Q1 2025 Hasbro Inc Earnings Call
Christopher Horvers, Jaime Katz, Andrew Crum
Thank you, thank you.
Hasbro representative: Good morning and welcome to the Hasbro first quarter 2025 earnings conference call. At this time, all parties will be in a listen only mode.
Hasbro representative: Today's conference call is being recorded. If you have any objections, you may disconnect at this time.
Speaker Change: At this time, I'd like to turn the call over to Kristen Levy, Hasbro Investor Relations. Please go ahead.
Speaker Change: 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.
Speaker Change: Today's call will begin with Chris and Gina providing commentary on the company's performance and then we'll plan to take your questions.
Speaker Change: Our earnings release and presentation slides for today's call are posted on our Investor website.
Speaker Change: The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which excluded these non-GAAP adjustments. A reconciliation of gap to non-GAAP measures is included in the press release and presentation.
Speaker Change: Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.
Speaker Change: Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management expectations, goals, objectives, and similar matters.
Speaker Change: There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.
Speaker Change: These factors include those set forth in our annual report on Form 10K, our most recent 10Q.
Speaker Change: In today's press release and in our other public disclosures, we undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I now like to introduce Chris Cox, Chris.
Chris Cox: Thanks, Fred, and good morning. T1 delivered another clear proof point of our plane wing strategy of work. Play focused, partner-scaled, and performing. Revenue rose 17%, led by a surging magic business, and continued strength in licensing.
Speaker Change: Wizards who is up 46%. Consumer products who is down 4%, driven by quarterly phasing due to a later easter, but still ahead of plan. Both segments beat expectations.
Speaker Change: Adjusted operating profit jumped 50%, a result of favorable mix and the cost discipline embedded in our transformation program.
Speaker Change: Our games portfolio and industry leading licensing business remain standout performers, high growth, high margin, and structurally resilient due to lower exposure to international
Speaker Change: On tariffs, we acknowledge the challenge posed by the current global trade environment. While no companies insulated, Hasbro is well positioned. Our US games business benefits from largely digital or domestic sourcing, maintaining low cogs and healthy margins.
Speaker Change: We make many of our board games just up the road in East Longbedo, Massachusetts, not far away from where Milton Bradley printed his first board games in the 1860s.
Speaker Change: Wizard has low tariff exposure, with sub-10 million dollars and expected duty for the year. Most of our domestic supplies produced in North Carolina and Texas, with the balance from Kyoto, Japan.
Speaker Change: Our licensing business is primarily digital, or minimum guarantee-based, with manageable partner exposure, while our toy segment faces higher exposure, we're responding proactively. Our asset-light sourcing model means we can rapidly shift production to help mitigate tariff impacts.
Speaker Change: We're accelerating our $1 billion cost savings plan to offset tariff pressures internally. While targeted pricing actions remain likely, we are prioritizing key price points and strengthening retail partnerships.
Speaker Change: We will work to capture market share and shelf space through our growth and optimized brands at critical consumer friendly price points.
particularly 999 and 1999.
Speaker Change: We want the hundreds of millions of families and fans we serve each year to keep experiencing
Speaker Change: Whether it's an all-new home play set for Peppa Pig and her growing family, a played booster for Magic's Final Fantasy, Universe's Beyond Collaboration, or a hot new action figure for Marvel's upcoming Fantastic Four movie.
Speaker Change: We're also thinking long-term as we play to win, especially with partners, a superpower of Hasbro's.
Speaker Change: This week, we announced the extension of our multi-decade licensing agreement with Disney consumer products from Marvel and Star Wars, with enhanced category rights and preschool, play-doh, action, and role play.
Speaker Change: Combined with the Marvel agreement from Magic the Gathering, our collaboration with one of the world's most valuable brand portfolios has never been stronger.
Speaker Change: Expect more announcements of new partnerships with leading brands across toys, games and video games aimed at all demographics. Further solidifying our position for long-term success.
Speaker Change: Looking ahead, while we remain hopeful for a more predictable and favorable US trade policy environment, we must acknowledge the costs imposed by current tariffs.
Speaker Change: Ultimately, tariffs translate into higher consumer prices, potential job losses as we adjust to absorb increased costs and reduced profits for our shareholders.
Speaker Change: Our guidance has unchanged, supported by our robust games and licensing businesses and our strategic flexibility, but prolonged care of conditions creates structural costs and heightened market unpredictability.
Speaker Change: Hasbro produces a substantial amount of product in the US and around the world, has served as an engine of local jobs, creativity, and innovation for over 100 years.
Speaker Change: and licenses to hundreds of American companies employing tens of thousands of American workers.
