the sets start to roll out past, like, you know, some initial quantities in a hundred or a couple hundred stores to several thousand stores.

Gina Goetter: Got it. And now for the math answer, not the English answer.

Speaker Change: Got it. And now for the math answer, not the English answer. Good morning. So as we think specifically about what's happening within our shipments in the quarter.

Christopher Michael Horvers: Good morning. So we think specifically about what's happening with our shipments this quarter. Besides transformers, which absolutely didn't have an impact, closeouts were down materially again. So we talked about closeouts in Q1. In Q1, we were down about 50%. In Q2, we were down 57%. So, Purchase Shipments, and Health Margins so that we're okay with that trade-off. And then the second piece that you asked about was the exited businesses. So that, in the quarter, represented about three to four points of the decline, and that's going to carry with us into the back half of the year. So, in aggregate, for the whole year, think about three to four points still coming from those divested businesses or exited businesses.

Speaker Change: Transformers, which absolutely was an impact, closeouts were down materially again. So we talked about closeouts in Q1, Q1 we were down about 50%, Q2 we were down 57%. So

Speaker Change: Herd Shipments Health Margin. So that's where we're okay with that trade-off.

Speaker Change: And then the second piece that you asked about was the exited businesses. So that, in the quarter, represented about three to four points of the decline. And that's going to carry with us into the back half of the year. So in aggregate, the whole year, think about three to four points still coming from those divested businesses or exited businesses.

Gina Goetter: So my good segue. So I'm trying to think about the underlying gross margin rate as the business as it currently looks today, obviously, mix going forward, and magic and digital games could be additive to this. But if we just simply back out the effect of the go step up the 35 million dollars, it looks like you're running a 73 ish kind of underlying gross margin rate. And obviously, there's more cost savings to come. So can you maybe share any thoughts about, you know, where that is now and how that is the right thing to do? And how that will grow over time?

Speaker Change: To my, good segue.

Speaker Change: So I'm trying to think about the underlying gross margin rate as the business as it as it currently looks today, obviously, mix going forward and magic and digital games could be additive to this.

Speaker Change: But if we just simply back out the effect of the Go Step Up, the $35 million, it looks like you're running a $73-ish kind of underlying gross margin rate, and obviously there's more cost savings to come.

Speaker Change: Can you maybe share any thoughts about, you know, where that is now and how that, is that right, and how that grows over time?

Gina Goetter: Yeah, I think that's generally right. And as we continue to see that mixed shift towards digital, that's going to be a big driver of continued growth. As we think about the back half of the year and kind of what we're going to carry with us, we still have a fair amount of cost savings within our purchase expenses and our people cost savings. So all of the actions that we put in place at the end of last year will continue to increase in terms of magnitude as we move through the back half of the year. And then, as we move into 2025 and 2026, we're going to have all of the benefit of kind of a refined mix plus a much, much healthier, kind of below-the-line cost structure.

Speaker Change: Yeah, I think that that's generally right. And as we continue to see that mixed shift towards digital, that's going to be a big driver of the continued growth. As we think about the back half of the year, and kind of what's going to carry with us, we still have a fair amount of

Speaker Change: cost saves within our purchase expenses and our people cost savings. So all of the actions that we put in place.

Speaker Change: at the end of last year, that will continue to increase in terms of magnitude as we move through the back half of the year. And then as we move into 25 and 26, we're gonna have all of the benefit of kind of a refined mix plus a much, much healthier kind of.

Christopher Michael Horvers: Got it. Thank you very much.

Speaker Change: below the line cost structure.

Speaker Change: Got it. Thank you very much.

Andrew Edward Crum: Thank you. Our next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Speaker Change: You're welcome.

Speaker Change: Thank you. Our next question comes from the line of Drew Crum with Stiefel. Please proceed with your question.

Unknown Executive: Okay, thanks. Hey guys, good morning.

Andrew Edward Crum: Okay, thanks. Hey guys, good morning. Maybe just sticking with margins, can you remind us what the major margin headwinds are for the Wizards business in the second half? You know, it looks like the implied margin is in the mid-30s range versus 48 for the first half.

Andrew Edward Crum: Maybe just sticking with margins, can you remind us what the major margin headwinds are for the Wizards business in the second half? It looks like the implied margin is in the mid-30s range versus 48 for the first half. And, more broadly speaking, why would you not be able to reach a 20% EBIT margin before 2027? What are the impediments to achieving that stated target early?

Speaker Change: And I guess more broadly speaking, why would you not be able to reach a 20% EBIT margin before 2027? What are the impediments to achieving that stated target earlier?

