Q4 2024 Hasbro Inc Earnings Call
Good morning, and welcome to the Hasbro fourth quarter and full year 2024 earliest 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, 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.
Kern Kapoor: At this time, I'd like to turn the call over to Kern Kapoor.
Senior Vice President of International 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 and Chief Operating Officer.
Kern Kapoor: Today, we will begin with Chris and Gina providing commentary on the company's performance. Then we will take your questions.
Kern Kapoor: Our earnings release and presentation slides for today's call are posted on our investor website.
Kern Kapoor: The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which exclude these non-GAAP adjustments.
Speaker Change: Thanks, Karen and good morning, we close 2024 with momentum beating plan across the board our Wizards of the coast and digital games segment had another record year, we saw strong growth across our licensing business and we delivered the best operating profit margin in company history eclipsing 20%.
Kern Kapoor: Including a return to profitability for our consumer products segment.
Kern Kapoor: We began last year, a healthier stronger Hasbro with an improved balance sheet and operating structure outlining plans for greater cost savings and reinvigorating the company's innovation engine.
Kern Kapoor: We over delivered exceeding our guidance on nearly every metric operating with renewed discipline that we believe positions Hasbro for multi year growth and margin expansion.
Kern Kapoor: Wizards of the coast and digital games was up 4% year over year with an operating margin north of 40% as magic the gathering and monopoly go proved a potent one two punch with both poised for continued growth in 2025.
Kern Kapoor: Wizards grew for the 14th time in the last 15 years led by a booming digital licensing business.
Kern Kapoor: Monopoly go maintained at high levels of engagement capping the year with a star studded television campaign and success with its new tycoon club.
Kern Kapoor: Baldur's gate three saw solid year, two sales nearly doubling our initial expectations.
Kern Kapoor: The gathering had another impressive year 2024, nearly matched 2020 three's record year, despite the reset releases and the magic ecosystem is as healthy and engaged as it's ever been.
Kern Kapoor: We saw year over year increases in active players and magic on attendance and better than expected demand for several tentpoles that including Q4 as relief Foundation.
Kern Kapoor: Magic also exhibited strength beyond its tent Poles, we saw strong demand for backlist and secret lair capping off the year with a record setting Marvel offering which sold out instantly.
Speaker Change: <unk> released the first significant update to fit the dish and since 2014 and closed out the year strong with both the new players handbag and Dungeon Masters Guide breaking records for the best selling D&O books ever.
Speaker Change: And we also shared more about our video game future, including a new best selling novel for accidents by award winning author Peter Hamilton, a top rated episode on the new hit Amazon Prime game anthology series secret level exploring more about the exited the universe and our first game play a sneak peak that as SIFI.
Speaker Change: Video game fans buzzing.
Speaker Change: Consumer products licensing was a standout led by my little Pony trading cards, and our out licensed brands like for real friends and Littlest Pet shop saw Pos lifts of over 50% in 2024, showing the value of our IP vault and promise of our partnerships the Lego ideas Dungeons.
Speaker Change: Dragon set delighted fans and is nominated for toy of the year Award we celebrated over 140 location based entertainment experiences open around the globe, reaching over 50 million visitors annually, making Hasbro one of the most visited brand portfolios in the world the.
The momentum in our licensing business has been a huge catalyst for Hasbro with a highly diversified and high profit revenue stream across over 1000 partners driving over 4000 individual collaborations.
Speaker Change: [noise] toy and board games finished the year on much stronger footing, our revamped innovation marketing effectiveness and retailer alignment drove some nice wins for the holidays.
Speaker Change: One of the biggest was beyblade, which saw demand acceleration in Q4, following media support and streaming content ahead of the holidays.
Speaker Change: We also saw solid growth in Transformers, following the animated movie Transformers, one strain.
Speaker Change: Strength in our Marvel collector range and outperformance in preschool led by Marvel's Spider and it's amazing friends disc.
Speaker Change: Discounting was down for the quarter across the business in fact, when factoring in a significant reduction year over year and inventory clearance our mainline toy sales grew in the quarter, indicating momentum as we enter 2025.
Speaker Change: 2024 wasn't just a good year for Hasbro proving we can deliver it also helps set up the foundation for our new strategic plan playing to win.
Speaker Change: Playing to win focuses Hasbro on what has always made us great play and partners through the power of our brands and breadth of our partnerships, we bring joy and community to over half a billion fans across the world.
Speaker Change: Whether it's 40 theme park rides for Transformers unique collectibles for German the hologram epic Quest with DMD, all new video games with G I, Joe or Bankrupting, your little brother with a well timed hotel on boardwalk and monopoly.
Speaker Change: Our focus on playing partners is clarifying it has allowed us to exit noncore businesses like E. One film and television.
Speaker Change: Reduce our content budget by over 95%, while increasing our active production pipeline for Hasbro IP by 15%.
Speaker Change: And take out over $600 million of costs from our P&L in the process.
Speaker Change: Our balance sheet is stronger our lineup of partnerships is the best ever been and our focus has allowed us to lean into high profit high growth areas like digital games, where our brands have proven residents and our diversified digital revenue streams allows us to self fund the efforts.
Speaker Change: Play as the foundation for our incredible portfolio of brands, a library of thousands of Mark's spanning our 164 year history.
Speaker Change: From the checkered game of life created by Milton Bradley and 18 62, the first mass marketed toy history, Mr. Potato had $19 52 to cutting edge video games like Baldur's gate three.
Speaker Change: What distinguishes us is the breadth and depth of our portfolio.
Speaker Change: Hasbro generates nearly 70% of our revenue in categories outside traditional toys for kids games digital licensing compounds, while we have powerhouse brands for children over 60% of our audience is 13 or older representing the lifetime fandom, we create with consumers of all ages.
Speaker Change: Whether it's collecting your first spidey and transaction figure to completing your collection of separate remarks cards for magic the gathering.
Speaker Change: Our audience diversity, the lifetime nature of our fandom and the diversification of our brand portfolio gives us conviction to invest in the future of play.
Speaker Change: As strong as our brands our partners are the rocket fuel that helps them go supersonic.
Speaker Change: In the last three years, our licensing business has grown by 60%.
Speaker Change: Hasbro is the third largest entertainment licenses are on the planet and the biggest and digital games by far the fastest growing entertainment category of the last decade.
Speaker Change: Across digital games location based entertainment and toys and merchandising partners. Our brands are expected to see over $4 billion in incremental partner led investments over the next three years.
