Q3 2024 Hasbro Inc Earnings Call
Good morning, and welcome to Hasbro's third quarter 'twenty 'twenty four earnings conference call. At this time, all parties will be in a listen only mode. If anyone needs operator assistance. Please press star zero on your telephone keypad.
Operator: and welcome to Hasbro's third quarter, 2024 earnings conference call. At this time, all parties will be in the listen-only mode. If anyone needs operator assistance, please press star zero on your telephone keypad.
Operator: Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Today's conference is being recorded if you have any objections you may disconnect at this time.
Kern Kapoor: At this time, I would like to turn the call over to Kern Kapoor, Senior Vice President of Invest Relations. Please go ahead.
Speaker Change: At this time I would like to turn the call over to Karen <unk> Senior Vice President of Investor Relations. Please go ahead.
Kern Kapoor: Thank you and good morning, everyone. Joining me today are Chris Cox, 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.
Speaker Change: Thank you and good morning, everyone.
Karen: Joining me today are Chris Cox, Hasbro's, Chief Executive Officer, and Jim together, Hasbro's Chief Financial Officer.
Karen: Today, we will begin with Chris and Gina providing commentary on the Companys performance. Then we will take your questions. Our earnings release and presentation slides for today's call are all 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 <unk>.
Kern Kapoor: Then we will take your questions. Our earnings release and presentation slides for today's call are all 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-gap adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.
Karen: Gus certain adjusted measures, which exclude these non-GAAP adjustments.
Karen: A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.
Karen: Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.
Kern Kapoor: 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 measures. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q in today's press release, and in our other public disclosures.
Kern Kapoor: We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.
Kern Kapoor: I would now like to introduce Chris Cox. Chris?
Chris Cox: Thanks, Turn and Good Morning. Q3 continued to demonstrate the bottom line benefits of the structural and strategic changes we are making at Hasbro. Two of our strongest profit areas, games and licensing, outperformed, expanding operating profit margin for the third consecutive quarter. The dynamics we are observing across Magic and D&D in both analog and digital reinforce our confidence in the long-term health of the brands. Our competitive advantage as an IP licensor is also gaining steam. As we see the staying power of Monopoly go, the resurgence of fan-favor brands like My Little Pony and strong POS growth in our outlicens toy portfolio.
Karen: Choi portfolio.
Chris Cox: Consumer products revenue came in lighter than we anticipated, offset by strengths and wizards. But the pace of the decline moderated significantly versus the first half. We should see that trend continue into Q4. We are already seeing some encouraging data points across toys and board games that prove our innovation is getting sharper and retail alignment is healthy.
Karen: Consumer products revenue came in lighter than we anticipated offset by strength in wizards, but the pace of the decline moderated significantly versus the first half.
Karen: We should see that trend continue into Q4.
Karen: We're already seeing some encouraging data points across toys and board games that prove our innovation is getting sharper and retail alignment is healthy.
Chris Cox: While we are lowering our full-year revenue guidance for the segment, we are seeing a solid return to profitability for this business. An improving bottom line, coupled with strong fundamentals across the balance of our portfolio, auger much improved profitability and cash flow for Hasbro, both in 2024 and beyond. This resilience in our business model has been years in the making, strategically shifting our mix towards games, digital and IP licensing, the future of play. This is where the consumer is heading, and we're following our fans as they age up and look for their favorite brands on digital platforms. It's what will make Hasbro a diversified, modern, growing toy and game company.
Karen: While we are lowering our full year revenue guidance for the segment, we are seeing a solid return to profitability for this business.
Karen: And improving bottom line, coupled with strong fundamentals across the balance of our portfolio augur much improved profitability and cash flow for Hasbro, both in 2024 and beyond.
Karen: This resilience in our business model has been years in the making strategically shifting our mix towards games digital and IP licensing the future of play.
Karen: This is where the consumer is heading and we're following our fans as they age up and look for their favorite brands on digital platforms.
Karen: It is what will make Hasbro a diversified modern growing toy and game company.
Chris Cox: Gina will walk through more of the financials and our latest outlook, but first, I'll offer some business insights. Magic: The Gathering continues to be a standout, leading the trading card genre in growth year-to-date. This is despite big shoes to fill from last year's blockbuster, Lord of the Rings set. In Q3, Magic posted another quarter of growth, led by our 10 pull releases, Bloomboro and the horror-themed Dustmorn, showing how Magic Original IT consistently delights fans. Arena also posted solid growth, driven by Bloomboro, and healthy engagement with the standard format, with sequential upticks in new player acquisition rates and weekly average user counts.
Speaker Change: Jean will walk through more of the financials and our latest outlook, but first I'll offer some business insights.
Speaker Change: Magic the gathering continues to be a standout leading the trading card genre and growth year to date.
Speaker Change: This is despite big shoes to fill from last year's blockbuster Lord of the rings set.
Speaker Change: In Q3 magic posted another quarter of growth led by our Tentpole releases, Bloomberg, though and the horror themed desk Morn, showing how magic original IP consistently delight fans.
Speaker Change: Arena also posted solid growth driven by gloom, Boro and healthy engagement with the standard format.
Speaker Change: With sequential upticks in new player acquisition rates and weekly average user counts.
Chris Cox: Beyond the strength in 10 pull sets, we saw outperformance in Backlist, particularly Commander Dex, as well as Secret Layer, including a sold-out Festival in a Box ahead of this weekend's Magic Con in Las Vegas. It's shaping up to be our biggest one yet, and should be chock-full of exciting new product announcements, like the one we just did at New York Comic Con, with our partners at Marvel. Coming in December, Magic fans can get the first cards from our new collaboration with Marvel, featuring themed Secret Layer drops for five of their favorite Marvel superheroes, including Iron Man, Black Panther, and Wolverine.
Speaker Change: Beyond the strength in <unk>, we saw outperformance in backlist, particularly commander decks as well as secret layer, including a sold out festival in a box ahead of this weekend's magic Con in Las Vegas.
Speaker Change: It's shaping up to be our biggest one yet and should be chock full of exciting new product announcements like the one we just did at New York comic Con with our partners at Marvel cut.
Chris Cox: We are expecting each mini-set to immediately sell out. For D&D, the updated Player's Handbook for Fifth Edition is now our fastest-selling product in D&D's 50-year history. Beating planned by over 50%. And our acquisition of D&D Beyond continues to pay off, driving D&D's total mix of direct-to-consumer revenue from zero at the time of acquisition to 60% today, with registered users more than doubling to 19 million. I'm excited for fans to get their hands on the new Dungeon Master's Guide releasing next month. The new artwork of the hit and the streamlined introduction to running campaigns has been met with stellar early reviews.
Chris Cox: Licensing continues to be a bright spot across Hasbro. Monopoly Go is settling into a steady state, generating approximately 10 million in licensing revenue per month. Our partners at Scopely are continuing to innovate with new formats, including third-party content from Marvel and Tycoon Club, a new loyalty program to better service the community of dedicated fans. Working with a best-in-class partner like Scopely helps position Monopoly Go as a long-lasting mobile game at scale, and the team remains focused on driving user acquisition and retention. Within consumer products licensing, our strategy to out-license brands in the toy space is performing ahead of expectations.
Speaker Change: Our partners at scope we are continuing to innovate with new formats, including third-party content from Marvel and Tycoon Club, a new loyalty program to better service community of dedicated fans.
Speaker Change: Working with the Besting Class Partner like Scopeley, helps position monopoly go as a long-lasting mobile game at scale, and the team remains focused on driving user acquisition and retention.
Speaker Change: Within Consumer Products licensing, our strategy to outlice in brands in the choice base is performing ahead of expectations. Year to date, for real friends and little-est touch-ups, two recent outlice in properties, are showing over 50% year-of-year PLS growth.
Chris Cox: Year-to-date, for Real Friends and Littlest Pet Shop, two recent out-licensed properties are showing over 50% year-to-year POS growth. Building on last quarter's strengths, My Little Pony is having a resurgence through successful international partnerships across multiple merchandise categories, music, and collectible cards. And we continue to roll out some great products across platforms in partnership with Lego. For instance, Lego Peppa Duplo is now available in all markets. We also saw the release of the Lego Icons Bumblebee SKU ahead of our Transformers 1 movie release as part of Lego's Adults Welcome marketing campaign for Q4.