Speaker Change: Across toys, games, entertainment, experiences, and more. As such, we fully endorse the Toy Association's advocacy for zero tariffs on toys and games globally, either on US exports or on imports.
Speaker Change: Other toy associations around the world are quickly joining the advocacy efforts.
Speaker Change: We believe there should be free and fair trade for toys, an industry critical not only to hundreds of thousands of American jobs, but also to the joy and developmental well-being of millions of children, families, and fans across the US and worldwide.
Speaker Change: Before handing it over, let me extend my sincere thanks to our team and partners. Our strong performance amid challenging conditions can be directly attributed to your dedication, agility, and shared ambition.
Speaker Change: In an unpredictable environment, our greatest assets remain our people and our valued partners. They are what truly enable us to play to win. Now, over to Gina.
Gina Goetter: Our Cuban Performance reflects early traction from our playing to win strategy, ongoing transformation initiatives, and a continued focus on cost discipline and profitable growth.
Gina Goetter: Net revenue in the first quarter was $887 million, up 17% versus prior year, different growth in magic and monopoleco.
Gina Goetter: by just an operating profit increased 50% to $222 million, reflecting a 25.1% adjusted margin, a 5.5 point improvement over last year due to the favorable business mix.
Gina Goetter: Adjusted earnings per diluted share rose 70% to $1.04, driven by toppling growth, margin expansion, and broader expense management.
Gina Goetter: From a segment perspective, Wizards of the Coast and Digital Gaming once again led the charge. Segment revenue grew 46% to 462 million dollars, with growth across both magic tabletop and digital licensing.
Gina Goetter: Magic delivered a strong quarter with revenue of 45% driven by healthy demand for recent releases and ongoing engagement and backlash content.
Gina Goetter: The strong performance in Q1 reinforces our confidence in momentum and stickiness of the business across our core consumers.
Gina Goetter: This game is now celebrating its second anniversary and has announced the next third party IP collaboration with Lucas Films and Star Wars, launching in the game on May 1st.
Gina Goetter: Operating Margin and Wizards reached 49.8% up 11 points year-over-year, driven by mix and leverage from Tapline Gross.
Gina Goetter: Consumer products revenues declined 4% to $398 million, finishing slightly better than our original expectations behind strength and licensing.
Gina Goetter: Importantly, the segments adjusted operating loss of $31 million improved 18% versus last year and adjusted operating margin improved 140 basis points reflecting progress on our cost transformation and lower promotional activity.
Gina Goetter: Through the first quarter, we saw minimal impacts from tariffs across our cost structure or customer order patterns.
Gina Goetter: The entertainment segment declined modestly, with revenue down 5% to $27 million, primarily due to deal timing.
Sigmund Adjusted Operating Profit, held a flat year-over-year at $17 million.
Gina Goetter: Across Total Hasbro, we continue to unlock savings from our transformation. Total adjusted EBITDA was $274 million, up 59% versus the prior year, with margin expansion supported by $22 million of gross cost savings from our operational excellence initiatives.
Gina Goetter: On the cash side, we generated $138 million in operating cash, funded $52 million in strategic investments, and returned $98 million to shareholders via our dividend.
Gina Goetter: We also paid down $50 million in long-term debt, keeping us on track to meet our gross leverage target of two and a half time by 2026.
Gina Goetter: As we look at the remainder of the year, we're encouraged by the strength of our Q1 results and the early execution of our strategic priorities. That said, we're operating in a dynamic macro environment.
Gina Goetter: The expanded rate on imports from China and potential reciprocal tariffs and other toy manufacturing hubs, including Vietnam and India, is creating volatility and introducing a range of scenarios for how the year could unfold.
Gina Goetter: To say ahead of this uncertainty, we're making targeted operational pivots. We're further rationalizing our skew portfolio to prioritize velocity and margin, reassessing our logistics routes and manufacturing to reduce exposure and accelerating efforts to diversify our sourcing footprints.
Gina Goetter: Today, roughly 50% of our US toy and game volume originates from China, and we're accelerating plans to bring that down meaningfully starting this year.
Gina Goetter: China will continue to be a major manufacturing hub for us globally in large part due to specialized capabilities developed over decades.
Gina Goetter: In parallel, we're partnering closely with our customers to manage inventory flows and work through a range of pricing strategies tailored to different trade outcomes and protect key price points.
Gina Goetter: These actions ensure we remain agile and margin focused, even as the external conditions evolve.
Gina Goetter: With that context, let's turn to our 2025 Total Company Outlook.
Gina Goetter: We are pulling a lot of levers and making a number of puts and takes in our assumptions.
The net is, we are keeping full company guidance unchanged.