Speaker Change: Our upcoming collaborations span blockbuster movies themed hotels cruise ships quick service restaurants category, expanding toy partnerships and of course AAA Videogames.
Speaker Change: Our approach thrives on some of the most expensive inbound partnerships in the industry.
Speaker Change: I'm pleased to announce two more first off today, we are unveiling an all new licensing collaboration with Mattel combining the creativity of play Doh with empowering play of Barbie play Doh Barbie allows children to unlock their inner fashion designer, creating play doh fashions with amazing Russell's Bose and realistic fabric texture.
Speaker Change: <unk> all made with every kids favorite Doe for a never before seen creativity experience.
Speaker Change: We have many new digital collaborations in the works, but I'm, especially excited to announce this one today being a personal fan of many of this team's games.
Speaker Change: Hasbro and Sabre interactive will be collaborating and an all new video game partnership developed by the team behind 2024 megahertz, Warhammer 40, K space Marine too.
Speaker Change: Combining high octane single player action and amazing multi play with favors swarm Tech this new triple a title based on one of our Tentpole Ips is sure to be a hit.
Speaker Change: Playing to win is grounded in five strategic building blocks first Hasbro has a unique advantage in aging up driving play experiences for fans of all ages, whether it's through major retail partners like Amazon, Walmart Smiths or targets or via our growing direct initiatives, including Hasbro pulse.
Speaker Change: Magic secret layer and DMD beyond.
Speaker Change: Second leadership and digital play we've been investing in video games for over seven years through our portfolio of a dozen projects in various stages of development, coupled with a 100 plus licensing partnerships.
Speaker Change: Im excited to show off our first project exodus to the world when we launch it in 2026 James.
Speaker Change: James Allen to create a visionary behind accidents has a track record of success, serving as a design leader for Baldur's Gate, one and two as well as the creative director during the Golden age of Bioware, who help to help the creation of the Dragon age and mass effect franchises.
Speaker Change: Our third building block everyone plays will drive Hasbro's expansion in fashion dolls, and girls collectibles and leverage our much improved supply chain efficiency to better serve emerging markets and value channels globally you'll.
Speaker Change: You'll see some early pay off in these areas from audience expanding play and collectible innovation later this year with some new announcements we have in store next week at New York Toy Fair.
Speaker Change: Partnership our fourth building block, we will continue to be a huge part of our story with projects in the work spanning everything from new toy collaborations new universes beyond partners with Magic New video game partnerships AI enabled games and toys and major new location based entertainment investments from partners.
Speaker Change: Round the world.
Speaker Change: Our fifth and most important strategic building block is profitable franchises.
Speaker Change: This doesn't mean, just driving our brands through innovation and partnership it means operating them with excellence from our supply chain to manage cost discipline to our retail execution at.
Speaker Change: As part of this pillar I'm pleased to announce we are increasing our cost savings target from $750 million by the end of 2025. Our goal we are well on our way to achieving to $1 billion in total annual gross savings by 2027 with 50% flowing to the bottom line.
Speaker Change: Playing to win marks an important pivot for the company.
Speaker Change: A return to growth in.
Speaker Change: In 2025, we are projecting modest revenue growth coupled with continued margin expansion through 2027, we're projecting a mid single digit revenue Tagger with continued operating profit improvement powered by a killer entertainment slate all need toy innovation and major launches from our multiyear.
Speaker Change: Our digital investments.
Speaker Change: When we play to win we play to grow.
Speaker Change: In 2025, the first elements of our multiyear strategy, we will start to play out.
Speaker Change: Magic, it's poised to have its biggest year ever as we launched three universes beyond sets starting with the blockbuster final fantasy in June.
Speaker Change: <unk> characters items in moments from all 16 mainline games of the beloved series final fantasy has the potential to be our biggest magic release, yet and.
Speaker Change: And we will continue to drive best in class partner IP across the Magic play system with Spider Man and a yet to be disclosed universities beyond set in the back half.
Speaker Change: Stay tuned for more details at this weekend's magic Con in Chicago and.
Speaker Change: And going beyond cards, we expect magic's reach to grow wider than ever through content like the newly announced animated Netflix series and live action film and television series from legendary Entertainment.
Speaker Change: D&A is also set up to continue its recent momentum. This week, we released the widely anticipated 2025 Monster manual with strong initial orders will continue to build the DMD community leveraging DND beyond as a marketplace with many third party publishing releases set for the first half and the future of <unk>.
Speaker Change: Wider franchise ambitions is strong with all new video games, and new entertainment on the horizon, including a new streaming series in development, but forgotten realms from Netflix and executive producer Shawn Levy.
Speaker Change: And in board games. The team is focused on driving growth through redesign classics celebrating monopolies, 90th anniversary, including our all new expansion packs and bringing to market fun new family games like connect for frenzy, and rebalance that we're unveiling at toy Fair next week.
Speaker Change: Last but not least we have major new innovations across our toy portfolio, whether it's fun new fashion Collectables, starting at $3 99, with Furby Amazing New action play with mixed matters, allowing you to mix and match to customize your favorite Marvel Star Wars, and Transformers heroes, our exciting new water based outdoor play with <unk>.
Speaker Change: Super Soaker across price points play patterns and age ranges Hasbro is playing to win.
Playing to win marks a new phase for Hasbro, one focused not just on cost discipline and improved profitability, but on growth and expanding our brands across new categories and new partnerships.
Speaker Change: Now I'll turn over the call to Gena getter, our CFO and COO to share details on our 2024 results and provide guidance for 2025 and beyond.
Speaker Change: Donna.
Speaker Change: Thanks, Chris and good morning, everyone.
Speaker Change: 2024 marked a year of significant improvement, perhaps battle across several financial and operational measures. It was a year of putting wins on the board and resetting the foundation behind our streamlined and profitable portfolio.
Speaker Change: We continue to grow revenue and lizards, while meaningfully improving the trajectory of our consumer products business we.
Speaker Change: We eliminated complexity across our product portfolio and within our operations, allowing us to streamline our cost structure and maintain healthy inventory levels.
Speaker Change: The actions we took at the end of 2023 improved our cost structure via lower shipping and warehousing costs scale advantages across their suppliers and reduced inventory obsolescence cost.
Speaker Change: And we built new capabilities in design to value to optimize product design, ultimately driving down costs, while improving the play experience.
Speaker Change: Altogether, we delivered $227 million of net cost savings and achieved a record operating margin.