Gina Goetter: We were wondering who was going to ask that question. So Drew, you win. You win the gold star.

Speaker Change: We were wondering who was going to ask that question. So Drew, you win, you win, you win the gold star. Okay, so for your question on the year to go,

Gina Goetter: Okay, so for your question on the year to go on Wizards, it all comes down to Baldur's Gate. That's really the single biggest driver of what we're doing. Just think about the revenue contribution last year. It was very, very centralized in Q3. And while Monopoly GO is going to be a good contributor for us in the back half, it's not going to completely offset the impact from Baldur's Gate, as modeled within our guidance today. So that's what causes the drag on margin in the back half for Wizards. And the later magic schedule. Yeah, and the really big one is going to be...

Speaker Change: UnWizard

Speaker Change: It all comes down to Baldur's Gate. That's really the single biggest driver of what we're lapping. Just think about the revenue contribution.

Speaker Change: Last year, it was very, very centralized in Q3, and while Monopoly Go is going to be a good contributor for us in the back half, it's not going to completely offset the impact from Baldur's Gate, or as modeled as within our guidance today. So that's what causes the drag on margin in the back half for Wizards. And the later Magic schedule. Yeah, and the later, yeah, but the really big one is going to be that Baldur's Gate.

Speaker Change: In terms of what, getting to the 20%, I mean, we are, we are within.

Speaker Change: Striking Distance of getting there this year. I know that you can all do the math and see that. There's really two things as we think about crossing that threshold. One is Monopoly Go. So if that does contribute more than that $105 million, that will take us over.

Speaker Change: The other thing is CP. So we still have a range in margin on the CP and the range on the revenue. If we are able to kind of finish on the better end of both of those ranges, that will also help to get us there. But we are making really good progress. At this point, I'm not going to commit to any more cost savings. I feel like we've got the right cost savings number, net cost savings number, for the year of that $200 to $250.

Speaker Change: But if Monopoly GO continues to be better than what we are modeling and is in our guidance now, and TP performs a bit better, yep, we could absolutely get there before 2027.

Gina Goetter: Got it. Okay. Very helpful.

Speaker Change: Got it. Okay, very helpful. And then maybe Chris, you know, a competitor earlier this week suggested toy sales outperformed during the first half and raised their market forecast for the year. Do you share that view? And if so, where do you see toy sales shaking out for the industry in 24? Thanks.

Chris Cocks: And then maybe Chris, you know, a competitor earlier this week suggested toy sales outperformed during the first half and raised their market forecast for the year. Do you share that view? And if so, where do you see toy sales shaking out for the industry in 24?

Chris Cocks: Sure. Good morning.

Chris: Sure. Good morning. Two things.

Chris Cocks: Two things. So, yes, toy sales are doing better in the first half of the year. That's really driven by building sets and trading card games. So, I give a lot of credit to LEGO and Magic the Gathering, frankly, for really understanding their consumers and driving upside with what I think is the fastest growing segment inside of the business of play, which is consumers 13 plus and really 18 plus when you think about Magic and what LEGO's been doing.

Chris: Yes, toy sales are doing better in the first half of the year. That's really driven by building sets and trading card games, so I give a lot of credit to Lego and Magic the Gathering, frankly, for really understanding their consumers and driving upside with...

Chris: What I think is the fastest growing segment inside of the business of play, which is consumers 13 plus and really 18 plus.

Chris Cocks: When you look at the balance of the industry, it's roughly performing what I think us and a lot of the industry prognosticators and our peers in the industry thought, and we see that roughly carrying into the back half. So, you know, when we think about our guidance for, you know, toys, call it down high single digits when you kind of take the median of what we're saying, we're factoring in both the exited businesses, what we think will be a toy industry that will be down kind of in that mid single digit range but starting to hopefully improve a bit in the back half, and the category tailwinds we saw in building blocks A lot of our guidance, though, isn't really based on the industry; it's based on our execution and the retailer support we have. I got it. Thanks, guys.

Chris: When you look at the balance of the industry, it's roughly performing what I think us and a lot of the industry prognosticators and our peers in the industry thought. And we see that roughly carrying into the back half.

Chris: So, you know, when we think about our guidance for, you know, toys, call it down, high single digits, when you kind of take the median of what we're saying.

Chris: We're factoring in both the exited businesses.

Chris: What we think will be a toy industry which will be down kind of in that mid-single digits range but starting to hopefully improve a bit in the back half and the category tailwinds we saw in building blocks and TCG potentially growing a bit for more categories

Chris: A lot of our guidance though isn't really based on the industry, it's based on our execution and the retailer support we have.