Speaker Change: Building on last quarter strings, my little pony is having a resurgence through successful international partnerships across multiple merchandise categories, music and collectible cards.
Speaker Change: and we continue to roll out some great products across platforms in partnership with Lego. For instance, Lego, Peppa Duplo is now available in all markets.
Speaker Change: We also saw the release of the Lego icons Bumblebee skew ahead of our Transformers 1 movie release as part of Lego's adult welcome marketing campaign for Q4
Chris Cox: Toy revenue Soppness was due in part to our decision to sell less close-out volume in favor of higher profitability, as well as incremental Soppness in action figures, particularly Star Wars. We do action figures as a long-term vet for the company and a place Hasbro has special strengths from preschoolers to kids to adult fans, so we are bullish about this segment's eventual return to growth. One of our bigger bets for this holiday is Beyblade, which launched its fourth-generation Beyblade X over the summer. Since turning on media just a few weeks ago, we've seen POS accelerate meaningfully, with promotional events that are top retail customers and expect that to continue with the new anime series on Netflix and Disney.
Speaker Change: Toy Revenue Soffniss was due in part to our decision to sell less clothes out volume in favor of higher profitability, as well as incremental softness and action figures, particularly Star Wars.
Speaker Change: We view action figures as a long-term vet for the company and a place has row has special strengths from preschoolers to kids to the adults fans. So we are bullish about this segment's eventual return to growth.
Speaker Change: One of our bigger bets for this holiday is Bayblade, which launched its fourth generation Bayblade X over the summer.
Speaker Change: Since turning on media just a few weeks ago, we've seen POS accelerate meaningfully, with promotional events at our top retail customers, and expect that to continue with the new anime series on Netflix and Disney.
Chris Cox: While we initially expected a bigger POS turn in Beyblade in Q3, we're excited to see it respond favorably in recent weeks and expect a strong ramp as awareness scales with kids. Marvel is also seeing some nice increases on the heel of Deadpool and Wolverine, the new X-Men 97 animated series, and continued strength with Spidey and his Amazing Friends, including our new hit preschool toy, Dancing Crawl Spidey. We're excited for 2025 with new Blackbuster 2026 lineup, including Avengers Dune's Day, a new Spider-Man, and a new Mandalorian and Grogu Star Wars film, helmed by Blackbuster director John Favreau.
Speaker Change: While we initially expected a bigger POS turn in Babilaating Q3, we're excited to see it respond favorably in recent weeks and expect a strong ramp as awareness scales with kids.
Speaker Change: Marvel is also seeing some nice increases on the heel of Deadpool and Wolverine, the new X-Men 97 animated series, and continued strength with Spidey and his amazing friends, including our new hit preschool toy, Dancing Cross Spidey.
Speaker Change: We're excited for 2025 with new Captain America and Fantastic Four Blockbuster Films on the Verizon and Building Hipe for Disney's Blockbuster, 2021.
Speaker Change: including Avengers, Dean's Day, a new Spider-Man, and a new Mandalorian and Groves Star Wars film, helmets by Blockbuster Director John Fabro.
Chris Cox: Play-Doh had its best back to school ever, with POS up almost 20%, and the classic color floor pack rising to the number one position across the entire arts and crafts category. We're seeing good early momentum for the pizza delivery scooter with strong top toy placement at our major retail partners. We also have some exciting innovations for Peppa Pigs with Muddy Puddles Peppa, a top toy at Walmart and Amazon.
Speaker Change: Played-o had its best-backed school ever with POS up almost 20% and the classic color floor pack rising to the number one position across the entire Arts and Crafts category.
Speaker Change: We're seeing good early momentum for the Pizza Delivery Scooter with strong top toy placement at our major retail partners.
Speaker Change: We also have some exciting innovations for Peppapapings with Muddy Puddles Peppa, a top toy at Walmart and Amazon. Last but not least, our board game portfolio is one of the earliest examples of our new focus on fast market innovation across consumer segments.
Chris Cox: Last but not least, our board game portfolio is one of the earliest examples of our new focus on fast market innovation across consumer segments. Whether it's our new Monopoly Harry Potter board game for families, Life and Rotera, the new award-winning strategy game, or our Schmelos, a best-selling adult car game from Germany we are partnering with for international expansion, Hasbro is delivering delightful new products that are getting consumer attention and driving new sales. Combined, we are pairing our new products with significant expansions of the in-store promotions while boosting advertising year-of-a-year for our innovation bets to drive consumer demand.
Speaker Change: Whether it's our new monopoly Harry Potter board game for families, life in Routerra, the new award-winning strategy game, our smell of bestselling adult card game from Germany we are partnering with for international expansion.
Speaker Change: has rose delivering delightful new products that are getting consumer attention and driving new fails.
Speaker Change: Combined, we are pairing our new products with significant expansions of the Instor promotions, while boosting advertising year over year for innovation bets to drive consumer demand.
Chris Cox: It's still early in the holiday, but we anticipate continued improvement in our toy business as we build the foundation for continued profit growth in 2025 and 2026.
Speaker Change: It's still early in the holiday, but we anticipate continued improvement in our toy business, as we build the foundation for continued profit growth in 2025 and 2025.
Chris Cox: To recap, I'm pleased with Hasbro's executing. Our margins are up, our inventories are down, and the healthiest they've been in seven years. Our cost structure is getting where we needed to be, and our toys are showing up on shelf the best they have in years. Our key initiatives around digital, licensing, and reinvigorating our product innovation are bearing fruit as we meet fans where they are. While we are still mid-innings in our toy turnaround, 2024 promises to show a significant uptick in profit, cash flow, and operational rigor for the company. That will set us up for 2025 and beyond.
Speaker Change: To recap, I'm pleased with Alhaz Rose executing. Our margins are up, our inventories are down, and the healthiest they've been in seven years.
Speaker Change: Our cost structure is getting where we need it to be and our toys are showing up on shelf the best they have in years.
Speaker Change: Our key initiatives around digital, licensing, and reinvigorating our product innovation or bearing fruits as we meet bands where they are.
Speaker Change: While we are still mid-innings in our toy turnaround, 2024 promises to show a significant uptick and profit, cash flow and operational rigor for the company. That will set us up for 2025 and beyond.
Gina Goetter: I'd now like to turn our call over to Gina Getter to share more on our results and what you should expect for the balance of the year. Gina.
Speaker Change: I'd now like to turn into Callover to Gina Getter to share more on our result and what you should expect for the balance of the year. Gina?
Gina Goetter: Thanks, Chris, and good morning everyone. Our Q3 results demonstrated the increasing resilience in the Hasbro business model, underpin by the strengths in gaming and licensing. While toy revenue fell short of expectations, we still saw a significant moderation in the decline as compared to the first half, while achieving the highest operating margin for the segment in three years. Between strength and wizards, licensing performance, and improvements in the underlying profitability of toys, I'm encouraged by the healthier position Hasbro is in today versus the start of the year. The outperformance in our wizard segment has proven that our leadership positions in trading cards, role-playing, and digital licensing continue to resonate.
Gina Getter: Thanks Chris and good morning everyone. Our Q3 results demonstrated the increasing resilience in the Hasbro business model, underpinned by the strengths, in gaming and licensing.
Gina Getter: While Chloe Revenue, fell short of expectations, we still saw a significant moderation in the decline as compared to the first half, while achieving the highest operating margin for the segment in three years.
Gina Getter: between strengthened wizards, licensing performance, and improvements in the underlying profit ability of toys. I'm encouraged by the healthier position has row is in today versus the start of the year.
Gina Getter: The outperformance in our wizard segment has proven that our leadership positions in trading cards, role-playing, and digital licensing, continue to resonate. Magic delivered in all around salad quarter across tabletop and digital for both ten-pole and back-less content.
Gina Goetter: Magic delivered in all around solid quarter across tabletop and digital for both 10 poll and backless content. Consumer product licensing was a bright spot for the second straight quarter, driven by My Little Pony trading cards, and a notable driver behind the CP operating margin expansion. Our supply chain team delivered once again, finding additional productivity wins, while our inventory has remained at multi-year lows, down 40% year over year. Our strategic decision to keep supply tight has resulted in a significant drop in close out volume, which continues to be a gross margin benefit at the expense of CP revenue.
Gina Getter: Consumer Product Licensing was a bright spot to the second straight quarter driven by my little pony training cards and a notable driver behind the CP operating margin expansion.