Speaker Change: With an asset light and operationally efficient business model, we strengthened cash flow, allowing us to reduce debt and return cash to shareholders with our category leading dividend.
Speaker Change: Looking at our results more closely starting with Q4.
Speaker Change: Total Hasbro revenue was $1 1 billion down 3%, excluding the one divestiture include.
Speaker Change: Including <unk> revenue declined 15%.
Speaker Change: Blizzard revenue declined 7% with the decline almost entirely driven by having one fewer set released in the quarter as Chris mentioned the momentum in our core business remains healthy as evidenced by growth in backlist and secret lair.
Speaker Change: Monopoly go contributed $38 million of revenue behind robust player retention and marketing effectiveness.
Consumer products declined 1% behind exited brands and reduced closeout volume, we continue to see growth in licensing and benefited from lower promotional discounts across retailers' Q4, adjusted operating profit was $113 million for an adjusted operating margin of 10, 2%.
Speaker Change: Over a 14 point improvement year on year, driven by the lap of nonrecurring items favorable business mix and supply chain productivity.
Speaker Change: Q4, adjusted net earnings were $64 million with diluted earnings per share of <unk> 46 cents.
Speaker Change: And it's hitting some improved profitability and tax rate capability.
Speaker Change: For the full year total Hasbro revenue was $4 1 billion down 7%, excluding the <unk> divestiture.
Speaker Change: Including a one revenue declined 17%.
Speaker Change: Blizzard revenue grew 4% benefiting from the success of monopoly girl and solid performance from Magic.
Speaker Change: The profitable mix of revenue led to a record profit margin for Wizards at 41, 8% almost a six point improvement over last year.
Speaker Change: Consumer products revenue was down 12% as growth in our licensed consumer products business was more than offset by exited brands.
Speaker Change: These closeouts in softer volume, namely across nurse and Star Wars.
Speaker Change: Despite this segment decline we saw growth in several brands, including Beyblade, and Furby and my little Pony and we continue to improve the profitability of the segment, resulting in a 6% adjusted operating margin or six seven point improvement versus last year.
Speaker Change: On a reported basis Entertainment segment revenue declined by 88% given the sale of U. One absent this impact revenue declined 4% and finished within our expectations.
Speaker Change: Total Hasbro adjusted operating profit was $838 million up 76% versus last year, reflecting the lap of non recurring inventory costs favorable business mix and cost savings we.
Speaker Change: We delivered $370 million of gross cost savings and $227 million of net cost savings and continued to track ahead of schedule to achieve the $750 million savings goal by the end of 2025.
Speaker Change: Adjusted net earnings of $563 million was up $214 million versus last year, leading to a $4 <unk> earnings per diluted share.
Speaker Change: Operating cash flow for the full year was $847 million, an improvement of $122 million and we ended the year with $695 million in cash on our balance sheet after investing about $200 million back into the business to support organic growth.
Speaker Change: Additionally, we reduced debt by $83 million in Q4, bringing our gross leverage ratio to three two times adjusted EBITDA and our net debt ratio to two and a half times.
Speaker Change: We also returned $390 million of capital to our shareholders via dividends.
Speaker Change: Looking to 2025 and beyond we are excited to launch our updated strategy playing to win which is anchored in play and partnerships, while continuing to drive operational excellence.
Speaker Change: Duane is centered around five key strategic building blocks targeted operational transformation initiatives and an investment framework that prioritizes spend and resources across our major brands channels and markets to deliver strong financial returns.
Speaker Change: The five building blocks that Chris described reinforce each other and when coupled with our unmatched IP and improved capabilities drive a positive flywheel that serves to reinforce hasbro's competitive advantage and positions us for growth.
Speaker Change: Underlying this strategy, we are planning for the toy industry to be relatively flat over the next three years with growth peaks driven by strength in the broader entertainment slate.
Speaker Change: Emerging market growth and aging up of the consumer will influence our innovation priorities and the broader video gaming market will continue to accelerate driven by the next generation of console releases.
Speaker Change: Through playing to win we expect Hasbro's business next to continue shifting aligning more with how we see the future of play patterns. We expect through 2027 that are digital and partner driven licensing will represent about a quarter of the corporate revenue mix.
Speaker Change: We also expect the broad definition of gaming to grow its contribution to our revenue next year this period, including board games trading card digital licensing and video games.
Speaker Change: This combination of growing high margin revenue streams, while our brand scale through partnerships, we'll sustain our investments towards our biggest opportunities, including magic and self publishing video games as well as continue to support the innovation pipeline for toys.
Speaker Change: As we think about the major brands channels and markets in which we operate a new prioritization framework will ensure we are driving the best returns on our investments growth brands with the highest growth and margin potential like magic and play Doh and new business opportunities like our self published video games, including 2026 is really.
Speaker Change: Lease exodus, who will receive higher incremental investments.
Speaker Change: Opportunities with a lower gross margin profile, we will see more targeted investments to maintain share and optimize profitability.
Speaker Change: And for brands like Nerf, which are facing structural category headwinds the focus will be towards reinventing the business model to ultimately put it back on a path towards renewed profitability.
Speaker Change: In addition to having the right strategic building blocks and prioritization framework in place. It is also imperative, we maintain operational rigor and continue to transform the business.
Speaker Change: We have multiple initiatives underway across the organization, including the continued modernization of our I T and back office systems to speed up decision, making and reduce costs.
Speaker Change: Improving the agility of our design process to bring products to market faster and.
Speaker Change: And the evergreen initiatives are driving supply chain cost productivity ahead of inflation.
Speaker Change: The transformation, we have driven over the past two years has put us well on our way to hitting our goal of $750 million of gross cost savings through 2025, and we now have line of sight to reach $1 billion in savings by 2027.
Speaker Change: This step up as a result of changing how we work and building on the significant progress we have already made with supply chain.
Speaker Change: The expected cost savings coupled with a pivot back to revenue growth will drive healthy profit and cash flow, allowing us to stay committed to our capital allocation priorities of investing in the business paying down debt and returning cash to shareholders via the dividend.
Speaker Change: As cash flow increases in 2026, driven by video game monetization, we will create the opportunity for an even more balanced capital allocation framework.
Speaker Change: Turning to guidance for 2025, we expect total Hasbro revenue to be up slightly year over year on a constant currency basis.
Speaker Change: Total Wizards revenue is forecasted to grow between 5% to 7% driven by expected strength in magic on the back of three universities beyond set releases.