Speaker Change: Got it. Thanks, guys.

Andrew Edward Crum: Thank you. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Speaker Change: Thanks. Thank you.

Speaker Change: Transcribed by https://otter.ai

Speaker Change: Thank you. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Alexander Thomas Perry: Hi, thanks for taking my questions and congrats on a great quarter here. I wanted to drill down a little bit more on the magic business. Can you just talk about the performance of Modern Horizons 3 and how big of a contribution that could be versus Lord of the Rings, given you said that it's the fastest selling set of all time so far, which would imply that it's sort of off to a quicker start than Lord of the Rings. And then maybe just remind us of the contribution of Lord of the Rings and sort of how you think Modern Horizons 3 could stack up against that Thanks.

Alexander Thomas Perry: Hi, thanks for taking my questions and congrats on a great quarter here.

Alexander Thomas Perry: I wanted to drill down a little bit more on the magic business. Can you just talk about the performance of Modern Horizons 3 and how big of a contribution that could be versus Lord of the Rings, given you said that it's the fastest-selling set of all time so far, which would imply that it's sort of off to a quicker start than Lord of the Rings? And then maybe just remind us of the contribution of Lord of the Rings

Alexander Thomas Perry: Sort of how you think Modern Horizons 3 could stack up against that. Thanks.

Chris Cocks: Yeah, sure. So Modern Horizons did get off the gates really fast. A lot of collector-heavy sets like formats like Modern Horizons appeal to do, and we think it will have a very, very long tail. You know, when you looked at Modern Horizons 2, we were continuing to sell cards for that, you know, 30 months into its run. So, we expect Modern Horizons 3 to, you know, if not be our best-selling set of all time, which is currently held by Lord of the Rings, to certainly be a contender for it.

Speaker Change: Yeah, sure.

Speaker Change #101: Modern Horizons did get off the gates really fast. A lot of collector-heavy sets like

Speaker Change: like formats like Modern Horizons appeals to do. And we think it'll have a very, very long tail. You know, when you looked at Modern Horizons 2, we were continuing to sell cards for that, you know, 30 months into its run.

Speaker Change: So we expect Modern Horizons 3 to, you know, if not be our best selling set of all time, which is currently held by Lord of the Rings.

Chris Cocks: I think the difference with it is going to be the timeline. You know, Lord of the Rings had a major set release in June and then kind of a minor photo added to it in December, which allowed it to hit $200 million really fast. Modern Horizons 3 has a big set release and then a bunch of reprints, which will span out over a couple years. So, you know, I don't think we're going to get the same oomph that we did from Lord of the Rings in Q4 from Modern Horizons as we did last year, but I think we'll have a nice fatter tail going into 2025 and potentially 2026 from a product

Speaker Change: to certainly be a contender for it.

Speaker Change: I think the difference with it is going to be the timeline. You know, Lord of the Rings had a major set release in June , and then kind of a minor quota to it in December , which allowed it to hit $200 million really fast.

Speaker Change: Modern Horizons 3 has a big set release and then a bunch of reprints, which will span out over a couple years.

Speaker Change: So, you know, I don't think we're going to get the same oomph that we did from Lord of the Rings in Q4 from Modern Horizons like we did last year, but I think we'll have a nice battered tail going into 2025 and potentially 2026 from a product like that.

Gina Goetter: My only add is that when you look at the quarter, specifically within the quarter, Modern Horizons 3 actually outperformed Lord of the Rings. But to Chris's point, if you look over the full year, because we won't have that holiday set, that's where the overall launch will be a little bit short.

Speaker Change: Yeah, my only add is you look at the quarter, specifically within the quarter, Modern Horizons 3 actually outperformed Lord of the Rings.

Alexander Thomas Perry: Incredibly helpful. Thanks for the clarity there.

Speaker Change: But to Chris's point, if you look over the full year, because we won't have that holiday set, that's where the overall launch will be a little bit short.

Chris Cocks: And then just digging in on consumer products. I just wanted to ask sort of what signs of green shoots are most encouraging in consumer products? I guess, what toys and properties are you most excited for in the back half? And can you give us any early reads on, you know, Beyblade specifically, sort of any channel commentary you're getting there? Thank you.

Speaker Change #100: incredibly helpful. Thanks for clarity there.

Speaker Change #105: And then just digging in on consumer products, I just wanted to ask sort of what signs of green shoots are most encouraging in consumer products? I guess, what toys and properties are you most excited for in the back half? And can you give us any early reads on, you know, Beyblade specifically, sort of any channel commentary you're getting there? Thank you.