Gina Getter: Our supply chain team delivered once again finding additional productivity winds while our inventory has remained at multi-year lows down 40% year over year.
Gina Getter: Our strategic decision to keep supply tight has resulted in a significant drop in close-out volume, which continues to be a gross margin benefit at the expense of CP revenue.
Gina Goetter: This is a trade-off we are consciously making as we continue prioritizing restoration of toy profitability, while sharpening our innovation to drive premium offerings to our retail partners. Staying disciplined with our inventory across all our businesses is the right long-term decision for the company, but it also heightens the importance of accurate demand forecasting and supply chain agility. As we continue to upgrade our process season systems, we are focused on strengthening that muscle to ensure we have adequate supply of the products our customers want. As part of our transformation, we continue to look for opportunities to improve operational efficiency.
Gina Getter: This is a trade-off we are consciously making as we continue prioritizing restoration of toy profitability, while sharpening our innovation to drive premium offerings to our retail partners.
Gina Getter: Dang discipline with our inventory across all our businesses is the right long term decision for the company, but it also heightens the importance of accurate demand forecasting and supply chain agility.
Gina Getter: As we continue to upgrade our processes and systems, we are focused on strengthening that muscle to ensure we have adequate supply of the products or customers want.
Gina Getter: As part of our transformation, we continue to look for opportunities to improve operational efficiency. As an example, we recently announced that within the CP segment, our global brand and commercial teams will be coming together as one organization under the leadership of Tim Kelpin.
Gina Goetter: As an example, we recently announced that within the CP segment, our global brand and commercial teams will be coming together as one organization under the leadership of Tim Kilpen. We are also expanding our design team scope, further integrating them with our supply chain and product development teams in Asia. By bringing the design process closer to the source, we can bring products to market faster and allocate resources more efficiently across our portfolio. A continuous improvement mindset is a key component of our broader transformation, and we will remain agile in adopting processes and structures to best meet the needs of all our stakeholders.
Gina Getter: We are also expanding our design team scope for their integrating them with our supply chain and product development teams in Asia By bringing the design process closer to the source, we can bring products to market faster and allocate resources more efficiently across our portfolio
Gina Getter: A continuous improvement mindset is a key component of our broader transformation, and we will remain agile in adapting processes and structures to best meet the needs of all our stakeholders.
Gina Goetter: Now moving to our Q3 financial results. Total Hasbro revenue was $1.3 billion, down 15% versus Q3 of last year. If you exclude the impact of the E1 divestiture, total revenue was down 9%. The wizard segment declined 5% in the quarter as we lapped the launch of Baldur's Gate 3. Consumer products revenue declined 10% driven by exited brands, reduced closeouts, and softer than anticipated volume, and the entertainment segment declined 86% due to the E1 divestiture. Absent is an impact, entertainment revenue decreased 17% driven by deal timing. Adjusted operating profit was $329 million for an adjusted operating margin of 25.7%, up 2.9 points versus last year.
Speaker Change: Now moving to our Q3 financial results. Total Hasbro revenue was $1.3 billion, down 15% versus Q3 of last year. If you exclude the impact of the E1 debesature, total revenue was down 9%.
Speaker Change: The Wizard segment declined 5% in the quarter, as we laughed at the launch of Baldur State 3.
Speaker Change: Consumer Products revenue declined 10% driven by exited brands, reduced clothes out, and softer than anticipated volume.
Speaker Change: and the entertainment segment declined 86% due to the evil and debesature. As in this impact, entertainment revenue decreased 17% driven by deal timing.
Speaker Change: Adjusted Operating Profit was $329 million for an adjusted operating margin of 25.7%. Up to 2.9 points versus last year.
Gina Goetter: Benefits from favorable business mix, supply chain productivity, and reduced expenses were partially offset by volume delivery within Consumer Products. Q3 adjusted net earnings were $244 million, with eluded earnings per share of $1.73, up 9 cents from the year-ago period, driven by the factors previously noted. We returned $98 million to shareholders through the dividend and ended the period with $1.2 billion of cash and short-term investments, including the proceeds from the May debt offering, which will be used to repay our November 2024 note. Year-to-date total Hasbro revenue was approximately $3 billion, down 18% versus the same period last year.
Speaker Change: Benefits from favorable business mix, supply chain productivity, and reduced expenses were partially offset by volume due leverage within consumer products.
Speaker Change: Q3 adjusted net earnings were $244 million, with the looted earnings per share of $1.73, up nine cents from the year ago period, driven by the factors previously noted.
Speaker Change: We return $98 million to share holders through the dividend and end of the period with $1.2 billion of cash and short-term investments, including the proceeds from the May-Dead offering, which will be used to repay our November 2024 note.
Speaker Change: Year to date, Total Hasbro revenue was approximately $3 billion. Down 18% versus the same period last year. If you exclude the impact of the E1 divestiture, Total Revenue was down 8% largely driven by the same drivers as Q3.
Gina Goetter: If you exclude the impact of the E1 divestiture, total revenue was down 8%, largely driven by the same drivers as Q3. Year-to-date adjusted operating profit was $726 million for an adjusted operating margin of 23.9%, up approximately 10.0 over year. We continue to deliver margin improvement despite the volume delivery across the toy business. Year-to-date adjusted net earnings were $498 million, with eluded earnings per share of $3.56, and year-to-date operating cash flow was $588 million, a $253 million improvement year-over-year driven by the noted profitability improvements and working capital favorability.
Speaker Change: Year to date, adjusted operating profit was $726 million for an adjusted operating margin of 23.9%. Up approximately 10.0 per year.
Speaker Change: We continue to deliver margin improvement despite the volume delivery to cross the toy business.
Speaker Change: Here to date, adjusted net earnings were $498 million, with the looted earnings per share of $3.56.
Speaker Change: and you're today operating cash flow was $588 million. A $253 million improvement year over year, driven by the noted profitability improvements and working capital favorability.
Gina Goetter: Now let's look at Q3 results within our two major segments, starting with lizards. Revenue declined 5% as growth in Magic: The Gathering and contributions from Monopoly Grow were more than offset by the anticipated decline in revenue for Baldur's Gate 3. Magic grew 3% behind the releases of Bloom Borough and Dust Morn, along with stronger results from backlist and Secret Layer. Operating margin for Wizards finished at 44.9%, down about 3 points versus last year, driven entirely by the decline in licensed digital gaming.
Speaker Change: Now let's look at future results within our two major segments, starting with Lizards.
Speaker Change: Revenue declined 5% as gross in magic gathering and contributions from monopoly go were more than offset by the anticipated decline in revenue for Baldur's Gate 3.
Speaker Change: Magic Group 3% behind the releases of Bloomberg and Dustmorn, along with stronger results from the latest and secret layer.
Speaker Change: Operating Margin for Wizards, finished at 44.9% down about 3 points versus last year, driven entirely by the decline in licensed digital gaming.
Gina Goetter: Turning to consumer products. Overall, Q3 revenue declined 10%. Lower volumes from exited brands and reduced closeouts offset growth in licensed consumer products and volume increases in select brands like Transformers, Bayblade, and Furby. Continued softness in Nerf and action figures, particularly Star Wars, also contributed to the decline in the prioritized profitable revenue. While our closeout volume was down about 70% year-over-year and contributed to about a fourth of the revenue decline for CP, it drove about 1.5 points of gross margin benefit. Adjusted operating margin for consumer products was 15.1%, up 3.9 points compared to last year. Benefits from a more profitable licensing mix, supply chain productivity, fewer closeouts, and reduced expenses offset the impact from volume due leverage.
Speaker Change: Turning to consumer products, overall Q3 revenue declined 10%. Lower volumes from Executive Brands and reduced close-outs, offset growth in licensed consumer products, and volume increases in select brands like Transformers, Babe Lade, and Furby.
Speaker Change: Continued softness and nurse and action figures, particularly Star Wars, also contributed to the decline in the quarter.
Speaker Change: As we've mentioned, we are continuing to prioritize profitable revenue, while our close-out volume was down about 70% year over year and contributed to about a fourth of the revenue decline for CP. It drove about one and a half points of gross margin benefit.
Speaker Change: Adjusted operating margins for consumer products was 15.1% up 3.9 points compared to last year.
Speaker Change: Benefits from a more profitable licensing mix, supply chain productivity, fewer close-outs, and reduced expenses, offset the impact from volume due leverage.