Speaker Change: Given the timing, we expect stronger growth quarters in Q1 and Q4.
Speaker Change: Licensed digital games will be flat as contributions from a full year and monopoly go well offset the moderation of Baldur's gate three.
Speaker Change: With this operating margin will be between 39% and 40% with a step down from last year, largely driven by the increase in royalty expenses for magic universes beyond 10 pull sets.
Speaker Change: Consumer products revenue will be flat to down 4%.
Speaker Change: This includes a roughly four point headwind from two businesses nerf, given the structural category declines and Star Wars on the back of a light entertainment slate.
Speaker Change: We expect closeout volume to be relatively flat year over year and exited brands will not be a material headwind.
Speaker Change: From a phasing standpoint, primarily due to late late Easter, We expect Q1 revenue to be down mid to high single digits before demonstrating sequential year over year improvement.
Speaker Change: Consumer products operating margin will be between 8% and 10% with a step up driven by ongoing cost savings give.
Speaker Change: Given the volume stability across most business lines, we expect to see minimal impact from volume deleverage.
Speaker Change: Entertainment revenue is expected to be flat with an operating margin of approximately 50%.
Speaker Change: Total Hasbro adjusted EBITDA is forecasted to be one one to 115 billion the increase versus last year is primarily driven by the continued profitability improvement and consumer products.
Speaker Change: Our guidance includes the anticipated impact of U S tariffs on imports from China and potential tariffs on Mexico, and Canada imports as announced on February one.
Speaker Change: It also reflects mitigating actions, we plan to take including leveraging the strength of our supply chain and potential pricing.
Speaker Change: We also continued to diversify our manufacturing footprint to create optionality as we navigate the trade environment and we are on a path to move from 50% of our U S toy and game volume originating from China to under 40% over the next two years.
Speaker Change: We expect to spend approximately $250 million and project capital with half to support our internal video game development and the balance to support organic growth and toy as well as the various transformation initiatives across the organization.
Speaker Change: We expect operating cash to be roughly flat and sufficiently fund our existing capital allocation priorities and the board has declared our next quarterly dividend payable in March.
Speaker Change: As we look to the playing to win strategy out beyond 2025, we expect total Hasbro revenue to grow at a mid single digit growth rate from 2025 through 2027 with the acceleration driven by momentum in magic are stronger entertainment slate in toys, and the launch and internally publish video games.
Speaker Change: Starting with exited in 2026.
Speaker Change: We expect Hasbro operating margin to expand on average by 50 to 100 basis points annually with the favorable revenue mix shift improved toy profitability and continued cost savings towards our $1 billion goal.
Speaker Change: We also expect to reach our gross leverage target of two five times or better by 2026 through a combination of debt pay down and EBITDA growth.
Speaker Change: In closing after a significant progress in our turnaround over the last two years, Hasbro is stronger focused and ready to execute our latest strategic plan. We have developed a strategy that capitalizes on our unique strengths and market advantages and is focused on creating profitable growth that positions.
Speaker Change: As to drive long term value for all of our stakeholders.
Speaker Change: Special Thank you to all of our employees partners and customers for your thought leadership and partnership as we turn the page to this next chapter and play to win.
Speaker Change: And with that we will take your questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: If I could ask a question. Please press star one on your telephone keypad comp.
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Speaker Change: Before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Megan Clark with Morgan Stanley. Please proceed with your question.
Megan Clark: Hi, good morning, Thank you.
Megan Clark: Maybe we could start I just wanted to ask about the consumer products topline guide, excluding that four point headwind from Nerf and Transformers.
Megan Clark: Implying the rest of the portfolio is kind of flat to up 4%, which is pretty strong.
Speaker Change: Can you talk about what your expectation for industry. Pls is I think you said flat over 25% to 27 is that consistent and twenty-five as well and then how are you thinking about market share performance. If I look at your performance in the fourth quarter. It does seem like you're still.
Speaker Change: Lost a bit of share in most of your categories. So if you could just kind of contextualize, how you're thinking about the industry and market share ex those two brands Nerf <unk> and star Wars that would be helpful.
Megan Clark: Hey, Megan.
Megan Clark: Good morning. Thanks for the question I think gene and I will tag team on it.
Megan Clark: Yeah, I think we're thinking the toy industry is in the plus or minus 1% for this year so call it flattish.
Megan Clark: And that assumes our expectations on what's going on what's going on with the China tariffs as announced on February 1st, but it doesn't really factor in anything else that might happen in terms of government policy.
Megan Clark: Over the next couple of months, because that's a little bit of an unknown.
Megan Clark: We think trading cards and building blocks are probably the drivers of the toy category right now outside of that the balance of categories are probably down low single digits and as we look at our own portfolio, we feel pretty good about what we see in terms of our entertainment slate.
Speaker Change: Captain America had a pretty good opening weekends.
Megan Clark: Some pretty nice Pos lifts.
Megan Clark: So we're seeing the business respond we've got a lot going on inside of preschool that we'll be announcing at toy fair that we werent prepared to talk about today, but we think that the those will have some lifts.
Megan Clark: We like some of the things that we're doing inside of girl girl collectibles.
Megan Clark: We also like a lot of the price point innovation, we've been driving across our supply chain. So I think youre going to see Hasbro be a lot stronger at sub $10 in sub $20, which is an area that I think we've under indexed in.
Megan Clark: Then a little off trend on but we think will be very on trend this year.
Megan Clark: And then when you add on top of that so that CP, what's happening in Wizard.
Megan Clark: Magic should have a very strong year and as we said, we think our licensing segments overall across digital and.
Megan Clark: CPE will probably be roughly flat this year, but.
Megan Clark: Still a nice contributor of profit for us.
Kern Kapoor: Yeah, Megan my build on that morning by the way my build if you look at the couple of businesses that we called out in our prepared remarks.
Kern Kapoor: That are impacting the guide, but also really impacted our Q4 performance our star Wars and then in Nerf. So from a share perspective in Q4, those two had a disproportionate drag and the other thing to keep in mind over the course of the year, but then really.
Kern Kapoor: In Q4, as well we had less closeout volume. So we've talked about this on a few past calls overall through the year. Our closeout volume was down about $100 million of revenue. It was about $40 million down in Q4, that's very good for us from a profitability standpoint, but absolutely does impact the top line and ultimately the shoe.