Chris Cocks: Well, I think you stole my top green shoot by just mentioning Beyblade. Beyblade X is performing well in some early outs in select markets. It's probably the best performing Beyblade release we've ever had in the UK. It usually does really well in France. And again, it's doing well in France. And in the select spots that it's available in the U.S., it's selling out and selling out very quickly.

Speaker Change #102: Well, I think you stole my top green shoot with just mentioning Beyblade. Beyblade X is performing well in some early outs in select markets.

Speaker Change #104: It's probably the best-performing Beyblade release we've ever had in the UK. It usually does really well in France, and again, it's doing well in France.

Speaker Change #100: and in the selection.

Gina Goetter: You know, our belief is Beyblade X will be one of the top new toys or refresh toys of 2024 and could actually claim the top spot, very similar to what we did with Furby last year. Furby continues to do well. We like how Furblitz is really driving the right price point and extending that franchise. We've seen a lot of nice momentum with Peppa Pig. I think, you know, after a couple of years of owning that franchise, not only are we hitting the right notes on the entertainment, but we're starting to hit the right notes on the toys, particularly the price points and kind of the wow moments that we have.

Speaker Change #100: Spots that it's available in the U.S. It's selling out and selling out very quickly.

Speaker Change #100: You know, our belief is Beyblade X will be...

Speaker Change #100: One of the top new toys, or refreshed toys of 2024, and could actually claim the top spot very similar to what we did with Furby last year. Furby continues to do well. We like how FurBlitz are really driving the right price point and extending that franchise.

Speaker Change #100: We've seen a lot of nice momentum with Peppa Pig. I think, you know, after a couple years of owning that franchise, not only are we hitting the right notes on the entertainment, but we're starting to hit the right notes on the toys, particularly the price points and kind of the wow moments that we have.

Gina Goetter: You know, Transformers, I think, is shaping up to be a really nice Q3 and Q4 with Transformers 1. And then D&D, I also really like. I think you just asked about consumer products, but I'm going to talk about the whole portfolio. The D&D refresh to the core rules of 5th edition is going out the gate strong, and pre-orders are breaking any records that we have. It's exceeding our forecast. Now, that'll help a bit in Q3 and Q4 when some of the products are released, but some of those products don't release until Q1 and Q2 of next year. So, again, I think we have a nice kind of healthy midterm projection for businesses as well.

Speaker Change #100: Transformers, I think, is shaping up to be a really nice Q3 and Q4 with Transformers 1.

Speaker Change #100: And then D&D, I also really like, I think you just asked maybe about consumer products, but I'm going to talk about the whole portfolio. The D&D refresh to the core rules of 5th edition is going out the gate strong.

Speaker Change #100: Pre-orders are breaking any records that we have. It's exceeding our forecast.

Speaker Change #100: Now, that'll help a bit in Q3 and Q4 when some of the products release, but some of those products don't release until Q1 and Q2 of next year. So again, I think we have a nice kind of healthy midterm projection on the businesses as well.

Alexander Thomas Perry: And Alex, the one I'd have not brand and product related per se, but it is it is a positive that we continue to trend well on inventory, both our own inventory as well as retail inventory. So retail inventory was down again about 18, 20% within the quarter. So we're sitting at super healthy levels as we head into the holiday.

Speaker Change #100: Okay.

Speaker Change #100: I'd have not brand and product related per se, but it is a positive that we continue to

Speaker Change #100: to trend well on inventory, both our own own inventory as well as retail inventory. So retail inventory was, I think down again, about 18-20% within the quarter. So we're sitting at super healthy levels as we as we head into the holidays.

Chris Cocks: Perfect. That's really helpful. Best of luck going forward.

Alexander Thomas Perry: Thanks. Bye soon. Thank you. And our next question comes from the line of Fred Wightman with Wolf Research. Please proceed with your question.

Speaker Change #110: Perfect. That's really helpful. Best of luck going forward.

Speaker Change #103: Thanks. Talk soon.

Speaker Change #106: Thank you. And our next question comes from the line of Fred Wightman with Wolf Research. Please proceed with your question.

Frederick Charles Wightman: Hey guys, good morning. Just to stick with the consumer products business, I know in the past you'd sort of hinted that that could reach the 10% or double-digit target that you talked about in 4Q. I'm wondering if you could just give us an update on how realistic that is and maybe what the biggest swing factor is. Is it really POS? Is it a matter of maybe cost saving hitting sooner? What sort of gets you there?