Gina Goetter: On a year-to-date basis, despite the top line declining by over $300 million versus last year, we have absorbed the impact due to leverage and kept CP operating profit essentially flat. This highlights the significant progress we have already made in our turnaround and is a testament to our supply chain transformation and discipline on inventory and cost management.
Speaker Change: On a year-to-date basis, despite the top line declining by over $300 million for this last year, we have absorbed the impact of the leverage and kept CP operating profit essentially flat.
Speaker Change: This highlights the significant progress we have already made in our turnaround in his attestment to our supply chain transformation and discipline, an inventory and cost management.
Gina Goetter: Now turning to our guidance for 2024. We now expect Total Wizards revenue to be flat to down 1%, which is up from our prior guidance of down 1 to 3%. The improved outlook is driven by year-to-date outperformance, particularly within Magic. Our outlook for licensed digital gaming largely remains the same, with Monopoly-Go contributing roughly $105 million in revenue. We expect Balder's Gate 3 to contribute about $35 million for the full year, with most of that revenue recorded through the first three quarters. As implied in our guidance, Q4 will see a more pronounced year-over-year decline driven by the timing of set releases for Magic.
Speaker Change: Now turning to our guidance for 2024.
Speaker Change: We now expect total wizards revenue to be flat to down 1% which is up from our prior guidance of down 1 to 3%.
Speaker Change: The improved outlook is driven by your today-alperformance, particularly within magic.
Speaker Change: Our Outlooks or License Digital Gaming largely remains the same, with monopoly go contributing roughly $105 million in revenue.
Speaker Change: Weeks back fallers date three to contribute about $35 million for the full year, with most of that revenue recorded through the first three quarters.
Speaker Change: As implied in our guidance, Q4 will see a more pronounced year over year decline, driven by the tending of set releases for magic.
Gina Goetter: We continue to expect Wizards' operating margin to be approximately 42%. This guidance also implies a step down in margin for Q4 entirely due to the planned revenue delivery. For consumer products, we now expect revenue will be down 12-14%, compared to our prior guidance range of down 7-11%. This change is partly a result of the Q3 shortfall, as well as a reduced forecast for close-up volume and action figures in the upcoming quarter. As implied in our guidance, we expect Q4 to see a continued moderation in the pace of decline as we aim to stabilize the CP business.
Speaker Change: We continue to expect losers operating margin to be approximately 42%.
Speaker Change: This guidance also implies a step-down in margin for Q4, entirely due to the planned revenue
Speaker Change: For consumer products, we now expect revenue will be down at 12 to 14 percent, compared to our prior guidance range of down 7 to 11 percent.
Speaker Change: This changes partly a result of the Q3 shortfall, as well as a reduced forecast for close-up volume and action figures in the upcoming quarter.
Speaker Change: As implied in our guidance, we expect Q4 to see a continued moderation in the pace of decline, as we aim to stabilize the CP business.
Gina Goetter: We maintain our adjusted operating margin guidance of 4 to 6%. While this implies a quarterly step down in Q4 margin, we should see significant year-over-year margin expansion as we last year's inventory cleanup upwards. For entertainment, adjusting for the impact of the E1 divestiture, we continue to expect revenue to be down approximately $15 million versus last year and adjusted operating margin of roughly 50%. We remain on track towards our target of $750 million of gross cost savings through 2025 and continue to expect $250 million of net cost savings in 2024. Through the first nine months of the year, we have delivered $240 million of gross cost savings and $177 million of net savings.
Speaker Change: We maintain our adjusted operating margin guidance of 4 to 6%. While this implies a quarterly step-down in Q4 margin, we should see significant year over year margin expansion as we lap last year's inventory cleanup efforts.
Speaker Change: For Entertainment, adjusting for the impact of the E1 divestiture, we continue to expect revenue to be down approximately $15 million for this last year, and adjusted operating margin of roughly 60%.
Speaker Change: We remain on track towards our target of $750 million of gross cost savings through 2025 and continue to expect $250 million of net cost savings in 2024.
Speaker Change: To the first nine months of the year, we have delivered $240 million of gross cost savings and $177 million of net savings.
Gina Goetter: Our total Hasbro adjusted EBITDA guidance remains unchanged in the range of $975 million to $1 billion 25. And given the improvement in our cash flow, we now expect 2024 ending cash to be above year-end 2023 levels.
Speaker Change: Our total Hasural Adjusted EBITDA guidance remains unchanged in the range of 975 million to 1 billion 25.
Speaker Change: and given the improvement in our cash flow, we now expect 2024 ending cash to be above year and 2023 levels.
Gina Goetter: From a capital allocation standpoint, our priorities remain to first invest behind the core business. Second, is to return cash to shareholders via the dividend. And third, to continue progressing towards our long-term leverage targets and pay down debt.
Speaker Change: From a capital allocation standpoint, our priorities remain the first invest behind the core business. Second is to return cash to shareholders via the dividend, and third, continue progressing towards our long-term leverage targets and pay down debt.
Operator: And with that, we can open the line for questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question.
Speaker Change: and with that we can open the line for questions.
Speaker Change: Thank you. 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.
Speaker Change: You may press start too, if you would like to remove your question from the queue. And for a participant using speaker equipment, maybe necessary to pick up your handset before pressing the star keys, we ask that you please limit to one question and one follow-up question. One moment will we pull for questions?
Operator: One moment, will we pull for questions?
Drew Krump: Our first question is from Drew Krump with Steve. Please proceed.
Speaker Change: Our first question is from Dr. Crum with Stiefle, please proceed.
Drew Krump: Thanks.
Drew Krump: Hey guys, good morning. I have a couple of questions. I'm not going to go. I think you guys suggested recently that you had better line of sight on scope, please plans for UAS spend and that you believe that marketing as a percentage of revenue would come in at the high end of a range of 25 to 35%. The third party data, however, suggests that downloads have continued to fall precipitously.
Dr. Crum: Thanks, hey guys, good morning. I have a couple of questions I'm not going to go. I think you guys suggested recently that you had
Dr. Crum: Better line of sight on scope, please plans for UASP and you believe that marketing is a percent of revenue would come in at the high end of a range of 25 to 35 percent.
Dr. Crum: The third party data, however, suggests that downloads have continued to fall precipitously. So, can you reconcile the two? Sound like you're comfortable with a 10 million dollar royalty revenue per month type cadence, but just want to make sure this.
Drew Krump: Can you reconcile the two? Sounds like you're comfortable with a $10 million royalty revenue per month, pipe cadence, but I want to make sure that's still reasonable going forward.
Drew Krump: Can you address how the launch of Monopoly goes, web store, and presumably lower platform fees will affect royalty revenue that flows to Hasbro going forward?
Speaker Change: So we'll go forward and then can you address how the launch of Monopoly Goes Web Store and presumably lower platform fees will affect royalty revenue that flows to Hasbro going forward. Thanks.
Drew Krump: Thanks.
Chris Cox: Hey Drew, good morning. I'll start, and then Gina can fill in the details. Our implied guidance on about $10 million a month in terms of royalty revenue just basically takes into account all of the various variables from what their gross revenue is, what their rev share is with the store, or what they're able to drive themselves via something like Tycoon Club. And then last but not least, what we anticipate their UAS spend will be based on the data that we've seen and that we can share because we have to respect Scopely as a third party partner and they have their own disclosure.
Speaker Change: Hey, Drew, good morning. I'll start in the Gina Confalen details.
Speaker Change: So our implied guidance on about $10 million a month in terms of royalty revenue just kind of like basically takes a new account all of the various variables from what their gross revenue is, what their revshare is with the store or what they're able to drive themselves.
Speaker Change: via something like Tycoon Club.
Speaker Change: and then last but not least, what we anticipate their U.S. pens will be.
Speaker Change: You know, based on the data that we've seen and that we can share because we have to respect scopily as a third-party partner and they have their own disclosure. We see pretty healthy UA rates, we see good KPIs in terms of the cost for install, which we think is a testament to the strength and ubiquity of the monopoly brand. And we're seeing very strong engagement among their existing consumers and re-engagement among laps consumers.
Gina Goetter: We see pretty healthy UAS rates. We see good KPIs in terms of the cost for install, which we think of as the testament to the strength and ubiquity of the monopoly brand. And we're seeing very strong engagement among their existing consumers and re-engagement among laps consumers. And so all that factors into what we believe will be a fairly steady revenue stream for us for many months to come. Yeah.