Kern Kapoor: Their results that you're seeing so as we look into 'twenty five closeouts will be relatively flat year over year, we're not expecting that huge you kind of pull down that we signed 'twenty 'twenty four it will be relatively flat and that the share.
Kern Kapoor: We will have share gains in many categories that will continue to be challenged with star Wars and nerf.
Speaker Change: Okay understood and then maybe.
Speaker Change: Kind of two part follow up first is just a little bit of a clarification.
Speaker Change: On the medium term guidance. So you talked about 50 to 100 basis points of average margin expansion per year Youre guiding to over 100 here and Tony 25 at the mid point. So the first is just a clarification is that 50 to 100 bps per year cumulative I E 150 to 300 over.
Speaker Change: Three years or is it that the goal is to grow 50 to 100 basis points per year kind of regardless of the starting point and then the second part of the question is how should we think about.
Speaker Change: The self publishing video games is as those start to become a bigger part of the.
Speaker Change: <unk> business, how should we think about how that is embedded into your margin expansion goals.
Speaker Change: Yeah, Great question, Great question, So how you phrase that day.
Speaker Change: Margin accretion I will say, it's cumulative so every year, we're looking to grow 50 to 100 basis points. So it will get over two or three point span over the course of our strategic plan.
Speaker Change: How videogames starts to play into it. So when you think of what we've been doing we've been capitalizing all of the expense for that development.
Speaker Change: And then when the video game launches, we will see upticks in revenue from the unit sales will see upticks in absolute profit dollars from the profit driven by those unit sales.
Speaker Change: And then we will see a nice infusion of cash the offset though is in the margin because we will start to depreciate out that expense that we've been capitalizing some of the give back in margin will come as a result of the video game monetization, but that ultimately we will be in a better profit.
Speaker Change: Tuition and a better cash flow situation.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Christopher <unk> with Jpmorgan Chase and company. Please proceed with your question.
Christopher: Thanks, and good morning, So first a follow up on the prior question I know you mentioned.
Christopher: Captain America, starting to see some pickup on the Pos side, but there are a lot of questions that perhaps there was some holiday pull forward in general merchandise February weakness Hispanic consumer whether so on and so forth. So could you, possibly peel out the pill.
Christopher: Peel out the business in the U S is what you've seen in January and February a bit more.
Christopher: Sure.
Christopher: We're actually having a decent start to the year.
Christopher: I can't go into too many details because this is the Q4 call as opposed to the Q1 call.
Christopher: But generally speaking.
Christopher: Our thesis for the year is playing out and what we've seen in the first six weeks of the year.
Chris Cox: Yes, Chris.
Chris Cox: <unk>, Yes, we had we felt really good about how the holidays played out for US we didn't feel like we had a significant amount of pull in our weird merchandising activity that was happening in Q4 as we look at Q1 in the in my prepared remarks, I talked about how Q1 will be down mid to high single digits and what we're seeing.
Chris Cox: Three so far is tracking with that.
Chris Cox: Generally speaking our retail inventory around the world is flat to down as we entered the quarter. Yeah pre case, that's underlying the question too quickly.
Chris Cox: Got it.
Chris Cox: Then as we think about the magic business and.
Chris Cox: The two big launches this year can maybe could you contextualize them relative to your experience.
Chris Cox: On an individual basis relative to the experience that you saw in Lord of the rings. Please.
Chris Cox: Yes sure so.
Speaker Change: Certainly we think final fantasy.
Chris Cox: Has.
Chris Cox: As a good chance of taking the crown of best selling magic set in history.
Chris Cox: I'll give you a very recent example, just the other day, we launched preorders for gift bundles for final fantasy.
Chris Cox: Commander gift set.
Chris Cox: <unk> bundles.
Chris Cox: For Lord of the rings, those took a week to sellout for final fantasy it took an hour to sellout.
Chris Cox: So we think final fantasy will do pretty well I don't think you can necessarily quantify that absolutely, but there absolutely is a lot of demand and then Spider man.
Chris Cox: We feel like that will do well now I think the important thing to note on spiderman is it's a little bit of a different.
Chris Cox: Complexion of the fed in terms of what's incorporated into it final fantasy and Lord of the rings had commander decks, which usually constitute a fairly big hunk of assets total volume Spider man will be standard only cards, there won't be any kind of pre con decks, so that will make it a bit smaller but again.
Chris Cox: When we did our first secret layer drops for Marvell in December those things sold out.
Chris Cox: Within them within minutes.
Chris Cox: So we think both of these releases have very strong demand both from existing magic players and just as importantly from adjacent bands, who we think can be new to magic and Thats. What we think the real power of universe is beyond that.
Chris Cox: Beyond his which is building the magic installed base.
Speaker Change: Awesome, Thanks very much.
Chris Cox: Okay.
Chris Cox: Thank you.
Speaker Change: Our next question comes from the line of Eric Handler with Ralph and Dan. Please proceed with your question.
Speaker Change: Good morning, and thanks for the question Jean I Wonder if we could dig in a.
Speaker Change: A little bit on your medium term guidance, so you're expecting mid single digit.
Speaker Change: CAGR. So if 2025 is going to be let's call it flattish on a constant currency basis.
Speaker Change: Toys, you expect to be flattish for the next several years.
Speaker Change: I'm not sure if youre thinking that magic will have a tough comp in 2026, but like what's going to be driving this acceleration is it all video games and new licensing or just sort of help me with the roadmap here.
Speaker Change: Yeah. Good morning, Eric Good question. So there's really three things that I'll point to that drive the uptick. So first is magic. So magic you just heard you could hear chris' smiling as he was answering answering that questions. The magic is going and we're anticipating a strong year. This year, but we are also anticipating continued.
Speaker Change: Strength as we move into 'twenty six 'twenty seven we see the pipeline, we see the momentum in the business the fundamental health of.
Speaker Change: Our fan base. So we feel good that magic is set up for a good runway of growth. So that's the first thing and.
Speaker Change: The second thing and toy to your point, yet this year flattish slightly down next year and 'twenty into 2027, we have a much stronger entertainment slate that then that benefits our businesses and our brands more so than it were seeing this year and so that will take toy.
Speaker Change: The CP business positive as we move through time.
Speaker Change: Six and 27 and then the third piece is the videogame launch and exited that will become the third kind of peak that we've seen independent you know, we havent nailed down the specific launch date of exit is but it will happen at some point in 2026, so that will that will create a little bit of lumpiness.
Speaker Change: Of growth depending on when when that launch timing is that.