Frederick Charles Wightman: Hey guys, good morning. Just to stick on the consumer products business, I know in the past you'd sort of hinted that that could reach the 10% or double digit target that you've talked about in 4Q. I'm wondering if you could just give us an update on that.

Speaker Change #107: How realistic that is, and maybe what the biggest swing factor is. Is it really POS? Is it a matter of maybe cost saves hitting sooner? What sort of gets you there, or potentially gets you there?

Gina Goetter: In Q4 specifically, Fred, is that your question? Yeah, for Q4 this year, yep. Got it.

Speaker Change #107: In Q4 specifically, Fred, is that your question? Yeah, for Q4 this year. Got it. Yeah, no, we do anticipate it getting...

Chris Cocks: Yeah, no, we do anticipate it getting to that 10% level in Q4. It really comes down to leverage and volume, right? As we've talked about, that's been the single biggest drag on the margin as we move to the front half of the year. So as you put all the revenue in Q3, both of those quarters tend to be at that 10, 11% mark, and that's what we're planning for. I think our goal is to have that 10, 11%, not just be in the back half of the year, but we're working towards having that be for the entire year, which would then say that the front half of the year is around that 10, 11, or maybe a little less, and then the back half of the year is in the low teens leveraging, or kind of moving with revenue.

Speaker Change #107: to that 10% level in Q4, it really comes down to...

Speaker Change #116: Unknown Executive, Christian Cocks, Debbie Hancock

Speaker Change #111: at that 10, 11% mark. And that's what we're planning for. I think our goal is to have it.

Speaker Change #107: That 10, 11% not just be in the back half of the year, but we're working towards having that be for the entire year, which would then say that the front half of the year is around that 10, 11, or, you know, maybe a little less. And then the back half of the year is in the low teens leveraging or kind of moving with moving with revenue. So all of the work that we're doing this year to get that profitability. Right? All of the work we're doing on pricing on mix, and I'm getting the product design in the right way. All of that will contribute as we move into 25 and 26.

Chris Cocks: So all of the work that we're doing this year to get that profitability right, all of the work we're doing on pricing and on mix, and on getting the product design in the right way, all of that will contribute as we move into 25 and 26, getting the entire year for CP to have two digits.

Speaker Change #107: I'm getting the entire year for CP to have two digits.

Frederick Charles Wightman: Make sense. And then given the momentum in digital, given the momentum with some of the lower cost price points you've talked about in consumer products, can you just give us an update on how you view some of the bigger licenses in the consumer space being a part of the Hasbro story going forward? Do you think that you still need some of these master licenses, or do you feel like there's enough that you can sort of do outside of those bigger tentpoles to get the consumer products business where you need it to be? Oh, absolutely. We've been

Speaker Change #112: It makes sense. And then, given the momentum in digital, given the momentum with some of the lower cost price points you've talked about in consumer products, can you just give us an update on how you view...

Speaker Change #114: Some of the bigger licenses in the consumer space, being a part of the Hasbro story going forward, do you think that you still need to have some of these master licenses or do you feel like there's enough that you can sort of do outside of those bigger tentpoles to get the consumer products business where you need it to be?

Chris Cocks: Oh, absolutely. We've been in business with Takara Tomy, who's the licensor of Beyblade, for decades. They're super important for us. And, you know, we've been in business with the Walt Disney Company since 1954. And if anything, I think you're going to see us doubling down on our partnership with them and expanding where it could go. You know, whether it's toys, games, or trading cards and role play, they're going to be a big part of our story for years to come. Great. Thanks a lot.

Speaker Change #109: Oh, absolutely. We've been in business with Takara Tomy, who's the licensor for Beyblade for decades.

Speaker Change #109: They're super important for us and, you know, we've been in business with the Walt Disney Company since 1954. And if anything, I think you're going to see us doubling down on our partnership with them and expanding where it could go, you know, whether it's toys games.

Speaker Change #109: or trading cards and role play. They're going to be a big part of our story for years to come.

Unknown Executive: And we have reached the end of the question and answer session, and this also concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.

Speaker Change #113: Thank you. And we have reached the end of the question and answer session, and this also concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.

Speaker Change #117: Unknown Executive, Christian Cocks, Debbie Hancock

Unknown Executive: BF-WATCH TV 2021

Speaker Change #115: [inaudible] Will never give you up Will never give you up Will never give you up

Christopher Wightman: Christopher Wightman, Andrew Crum, James Hardiman, Frederick Wightman

Larry Weaver: www.larryweaver.com www.larryweaver.com

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