Speaker Change: and so all that factors into what we believe will be a fairly steady revenue stream for us for many months to come.
Gina Goetter: Morning, Drew. I'll just add a color, the decay rate; you're coming on decay rate. We did see it stabilize as we move through the quarter. So that was that was not as volatile as we've seen or as bouncing around as we've seen in previous in previous quarters.
Speaker Change: Yeah, morning, I'll just add a color, the decay rate, you're coming on decay rate, we did see it stabilizes, we moved through the quarter, so that was not as volatile as we've seen, or as bouncing around as we've seen in previous quarters.
Gina Goetter: And then from a marketing that spends standpoint, remember last quarter, we talked about spending within that range of 25 to 35%, and I indicated that we were going to be probably on the higher end of that range. We absolutely saw that play through as we move through the quarter. So, if you think about our guide for that year of that 105 million dollars, we're sticking with that same outlook on the decay rate. So, you know, moderated decay rate and that higher end of that range of marketing spend. So 30 million of revenue, you know, 10, 10 ish per month in Q3.
Speaker Change: and then from a marketing spend standpoint, remember last quarter we talked about spending within that range of 25 to 35 percent and I indicated that we were going to be probably on the higher end of that range. We absolutely saw that play through as we moved through the quarter. So you think about our guide for that year of that $105 million, we're sticking with that same outlook on the decay rate, so I've moderated decay rate and that higher end of that range of marketing spend. Thank you.
Gina Goetter: And that's what we're anticipating for Q4.
Speaker Change: So it's 30 million of revenue, you know, 10-ish per month into three and that's what we're anticipating for Q4.
Chris Cox: Yeah, the only other thing I'd add, Drew, just as a like kind of part to your question, is the more successful they are with initiatives like Tycoon Club? The higher the potential revenue is to us. Yeah, yeah, we're cheering them on. Okay, make sense.
Speaker Change: Yeah, the only other thing I'd add to Drew just as a kind of part two of your question is more successful they are with initiatives like Tycoon Club, the higher the potential revenue is to us. Yeah, we're cheering them on. Okay, make sense. Thanks guys.
Drew Krump: Thanks, guys.
Megan Alexander: Our next question is from Megan Alexander with Morgan Stanley. Please proceed.
Speaker Change: Thanks.
Speaker Change: Our next question is from Megan Alexander with Morgan Stanley, please proceed.
Megan Alexander: Hey, good morning. Thanks for taking our questions. I wanted to start with the change in the consumer products guide. Understanding that 3Q is a little bit worse. I think it does imply, you know, 4Q down mid single digits or so. Seems like there's some puts and takes with maybe lower closed out volumes. But, and you know, maybe a little bit weaker POS, maybe you can just help us understand what's embedded as it relates to POS, maybe verse what you're seeing today. And I ask because I think you're wrapping a pretty sizable top line headwind in the fourth quarter from some of the inventory actions last year.
Megan Alexander: Hi, good morning. Thanks for taking your questions. I wanted to start with the change in the consumer products guide.
Megan Alexander: Understanding that the review is a little bit worse. They think it does imply, you know, for acute down, mid-symbol digits or so.
Megan Alexander: Seems like there's some puts in takes with maybe lower closed-out volumes.
Megan Alexander: But, and, you know, maybe a little bit weaker POS, maybe you can just help us understand what's embedded as it relates to POS, maybe verse what you're seeing today. And I ask because I think you're wrapping a pretty sizable top line headwind in the fourth quarter from some of the inventory actions last year. So just trying to understand how that kind of down six ish implied for the fourth quarter relates to what you're expecting from a purely POS perspective. [inaudible]
Megan Alexander: So just trying to understand how that kind of down six ish implied for the fourth quarter relates to what you're expecting from a purely POS perspective. Yeah, go back. Good question. Good morning.
Gina Goetter: Let's, well, let's take the guide down in pieces. So roughly at the midpoint, it represents about 100 $100 million of revenue; about half of that is due to close out volume. So us not chasing bad deals or unprofitable deals of a half of that that call down is close out. Then there's probably another 30 to 40% of that bucket that is associated with our entertainment back brands, primarily Star Wars. We really saw that play through in September. It didn't, it didn't kind of live up to the estimates that we had in the month of September, and we kind of took that trend and took it forward into our Q4 outlook.
Speaker Change: Yeah, good question, good morning. Let's take the guide down in pieces. So roughly at the midpoint it represents about a hundred, hundred million dollars of revenue.
Speaker Change: About half of that is due to close-up volume. So it's not chasing bad deals or unprofitable deals. About half of that, that's called End is close-out.
Speaker Change: Then there's probably another 30 to 40 percent of that bucket that is associated with our entertainment backbrands, primarily Star Wars. We really saw that playthrough in September. It didn't kind of live up to the estimates that we had in the month in September and we kind of took that trend and took it forward into our Q4 outlook.
Gina Goetter: And then the last piece of the call down is really what we would call our growing pains as we move into this leaner inventory structure. You know, tighter supply planning processes, more rigor on our demand planning forecast. There were just some places where our execution wasn't as tight as we wanted it to be. So those are the big three buckets that kind of caused the call down in terms of your point on POS. We really haven't seen a material change in outlook as we move to the quarter or through Q4. So that really wasn't a piece of why we called it down.
Speaker Change: and then the last piece of the call-down is really what we would call our growing pains. As we move into this, we are inventory structure, you know, tighter supply planning processes, more rigor on our demanding forecasts. There were just some places where our execution wasn't as tight as we wanted it to be. So those are the big three buckets that, that kind of cause the call down. In terms of your point on POS, we really haven't seen a material change in outlook as we move through the point to the quarter or through two-forced. That really wasn't a piece of why we called it down. It was more of what we were seeing play through and close out in Star Wars. And then these execution elements.
Gina Goetter: It was more of what we were seeing play through in close outs in Star Wars and then and then these execution elements. Yeah, Megan, the only thing I would add is when you look at the mix of our products and our expectations for sell-through, our quote-unquote good toy volume. So our non-discounted volume we anticipate will be flat to up in Q4. Our discounted toy volume will be down quite significantly. I think here today it's our total volume is down like 70% on discounted volume. Yeah, when you look at our total revenue called like decline on CP, almost a third of it is because the close out volume close our revenue.
Speaker Change: Yeah, Megan, the only thing I would add is when you look at the mix of our products and our expectations for self-through
Speaker Change: Our quote-unquote good toy volume, so our non-discounted volume we anticipate will be flat to up in Q4. Our discounted toy volume will be down quite significantly. I think year-to-date it's our total volume is down like 70% on discounted volume. Yeah, when you look at our total revenue called like decline on CP,
Gina Goetter: So much more profitable for us, obviously, but a headwind on the top line.
Speaker Change: Almost a third of it is because of closeout revenue. So much more profitable for us, obviously, but a headwind on the top line.
Megan Alexander: Okay, that's really helpful. Thank you.
Gina Goetter: And then maybe I'll just ask about the CP margin too. Was there anything one time in the third quarter performance? It was obviously very strong despite the top line decline. And based on what you're telling me, it seems like you should continue to kind of have that mixed benefit of lower close out in the fourth quarter. So looking at like what's implied in the fourth quarter versus I guess what typical seasonality would say. I suggest top line getting better, just trying to understand, you know, whether there's some conservatism implied in the fourth quarter margin guide or whether there was something we should be aware of in three que that won't repeat in the fourth quarter.
Speaker Change: Okay, that's really helpful. Thank you. And then maybe I'll just ask about the CP margin too. Was there anything one time in the third quarter performance, it was obviously
Speaker Change: very strong despite the top line decline. And based on what you're telling me, it seems like you should continue to kind of have that mixed benefit of lower closeout in the fourth quarter. So looking at like what's implied in the fourth quarter versus I guess what
Speaker Change: you know typical seasonality would suggest top line getting better just trying to understand you know whether there's some conservatism implied in the fourth quarter margin guide or whether there was something we should be aware of in 3Q that won't repeat in the fourth quarter.
Gina Goetter: Got it. Yeah, there was nothing good question. There was nothing one time in nature in our in the Q3 margin is actually quite a healthy, you know, set the top line aside. It was quite a healthy underpinning in all of the improvements that we're making within the supply chain. You could really, you could really see that come through the PNL. In terms of year to go in the Q4 margin, a couple of things to keep on one royalty expense picks up in Q4. Just when you think of our mix of business and where it's coming from.