Speaker Change: Yes, so I would characterize our growth expectations is very fairly balanced across the business.
Speaker Change: That's helpful. Thank you and also in terms of your video games.
Speaker Change: What is sort of a normalized cadence and how do you think about in house versus.
Speaker Change:
Speaker Change: Outsourcing your development and then no.
Speaker Change: Is M&A and play here in terms of possible studio.
Speaker Change: Type deals.
Eric: Well I think a couple of things first off good morning, Eric.
Eric: So you should expect one to two releases from us per year from 26 to 30 is about what we're thinking and I think we've said that for several years now.
Eric: Thank you.
Eric: You should also expect us to continue to lean into licensing.
Eric: Our portfolio of our pipeline of licensed products and digital has grown from 90 ish 95 is this time last year to about 110 115 projects in development or published this time this year.
Eric: I think the new news is is that we're going to lean in more too.
Eric: Jv's and partnerships as we think about our self published portfolio for the next five to seven years, the Sabre Interactive announced being an example, that's a co publishing deal between the two companies we will be we will each be the publisher of record we will use the war hammer 40 K.
Eric: <unk> space Marine to team to develop the product.
Eric: And we think that's a pretty good model, it's a nice kind of risk adjustment for us it helps us to be able to access some of the best talent in the industry and helps to be able to unlock some of our IP in new ways.
Eric: That's great. Thank you so much.
Eric: Thank you.
Speaker Change: Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Speaker Change: Hey, guys. Good morning, I, just wanted to follow up on the midterm outlook in the context of the 25 guidance and I understand sort of the topline ramp, but I wanted to make sure I'm clear on sort of what the margin offset is because to make an earlier question that seems to imply a deceleration as we move throughout the period, even though the top line is accelerating so is it literally just that some of the capitalized cost hit the P&L.
Speaker Change: Is it investment in some of these video game.
Speaker Change: Services or capabilities through internal like what is sort of the margin offset 26 and 27%.
Speaker Change: Good morning, Fred Good question, so largely it is the capitalization and if you look at the two businesses. Our CP margin. We've guided to 25, 810%. We expect to continue to see that moving north moving upwards as we move into 'twenty six 'twenty seven yeah, we've been committed and <unk>.
Speaker Change: Progress towards getting to that call it low teens percentage and that is what we planned over the course of.
Speaker Change: The next few years, the Wizards business, that's where you'll see some of that margin pullback as that capitalization placed sale, but I mean keep in mind, our wizards businesses posting record level margin, so even a slight that capitalization coming through it still keeps the margins in the mid to high Thirty's.
Speaker Change: That makes sense and then on tariffs.
Speaker Change: Just want to make sure I'm clear on sort of what the assumptions are it sounds like you guys are assuming that Mexico, and Canada come back in the not too distant future can you, maybe just give us order of magnitude how the different buckets hit them all.
Speaker Change: Contemplated for guidance across the three markets.
Speaker Change: Yeah, you've got you've got it right, we've basically taken what the administration put out on February <unk> and Quant.
Speaker Change: Quantified that and put it into our into our guidance for the year really is a China story for US we don't source from Canada, we have minimal sourcing coming out of Mexico. So we're really watching that that China rates. So.
Speaker Change: That's what we baked in.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thanks, Brad.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question will come from the line of RP Nate.
Speaker Change: <unk> with UBS. Please proceed with your question.
Speaker Change: Thanks, very much good morning, Thanks for taking my question.
Just before we focus on 2025 I was just wondering would you say this new strategy is more of a recap of where you've been headed which is more of a kind of a gaming company that makes from toys versus toys and games company before or some material lineup of products a partnership.
Speaker Change: Maybe in the digital space or other areas.
Speaker Change: Youre not ready to talk about today that sort of gave you the confidence to issue formal outlook here on the top line.
Speaker Change: <unk>, Yeah, I would think it's fair to say, we've been trying to project our strategic thinking for several quarters now and this is an articulation of it in summation of it.
Speaker Change:
Speaker Change: We're proudly a toy company, but we think we're a very different toy company than most other toy companies.
Speaker Change: Huge into games were very big into licensing and we've got a fantastic toy portfolio, which serves as another firsthand shake with consumers. So.
Speaker Change: There are some important distinctions I think.
Speaker Change: Im excited about.
Speaker Change: Getting back into more girly oriented categories in a bigger way I am excited about going after emerging markets in a much bigger way.
Speaker Change: I've always been excited about our digital ambitions I think we're well ahead of most of our traditional toy industry peers.
Speaker Change: And so I think that differentiates us.
Speaker Change: You look at the nature of our three businesses licensing is a big time is a huge margin driver for us.
Speaker Change: It's relatively inexpensive to like some of the tariff.
Speaker Change: Rama that's going on right now games tends to be a nice business for us that has a great secular growth pattern and toy is while the category has been down for the last couple of years post Covid is traditionally a very stable business and we've got some great brands and I think the team that we've put in place in toys over the last 18 months.
Speaker Change: Youre going to see some nice wins from them over the following 18 months as you really as they put their mark on our product portfolio.
Speaker Change: Great great. Thank you so two poorly down to profitability, a little bit and this might depend on what you assume for debt pay down, but your gross debt to EBITDA target of two and a half.
Speaker Change: <unk> could imply something like $1 3 billion of EBITDA by next year, and if I were doing the math around DNA right depreciation and amortization were looking at over $5 of earnings by 2026, I guess do you have pushback to that map in Etfs with other puts and takes we should keep in mind.
And.
Speaker Change: A good question good morning by the way.
Speaker Change: Your EBITDA.
Speaker Change: Is not far off so you're probably youre getting to that right spot and again with the video game.
Speaker Change: And the monetization of that debt.
Speaker Change: It is a margin hit but.
Speaker Change: It is going to positively impact our EBITDA earnings per share is probably running a little hot in 2006 as in what you're calculating a couple of things just to keep in mind as we move through this year 20.
Speaker Change: <unk> 25, and 26, one our tax rate is stepping back up so we had a few things that went our way here at the end of 'twenty four we're not planning for those to happen again in 'twenty six 'twenty five 'twenty six and then the second thing is interest expense. So that was also something in 'twenty four we were sitting on.
A fair amount of cash as we are waiting to pay off that notes in November and so we won't have that same kind of interest income in remarks those entities. The interest expense. So that is another thing that goes against us.
Speaker Change: From an EPS standpoint, as you think about 25 and 26.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Uh-huh.
Speaker Change: Thank you. Our next question comes from the line of James Hardiman with Citi. Please proceed with your question.
James Hardiman: Hey, good morning so.
Speaker Change: Actually just wanted to continue on the same.
James Hardiman: Thinking with some of the math.
James Hardiman: Hum.
James Hardiman: Just given sort of how DNA might skew operating income. The next few years as I think about 2027.
James Hardiman: Pointing to win outlook.
James Hardiman: Where should we be landing in terms of EBIT.
James Hardiman: Getting into something in the 131 $4 billion range, but that didn't really account for the step up in DNA. So so should it ultimately would be higher than that number.
James Hardiman: Think about 2027.
James Hardiman: It's not going to be as low as one three I think your higher number is more right.
James Hardiman: How's that for hand.
Got it that's perfect.
James Hardiman: And then.
James Hardiman: As we think about the 2025 guide right. So margin expansion in that 70 to 170 basis point.
James Hardiman: Range, maybe just help us bridge that in any way you can.
James Hardiman: The cost savings number that you've laid out there of $175 million.
James Hardiman: It looks like a lot of that is going to fall through to the bottom line, maybe two thirds of that.
James Hardiman: I'm getting to something like 300 basis points of margin just from the from the net cost savings I guess what are the offsets.
James Hardiman: Obviously tariffs seem like they might be a big one is that the majority of the delta.
James Hardiman: I think about getting from the net cost savings.
You guided for the year, yes, yes. Its a good question. So when you break down kind of the big pieces of the 25 build overall volume and mix is going to be a net positive contributor. So think about a point of margin benefit comes from some bottlenecks.
James Hardiman: In the supply chain, which is where youll see that pick up.
James Hardiman: The tariff expense largely supply chain is going to be relatively flat. So we have good amount of cost productivity and that is able to offset what we're seeing play through and inflation as well as tariffs. So that's kind of a net neutral margin.
James Hardiman: All of them the rest of the accretion is coming from below the line and within our managed our operating expenses.
James Hardiman: Yes.
James Hardiman: Got it that's perfect. Thank you.
James Hardiman: Thank you.
James Hardiman: Thank you.
Speaker Change: Our next question comes from the line of Jamie Katz with Morningstar. Please proceed with your question.
Jamie Katz: Hey, good morning.
Jamie Katz: Hope you can drive a little bit further down into the incremental cost savings and maybe the differences in what you've found between 750 and 100 I'm sorry Julian.
Jamie Katz: The number that you guys are looking at now.
Julian: Yeah money Jamie Good question, So and you can dates I would say the 600 plus that we've saved gross savings wise has been I would say roughly half of it has been supply chain and the rest has been the balance of line items within within the P&L as we go into 'twenty, five and beyond supply chain.
Julian: We'll always have that evergreen cost productivity is going to offset inflation, but we start to pick up cost savings from a few other areas of the P&L.
Julian: The first is within gross to net so all of that cost that sits between gross revenue and net revenue that becomes a contributor for us.
Julian: Our design to value work, we've seen very little of that impact. The P&L to date that also starts to accelerate 25 and beyond and then the third piece of it is within managed expenses. So as we continue to morph and transform the organization. How we work how we are spending et cetera, we start to see.
That played through in cost savings.
Speaker Change: Okay. Thank you and then as you guys continuously evaluate the portfolio given.
Speaker Change: The rhetoric that you shared around nerf and structural changes maybe in demand around the business.
Speaker Change: How do you think about what you determine you want to out license versus what you want to keep on some of these long lived brands. Thanks.
Jamie Katz: Yeah, Yeah, Hey, Jamie.
Jamie Katz: As we think about how we categorize our brands, we're using a three part matrix.
Jamie Katz: Placing by the old franchise and partner brands now its growth optimize and reinvent.
Jamie Katz: So brands like Nerf, we would classify in the reinvent category.
Jamie Katz: The categories been under a little bit of stress over the last several years.
Jamie Katz: <unk> still has very strong brand.
Jamie Katz: But we have to reinvent ourselves.
Jamie Katz: For something like Nerf in particular, I think we have to go back to fundamentals, which is nerf started off in the 19 seventies as the world's first indoor ball.
Jamie Katz: It's about safe active play.
Jamie Katz: And we can't think about reinventing nerf and just think every solution involves the dart.
Jamie Katz: So we've challenged our product teams to think about safe active play think about it more expansively and also think about the business model and the channels in which we operate in.
Jamie Katz: And at the end of the day. There also is always the option to license the product out or license a portion of our brand out which also is on the table for any of those.
Jamie Katz: I would say our net bias is that we're going to be a net brand creator and we're going to do less.
Jamie Katz: Out licensing in terms of new brands that are going to be out licensed but it still always is on the table because honestly we've had really good success with it if you look at our share last year, we had a point of share when we look at our out licensed brands. The pass on those brands are up 50% year over year.
Jamie Katz: And our partners are doing a fantastic job, helping us to expand into new categories. We're into vehicles now with Transformers via hot wheels were into building sets with Lego.
Jamie Katz: With DMD and Peppa pig and Transformers.
Speaker Change: I think Jeff play in basic fund have done a fantastic job with for real friends and Littlest pet shop.
Jamie Katz: I think that that's a viable strategy as well.
Speaker Change: Okay. That's helpful. Thanks.
Jamie Katz: Okay.
Speaker Change: Thank you. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.
Alex Perry: Hi, Thanks for taking my questions here.
Speaker Change: Just to start on monopoly go where should we think of as sort of the right underlying run rate now it looks like that actually accelerated <unk> versus <unk> have you seen the marketing spend settle out there.
Speaker Change: And then just broadly what drove the source that digital gaming strength in the quarter I think monopoly came in better than expected, but it also looks like other parts of the portfolio drove a decent amount of upside.
Speaker Change: Well I think we're going to keep with our call on about $10 million a month in terms of what we receive from monopoly go.
Speaker Change: I think scope, we did a great job with their television campaign. It certainly it was a lot of fun.
Speaker Change: Will ferrell and body, Mr monopoly and hanging out with all of his celebrity friends.
Speaker Change: And I think that drove some upside for them I think really though what really drives the upside of monopoly goes. It's just a fantastic game, that's very sticky and engages consumers I also think they've been smart in terms of how they manage the business. The tycoon club isn't the majority of their revenue, but it's been a nice way for them to be able to.
Speaker Change: Capture a bigger share of revenue on that which also benefits us so.