Speaker Change: Got it.
Speaker Change: Yeah, there was nothing. Good question. There was nothing one time in nature in our in the Q3 margin is actually quite a healthy, you know, set the top line aside.
Speaker Change: It was quite a healthy underpinning in all of the improvements that we're making within the supply chain. You could really see that come through the P&L. In terms of year-to-go in the Q4 margin, a couple of things to keep in mind. One, royalty expense picks up in Q4. Just when you think of our mix of business and where it's coming from, there's higher royalty, the Beyblade, the Transformers, etc.
Gina Goetter: There's, there's higher royalty and the baby, the Transformers, etc. Then the second piece is we are laughing. All of this stuff that happens within managed expenses related to bonus replenishment, etc. We are laughing that that kind of call down in Q4 last year. We replenish this year. So those are the big two things that are probably a typical that you should be factoring in.
Speaker Change: Then the second piece is we are lapping all of the stuff that happens within managed expenses related to bonus replenishment, et cetera. We are lapping that. That kind of call down in Q4 of last year, we replenished this year. So those are the big two things that are probably atypical that you should be factoring in.
Christopher Horwers: Our next question is from Christopher Horwers with JP Morgan Chase. Please proceed.
Speaker Change: Our next question is from Christopher Horvitz with JPMorgan Chase. Please proceed.
Christopher Horwers: Thanks.
Christopher Horwers: Good morning. So my first question is that follow up on the CP outlook. Do you think about the third and fourth quarter? How much, how much of the impact was from the exited brands in terms of how that influences 3Q in what the underlying sort of rate of the businesses projected for the fourth quarter? Yeah, good question. So about two points or about call it 30 ish or 20 ish, 25 million ish. That's my precise math was due to the exited brands in the third quarter. Sorry. What was the second part of your question? Is there any in the fourth quarter?
Christopher Horvitz: Thanks. Good morning. So, my first question is a follow-up on the CP outlook. So, you think about the third and fourth quarter, how much of the impact was from the exited brands in terms of how that influences 3Q and what the underlying sort of
Christopher Horvitz: rate of the businesses projected for the fourth quarter.
Speaker Change: Yeah, good question. So about two points or about, call it 30-ish or 20-ish, 25 million-ish, that's my precise math, was due to the exited brands.
Speaker Change: in the third quarter. Sorry, I missed it. What was the second part of your question? I missed it. Is there any in the fourth quarter?
Gina Goetter: Yes, about the same amount in the fourth quarter as well.
Speaker Change: Yes, about the same amount in the fourth quarter as well.
Gina Goetter: Yeah, I guess the good news is we move into next year in 2025. We can be done talking about exited brands, in fact, because I think the bulk of it will be behind us. Yeah, no way to understand how we recognize revenue on those because they're not really exited. They're just outsourced to other third parties, and they're actually growing quite healthily. This year, we're basically recognizing the MGs associated with those fields, and those are relatively modest. Next year, you know, by the end of the year, we should be based on the pace of which they're going.
Speaker Change: Yeah, I guess the good news is we move into next year, into 2025, we can be done talking about exited brands, in fact, because I think the bulk of it will be will be behind us. Yeah, and a way to understand how we recognize revenue on those, because they're not really exited, they're just outsourced to other parties, and they're actually growing quite healthily.
Speaker Change: This year, we're basically recognizing the MGs associated with those deals, and those are relatively modest.
Speaker Change: Next year, you know, by the end of the year, we should be based on the pace at which they're going, we should be kind of flowing through real time.
Gina Goetter: We should be kind of flowing through real time, a fairly healthy royalty rate on those, which is well above what the operating profit margin would have been when we were operating them ourselves. Understood.
Speaker Change: a fairly healthy royalty rate on those, which is well above what the operating profit margin would have been when we were operating them ourselves.
Chris Cox: And then I think about the Monopoly Go Christians previously spoken about, you know, this game is going to last and benefit Hasbro for a long time. Part of that math was like the decay rate versus advertising coming down. You talked about through this $10 million run rate for many months to come. I guess is it fair to say that the original expectation is maintained. There won't be some sort of precipitous drop as we look at a year from now and think about the back half of 25. Yeah, I would think Monopoly Go in 2025 would be flat to up versus what we realized in 2024.
Speaker Change: Understood. And then, as you think about the Monopoly Go, Christian's previously spoken about...
Speaker Change: you know, this game is going to last and benefit Hasbro for a long time. Part of that math was like the decay rate versus advertising coming down.
Speaker Change: You talked about sort of this $10 million run rate for many months to come. I guess, is it fair to say that the original expectation is maintained, i.e., there won't be some sort of precipitous drop as we look at a year from now and think about the back half of 25?
Speaker Change: Yeah, I would think Monopoly Go in 2025 would be flat to up versus what we realized in 2024.
Chris Cox: Yeah, Chris, keep in mind that we have one additional quarter next year where we didn't have the minimum; we weren't surpassing the minimum guaranteed.
Speaker Change: Yeah, Chris, keep in mind that we have one additional quarter next year where we didn't have the minimum, we weren't surpassing the minimum guarantee.
Eric Handler: Our next question is from Eric Handler with Rust Capital. Please proceed. Good morning.
Speaker Change: Our next question is from Eric Handler with Roth Capital. Please proceed.
Eric Handler: Thanks for the question. It looks like the legs for Baldur's Gate 3 is much healthier than originally anticipated at the start of the year.
Speaker Change: Good morning. Thanks for the question. It looks like the legs for Baldur's Gate 3 is
Chris Cox: I wonder if you could talk about your relationship with Larian and how you can keep this momentum with this game continuing to flow on an evergreen basis. Yeah, I think the best comp for looking at how Larian will manage Baldur's Gate 3 is what they've done with their Divinity franchise. And that franchise has enjoyed incredible legs, a really long, healthy tail. Larian, as a publisher, tends to be very community-friendly. They tend to not discount their products. And they tend to do kind of like special editions and special content drops to keep kind of refreshing things with the consumer.
Eric Handler: much healthier than originally anticipated at the start of the year. I wonder if you could talk about...
Eric Handler: You know, your relationship with Larian and how you can keep this momentum with this game continuing to flow.
Eric Handler: You know on an evergreen basis
Speaker Change: Yeah, I think the best comp for looking at how Larian will manage Baldur's Gate 3 is what they've done with their Divinity franchise. And that franchise has enjoyed incredible legs.
Speaker Change: a really long healthy tail. Larian as a publisher tends to be very community friendly. They tend to not discount their products.
Speaker Change: and they tend to do kind of like special editions and special content drops to keep kind of refreshing things with the consumer. You know we would anticipate that they would treat Baldur's Gate in a very similar manner. They've been great partners and you know
Chris Cox: You know, we would anticipate that they would treat Baldur's Gate in a very similar manner. They've been great partners. And you know, I don't think Baldur's Gate 3 will be quite the annuity it was this year. We enjoyed like $35 million, which was pretty healthy. But we will continue to make money off of Baldur's Gate 3 for several years to come.
Speaker Change: I don't think Baldur's Gate 3 will be quite the annuity it was this year. We enjoyed like $35 million, which was pretty healthy. But we will continue to make money off of Baldur's Gate 3 for several years to come.
Gina Goetter: Okay, and then I just Gina, you know, originally you expected magic to decline for the year. Given the outperformance scene in the third quarter, do you still think magic that declines a little bit for the year? Yeah, just given what's going to happen in the fourth quarter.
Eric Handler: Okay and then I guess Gina you know originally you expected Magic to decline for the year given the outperformance scene in the third quarter do you still think Magic declines a little bit for the year?
Gina Goetter: So remember, we've talked about we don't have a comp in the fourth quarter for the Lord of the Rings holiday set. So you're right, magic has outperformed our expectations through the first three quarters. But Q4, there is just the reality of set timing in that holiday set that won't be there. But as we look to 2025, that all starts, you know, to even ourselves, even back out. Yeah, tough to bet against Magic.
Gina: Yeah, just given what's going to happen in the fourth quarter. So remember, we've talked about, we don't have a comp in the fourth quarter for the Lord of the Rings holiday set. So you're right, Magic has outperformed our expectations through the first three quarters. But Q4, there is just the reality of set timing and that holiday set that won't be there. But as we look to 2025, that all starts, you know, to even back out.
Gina Goetter: It has nice long legs, and 25 will be great.
Gina: It's tough to bet against magic. It has nice long legs and 25 will be great.
Alexander Perry: Our next question is from Alex Perry with Bank of America; please proceed. Hi, thanks for taking my questions here. I guess you know, wanted to ask a similar line of question on the sort of 4Q implied guide for the Wizard to the Coast. So I think sort of implies revenue down 20 plus percent the fourth quarter. I guess what would drive that is that all just, you know, the sort of magic shortfall versus the Lord of the Rings holiday set lap last year.
Speaker Change: Our next question is from Alex Perry with Bank of America. Please proceed.
Alex Perry: Hi, thanks for taking my questions here. I guess, you know, wanted to ask a similar line of question on the sort of 4Q implied guide for the Wizards of the Coast.
Alex Perry: So I think sort of implies revenue down 20 plus percent in the fourth quarter. I guess what would drive that is that all just, you know, the sort of magic shortfall versus the Lord of the Rings holiday set lap last year. And then
Gina Goetter: And then can you maybe just talk through the step down and the Wizard's op margin guide, which I think implies sort of in the 20s and the fourth quarter. Is that, you know, entirely sort of volume, you know, de leverage on Wizard's thing. Yeah, good morning, Alex. You nailed it in terms of what caused the pulldown on both the top and the margin. It really is related to this magic set timing. When you look at the digital portfolio, it is relatively flat year over year. So you had the benefit from Baldur's Gate last year; this year you have the benefit from an aptly go.
Alex Perry: Can you maybe just talk through the step down and the Wizards op margin guide, which I think implies sort of in the 20s in the fourth quarter, is that, you know, you know, entirely sort of volume, you know, do you leverage on Wizards? Thanks.
Speaker Change: Good morning, Alex. You nailed it in terms of what is what.
Speaker Change: causing the pulldown on both the top and the margin, it really is related to this magic set timing. When you look at the digital portfolio, it is relatively flat year over year. So you had the benefit from Baldur's Gate last year, this year you have the benefit from Monopoly Go.
Gina Goetter: So when you think of the margin and what's pulling that down, it's all that delves impact of the magic, magic volume. Yeah, and from a top line perspective, you have two things going on with magic. The first is there is a fairly sizable second bite at the at the Lord of the Rings apple in December of last year. And then the second thing to be thinking about is the timing of our January sets, you know, depending on what time of year that happens. We have to sell in to our distributors at a different time. So our big kind of remastered set for January is going to be a bit later next year.
Speaker Change: So when you think of the margin and what's pulling that down, it's all that DLEV impact of the magic volume.
Speaker Change: Yeah, and from a top-line perspective, you have two things going on with Magic. The first is, there is a fairly sizable second bite at the Lord of the Rings apple in December of last year.
Speaker Change: And then the second thing to be thinking about is the timing of our January sets.
Speaker Change: Depending on what time of year that happens, we have to sell in to our distributors at a different time.
Speaker Change: So our big kind of remastered set for January is going to be a bit later next year. So we're not going to see that sell in until likely next fiscal year.
Gina Goetter: So we're not going to see that sell-in until likely next fiscal year.
Alexander Perry: Perfect and incredibly helpful. That's about going forward.
Alexander Perry: Thanks.
Speaker Change: Perfect. Incredibly helpful. Best of luck going forward.
Arpine Kocharyan: Our next question is from Arpine Kocharyan with UBS. Please proceed. Hi, good morning.
Speaker Change: Thank you.
Speaker Change: Our next question is from Arpine Kochian with UBS. Please proceed.
Arpine Kocharyan: Thanks so much for taking my question. I was just looking into your operating profit margin for year to date. It's running north of 23%; I guess almost 24% to be exact. So then Q4 almost has to be worse than 11% or so for all the pieces to work together after came in after Q3 came in so strongly for you kind of not to hit the 19 and a half 20% for the year. And I understand the high margin gaming would be lower, and there's a huge sort of revenue delivers there. But like, are there any puts and takes? And I guess I'm trying to understand full year implied operating profit guide a little bit better.
Speaker Change: Hi, good morning. Thanks so much for taking my question.
Speaker Change: I was just looking at your operating profit margin for year to date, it's running north of 23%, I guess almost 24% to be exact.
Speaker Change: So then Q4 almost has to be worse than 11% or so.
Speaker Change: for all the pieces to work together after Q3 came in so strongly. For you kind of not to hit the 19 and a half, 20% for the year. And I understand the high margin gaming would be lower, and there's a huge sort of revenue to leverage there. But like, are there any puts and takes? And I guess I'm trying to understand full year,
Gina Goetter: Got it. Yeah, got it.
Speaker Change: Implied Operating Profit Guide a little bit better.
Gina Goetter: Good morning. Yeah, we are within spitting distance of that magic 20% 20% threshold and see your point. The overall company margin does give back in the fourth quarter. I mean there's two pieces for that one when you look at our mix of business in the fourth quarter. It goes heavier toy versus withers like just that's just the nature of it, and that mix creates a bit of a margin drag. And then the second piece you hit down in your in your question, it is the de love the de leverage impact that we're seeing play through the the wizards panel.
Speaker Change: Got it. Yeah.
Speaker Change: Got it. Good morning. Yeah, we are within spitting distance of that magic 20% threshold. And to your point, the overall company margin does give back in the fourth quarter. I mean, there's two pieces for that. One, when you look at our mix of business in the fourth quarter, it goes heavier toy versus wizards. That's just the nature of it. And that mix.
Speaker Change: creates a bit of a margin drag. And then the second piece you hit on in your question, it is the deleverage impact that we're seeing play through the WIZARDS P&L. So those are the two pieces that kind of caused that pullback in Q4.
Gina Goetter: So those are the two pieces that that kind of caused that call back in Q4. Okay, thank you.
Arpine Kocharyan: And then I was wondering if you could give us an overall POS read year to date and what that was excluding all the licensing exits for you and the licenses that you gave up. What was POS for the quarter? And then can you update us on what you expect for the industry in terms of POS for this year? Seems like you usually include that in the release. And I think I guess maybe I didn't see it. It was not in the release this morning. I'm just trying to understand whether there's any change to your expectation.
Speaker Change: Okay, thank you. Then...
Speaker Change: I was wondering if you could give us an overall POS read.
Speaker Change: here today, and what that was, excluding all the licensing exits for you and the licenses that you gave up, what was POS for the quarter. And then can you update us on what you expect for the industry in terms of POS for this year? Seems like you usually include that in the release, and I think, I guess maybe I didn't see it. It was not in the release this morning. I'm just trying to understand whether there's any change to your expectations. Thank you.
Speaker Change: Yeah, so.
Speaker Change: When we think about the, I'll talk about the market first. So, take out building blocks because building blocks is kind of doing different than the rest of the toy industry. When you look at the toy industry X building blocks, it's effectively down low, maybe on the lower end of mid single digits, low single digits to low mid single digits.
Speaker Change: So call it down to the down 5%.
Speaker Change: Our expectation is the holiday will probably continue that trend. It'll be down probably low single digits, maybe on the lower side of down mid single digits. And that's kind of factored into our full year guidance. And really, our expectations haven't changed materially on that front.
Speaker Change: In terms of our POS rate, year-to-date, we're down, you know, high single digits X our divested brands.
Speaker Change: We expect that to get incrementally better in Q4, just based on the newness on the advertising and the rate of promotions we have. Our number of in-store promotions is up quite significantly, particularly at our mass partners.
Speaker Change: Our share is up inside of our e-commerce partners.
Speaker Change: I think our products are much better positioned. All you have to do is go into a Target or a Walmart and look at our pricing and look at how we're showing up on shelf. So, you know, we expect continued improvement in kind of how we're showing up and how we're selling through.
Speaker Change: Our next question is from James Hardiman with Citigroup. Please proceed.
Speaker Change: Good morning, this is Sean Rooney on for James Hardiman. I'm curious about your expectations for the holiday season and how would you characterize retailer sentiment ahead of the holidays? And then also, could you just talk about what brand you're most excited about for the fourth quarter?
Speaker Change: Hey, good morning, Sean. I'll start with that and perhaps Gina will fill in some blanks.