Speaker Change: We continue to see monopoly go is a huge.
Speaker Change: Mobile game, there likely is going to be some months over months.
Speaker Change: Moderation in the business over time, that's what naturally happens with mobile but.
Speaker Change: But we feel pretty confident in that $10 million number. The other thing that's been going really well for US is Baldur's gate three I think we doubled what our forecast was for that business.
Speaker Change: And that's something that's been at Larian called really early they have very long tails on their games. They don't spend as much money upfront on marketing their games. They rely on the quality of the games and the enthusiasm of their community to drive word of mouth, and we're seeing that with follow up we saw that with Baldur's gate over.
Speaker Change: Through the course of 2024 and into Q4 and I think we will continue to see benefits from that this year in excess of what a typical AAA game would experience.
Speaker Change: Really helpful. And then just my follow up question on the consumer products Division can you just talk about I don't think you gave it yet but sort of how Pos trended in the fourth quarter and then just on sort of the implied first quarter outlook is sort of the outsize decline of Easter shift.
Speaker Change: What drives the acceleration as you move throughout the year on the consumer products Division.
Speaker Change: Yes.
Alex Perry: Morning, Alex So yes, primarily what's happening in Q1 is is the Easter timing shifts I mean, there's always as you go through January and February the final clear outs and.
Alex Perry: What happens at retail and is there kind of resetting or getting ready for the reset there is a little bit of that but not atypical for what the industry. Typically go through in January and the early part of fab. So it really becomes about the Easter timing.
Alex Perry: Perfect very helpful Best of luck going forward.
Thanks, Thank you.
Alex Perry: Thank you.
Speaker Change: Our next question comes from the line of Stephen <unk> with Goldman Sachs. Please proceed with your question.
Stephen: Hey, great. Thanks for taking the questions maybe first for Gino one more follow up on the medium term margin guide.
Stephen: Maybe asking it a slightly different way I'm curious if you could talk more about the swing factors that are top of mind for you as you think about what could cause you to come in at the high end of that range for margin expansion versus the low end the $1 50 versus 300.
Stephen: Digital is a big component, there, but would love to get your thoughts on the puts or takes.
Stephen: And then second on Capex I think Capex is stepping into $250 million next year could you talk a little bit more about the underlying puts and takes of capex growth. This year, maybe where youre investing and then looking ahead, what we should expect from the arc of Capex past 2025. Thank you.
Stephen: Right.
Steven: Good morning, Steven.
Steven: I would say from a overall swing factors on the margin in the out years is really going to be about when that debt. The videogame Monday, the launch timing and when that videogames starts to monetize in the capital or the capitalization floods because that depreciable hit at the same pace of when the units are coming and that's how it will be safe.
Steven: So that will be the factor that swings at either to the higher end of the range or the lower end of the range, but every year you should take away that we will be growing our margin from a capital standpoint, we do have a bit of a step up this year into 25, we don't expect to see dramatic step ups as we move.
Steven: The balance of the strategic plan.
Steven: But the step up I would say roughly half of that $2 50 that we put out there is going to the video game.
Steven: <unk> launches and then you could take the balance and say, we're going to continue to invest behind toy and toy innovation and we're also going to continue to invest behind all of the transformation initiatives that are underpinning underpinning. This strategy. So you kind of take that last half kind of divide it by two and you get where our priorities prioritized.
Steven: This spend.
Speaker Change: That's great. Thank you Gina.
Steven: Thank you.
Steven: Thank you.
Speaker Change: Our next question comes from the line of currently co who with Jefferies. Please proceed with your question.
Speaker Change: Hey, good morning, everyone and thank you for taking my question.
Speaker Change: Beat a dead horse.
Speaker Change: A question, maybe a different way.
Speaker Change: Mid term drivers of margin expansion I was wondering if you could rank order those.
Speaker Change: That's increased licensing revenue cost savings just so we can kind of understand where they all.
Speaker Change: Great that's helpful.
Speaker Change: Rank order them in order as our favorite types of margin.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Okay.
Ladies and gentlemen, we do apologize for the inconvenience that we seem to be having some technical difficulties.
Speaker Change: Please standby.
Speaker Change: Please standby, ladies and gentlemen.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay. We do have this new because of that we will now proceed.
Speaker Change: Yes.
Speaker Change: Do we still have Kylie.
Speaker Change: Yeah Yeah.
Speaker Change: It is never a dull moment and earnings day I question that.
Speaker Change: Well I'll tell you we have the best answer to your question now.
Speaker Change: In Ontario. So your question of what is really going to drive the margin in the out years.
Speaker Change: Very simply it's going to boil down to the profitability improvement, we're making within toys, whether it is the mix benefit that we're generating off of the innovation in that portfolio to all of the cost savings that are playing through the P&L that is going to be the single largest contributor to add to that margin accretion.
Speaker Change: Because remember the Wizards, we've talked about a couple of times. The Wizards margin will go down as that monetization starts to happen much more profit and lizards, just the margin itself will go down.
Speaker Change: Exactly Okay note that is super helpful.
Speaker Change: Welcome from me is just kind of talk about inflation for the year and how supply chain efficiencies should offset that pressure, but just kind of curious what which cost youre seeing the most inflation right now and just kind of how to think about that should we be conscious of lapping any.
Deflation from the previous year.
Speaker Change: No good question, but nothing material I mean, as we've played through last year, we saw in 24 to two 5% inflation largely driven by labor.
Speaker Change: As we look into 'twenty five it's similar to five 3% a slight tick up in inflation largely again driven by by labor both was in manufacturing as well as within within logistics.
Speaker Change: But again our model is to always have that cost productivity offsetting inflation, obviously and kind of putting tariffs to the side as I answer that question. We did see as we went through the balance of last year logistics spot rates started to pop a little bit in Q4, we werent materially impacted by.
Speaker Change: To that but we did see that play through in the market there, they're starting to settle out and we don't expect it to be anything atypical from what we're planning for the year.
Speaker Change: Awesome. Thank you so much.
Speaker Change: Thanks, Kelly, thanks for hanging out and being patient.
Speaker Change: See you later this morning.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And ladies and gentlemen, this concludes the question and answer session and therefore this also concludes today's conference call.
Speaker Change: Thank you for your participation you may disconnect your lines at this time.
Speaker Change: And again, we do apologize for the.
Speaker Change: <unk>.
Speaker Change: Technical difficulties.
Speaker Change: [music].