Speaker Change: So, you know, as I talked with our PNA, you know, our general expectation is that the toy industry will be down modestly in Q4, X building blocks, perhaps with building blocks, it'll be roughly flat to maybe down a percentage or so.
Speaker Change: You know, in terms of asking me for my favorite brands, gosh, that's tough. You're going to get me in trouble with all of our teams outside of here.
Speaker Change: We certainly feel great about how Play-Doh has been positioned. It had a fantastic back-to-school.
Speaker Change: You know, we have the new Play-Doh scooter, we have our new Marvel collaboration with Play-Doh, both of which are doing really, really well.
Speaker Change: I think Beyblade X is starting to take off. We saw a nice early pop with like fan audiences in early Q3. And we're starting to see it take off with like the new animated series and the advertising with kids.
Speaker Change: That brand did fantastically in Japan when it launched last year and we expect it to be a nice mover for us this year.
Speaker Change: Transformers 1 has seen a nice pop since the movie. We expect another nice one when the home video and streaming window opens up before the holiday period ends.
Speaker Change: Marvel is seeing some nice increases whether it's preschool with Spidey and his amazing friends or kind of what we're seeing on the core line there's been some nice content there.
Speaker Change: Our board game portfolio, I think, has rarely been better than it is now. We've got basically products for everyone.
Speaker Change: And then, you know me, I'm a super fan of Wizards, and I love what they're doing with the revisions to fifth edition and some of the new content we have coming out for Magic. I'll be in the queue for that Marvel Magic Secret Lair that's coming out in December, and hopefully I'll be able to pick up all five releases.
Speaker Change: I don't think that answer, I think you've covered all your bases with that answer. I don't think anybody in our team is going to be mad at that answer. I will tell you so. I have a lot of nieces and nephews that are under the age of five. And the biggest hits in when I come home and visit them are Play-Doh. So all of the offerings in Play-Doh. In fact, I think they're all getting the scooters for Christmas, but don't tell them. Let's hope they don't listen to the call. And then Marvel and the offering, all of the, from the toys, the role playing, all of it on Marvel is a big hit in my household that I visit. But to the first part of your question on the retail sentiment, really unchanged. Continuing to get really good support.
Speaker Change: from our retail partners and in getting ready for this upcoming holiday.
Speaker Change: I may have gotten in trouble with some of our teams, but you had your bases covered.
Speaker Change: Oh, that's helpful. Thanks. And that is from your nieces. Sorry, go ahead. Your second question, Sean.
Sean Rooney: Oh yeah, if I could also just touch on the remaining cost savings opportunities, maybe looking ahead to next year even, and do you have any expectation on what that split might look like between cost of goods savings and OPEX savings going forward?
Speaker Change: Yeah, good question. Yeah, as we've moved through this year, a little more than half of our cost savings.
Speaker Change: Yeah, probably about 60% of our cost savings has come from the supply chain, with the balance of the savings coming really within our all of our managed expense levers that we have, as we move to next year, it
Speaker Change: It's probably shakes out more to be like 5050 across those buckets.
Speaker Change: We continue to see opportunities within our supply chain. Next year will be the first year that you start to hear us talk about the design to value savings that start to play into the P&L. We've talked about that as a strategy. We really haven't realized any dollar benefit from that in this year. We'll start to realize that that next year we're continuing then to refine our network, both with our suppliers and within our logistics network. So supply chain will continue to be a positive contributor for us next year.
Speaker Change: And then, of course, on the managed expense buckets, all of those continue to be refined, and we expect another steady year of savings from those.
Speaker Change: Participant
Speaker Change: Our next question is from Kylie Cohue with Jeffries. Please proceed.
Speaker Change: We have a long relationship with Scopely. We do games with them based on Yahtzee, on Scrabble, and most recently with Monopoly. We're always talking with them about other aspects of our IP portfolio that we could
Speaker Change: work together on, and quite frankly, we'd be
Speaker Change: pretty excited on any future games they want to do. I think they're
Speaker Change: one of the best partners in the mobile space. And you know, mobile isn't for the faint of heart. It requires tremendous amount of capital. It requires a tremendous amount of publisher expertise and a huge CRM database to be able to leverage large audiences in free-to-play games.
Speaker Change: and so I think we count ourselves very lucky to have a partner as adept as them.
Speaker Change: in terms of like the innovation they have.
Speaker Change: They are doing a lot of really fun events in Monopoly Go that I think is going to be very sticky and help to, you know, drive new audience engagement, like the latest Marvel collaboration they have, I think is a great example of that.
Speaker Change: Just look at what we do on Monopoly on Shelf, whether it's Harry Potter or Pokemon or Marvel or Barbie. You can imagine that Scopely has the same scope of opportunities to be able to do that virtually for events.
Speaker Change: and I think that'll be super, super sticky.
Speaker Change: and then, you know, what they're doing with Tycoon Club.
Speaker Change: That's a great way to kind of engage your top players, your stickiest, your most engaged players.
Arpine Kocharyan: Rebecca makes a lot of sense.
Chris Cox: And then a little along the marble magic drop happening soon. Obviously, you've specced the initial drop to develop pretty much immediately, but kind of curious how the size of this drop compares to the Lord of the Race set. Obviously much smaller, but just anything directional or, you know, would be helpful. And then also in the future, could there be a marble release that's a similar size to the Lord of the Race? Oh, yeah. Yeah. So the secret layer drops will be in kind of like the, each and then to spin it like low millions and mid-single-digit millions of dollars per kind of release is kind of roughly how you should think about it.
Speaker Change: Perfect. Makes a lot of sense.
Speaker Change: And then a little bit more on the Marvel Magic drop happening soon. Obviously you expect the initial drop to sell out pretty much immediately, but kind of curious how the size of this drop compares to the Lord of the Rings set, obviously much smaller, but just anything directional would be helpful. And then also in the future, could there be a Marvel release that's a similar size to Lord of the Rings?
Speaker Change: Oh yeah, yeah, so the secret lairdrops will be in kind of like the...
Speaker Change: You should anticipate it like low, low millions to mid single digit millions of dollars per kind of relief is kind of roughly how you should think about it.
Chris Cox: I think one of our most successful Secret Layer drops ever would have been like a seven or eight million dollar drop. These are very targeted. They have limited runs, and they tend to be, you know, in and out within hours.
Speaker Change: I think that one of our most successful secret layer drops ever would have been like a seven or eight million dollar drop. These are very targeted, they have limited runs, and they tend to be, you know, in and out within hours.
Chris Cox: We, you know, at New York Comic-Con announced the Spider-Man set, which will be the first major set we're doing with Marvel. We have multiple sets that will happen over the next, like, you know, four or five years with marble. And, you know, you can imagine what a Spider-Man and Spider-Verse set might be able to do from a revenue perspective. You know, looking at magic next year, you know, as we look out to 2025, magic's going to be kind of a core part of our thesis in terms of top-lying growth. You know, we have, we have final fantasy, which will come out in June.
Speaker Change: We, you know, at New York Comic Con announced the Spider-Man set, which will be the first major set we're doing with Marvel. We have multiple sets that will happen over the next, like, you know, four or five years with Marvel. And, you know, you can imagine what a Spider-Man and Spider-Verse set might be able to do from a revenue perspective.
Speaker Change: You know, looking at MAGIC next year, you know, as we look out to 2025, MAGIC is going to be kind of a core part of our thesis in terms of top line growth. You know, we have
Chris Cox: We have the Spider-Man collaboration, which will come out in the second half of the year. And then we have a third universe that's beyond that we haven't yet announced yet, I believe, that I think fans will also really be clamoring for by the end of the year. So the future of magic looks pretty bright. And when magic has helped me, I have for a chance to be healthy.
Speaker Change: We have Final Fantasy, which will come out in June. We have the Spider-Man collaboration, which will come out in the second half of the year. And then we have a third, Universes Beyond, that we haven't yet announced yet, I believe, that I think fans will also really be clamoring for by the end of the year.
Speaker Change: So the future of magic looks pretty bright. And when magic is healthy, Hasbro tends to be healthy. Very true. That's a good one to end on there.
Chris Cox: Thank you. That's a good one to end on there.
Operator: Yes.
Operator: With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Thank you. Thank you very much.
Speaker Change: With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Speaker Change: Shania Twain Dr.
Speaker Change: and the show.
Speaker Change: [music].