Gina Goetter: While we are dealing with a wide range of potential tariff, retailer, and consumer outcomes, our game's business and our strategic flexibility gives us options.
Gina Goetter: I'd like to spend a couple of minutes to unpack how we are modeling the cost of tariff, impacts the toy category, both in terms of retailer ordering and consumer take away, and provide more color on our supply chain and pricing direction.
Gina Goetter: Our forecast assumes various scenarios for China tariffs ranging from 50% to the rate holding at 145% and 10% for the rest of the world.
Gina Goetter: This translates to an estimated 100 million to 300 million gross impact across the Enterprise in 2025 before any mitigation.
Gina Goetter: As I mentioned, our team has moved quickly to offset activating a range of levers, including sourcing optimization and diversification, coordination with retail partners on skew assortment and promotion activity and readying targeted pricing actions.
Gina Goetter: Factoring in all the mitigating levers, we estimate that the net profit impact in 2025 to be between $60 to $180 million.
Gina Goetter: The range and outcomes is dependent on final trade policy, customer order patterns, and consumer behavior.
Gina Goetter: Turning to the wizard segment, given the broad-based strengths and the Q1 results, we are raising our full-year outlook and now expect revenue to grow mid-to-high teens with a low 40s operating margin.
Gina Goetter: This increase is driven by strong demand signals we're seeing across upcoming universes beyond releases, including Final Fantasy, Spider-Man and Avatar of the Last Airbender.
Gina Goetter: He set their generating early excitement across both core and new fan segments, reinforcing the strength of our multi-franchised strategy.
Gina Goetter: As we scale these temple releases, it's important to note that we will begin to accumulate higher royalty expenses, starting in Q2.
Gina Goetter: This is fully contemplated in our outlook and consistent with the broader strategy to grow high-margin, franchise-led revenue across our portfolio and attract new and lapsed fans.
Gina Goetter: The Momentum in Wizards provides a strategic buffer as we navigate broader cost pressures in consumer products.
Gina Goetter: At this stage, we don't have sufficient clarity to credibly adjust our full-year consumer products
Gina Goetter: The range of potential outcomes tied to the evolving turf environment remains wide, and we are continuing to assess the implications in real time.
Gina Goetter: Until we see greater certainty on the scope and timing of these trade measures and how they could influence customer order patterns and consumer behavior.
Gina Goetter: As part of this, we're accelerating elements of our cost savings program, now targeting $175 to $255 million in gross savings this year, as we look for additional profit assets.
Gina Goetter: Despite macro uncertainty, a combination of CP mitigation, wizard's outperformance, and accelerated cost savings gives us a line of sight to delivering on our full-year financial commitments.
Gina Goetter: Our capital allocation priorities for the year are unchanged. We continue to invest behind the core growth engines of the business, namely magic and digital game while maintaining discipline and flexibility in an evolving macro environment. [inaudible]
Gina Goetter: In light of current trade uncertainty, we are placing even greater emphasis on balance sheet health and liquidity.
Gina Goetter: We remain committed to our long-term leveraged targets and are taking a balanced approach to returning capital and prioritizing debt reduction.
We have kept our Q2 dividend unchanged.
Gina Goetter: To wrap up, as we move through the rest of 2025, we're executing with focus, scaling our high margin growth engines, actively managing volatility, and accelerating cost transformation.
Gina Goetter: We remain disciplined in capital deployment, responsive to external risks, and confident in our ability to create value across the balance of the year.
Gina Goetter: We'll now turn it back to the operator to take your questions.
We'll now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it would be necessary to pick up your hands up before pressing the star keys.
Speaker Change: In the interest of time, we ask that participants limit themselves to one question and one follow-up.
One moment please while we pull for questions.
Speaker Change: Thank you. Our first question is from Christopher Horvers with J.P. Morgan. Please proceed with your question.
Hi, good morning. It's Christian Carly-Noan for Chris.
Speaker Change: Appreciate the color on how you're thinking about tariffs, but just given the consumers felt so much inflation over the past couple of years.
Speaker Change: Could you talk through the different scenarios you're thinking about in the event the 145% on China holds and how toy-spend is impacted relative to the broader impact on the consumers while
Speaker Change: Sure. Good morning, Christian. Before I answer the question, in case there is any doubt, we kicked off the call with Fred Wightman, our VP of Investor Relations.
Speaker Change: It wasn't Kristen Levy with a serious cold. So, Kristen is still here. So, we've looked at a variety of scenarios and I would say we have a...
Speaker Change: We have a pretty cautious outlook in terms of what the impacts of the current terror Ephraim would have.
Speaker Change: You know, basically we see the impact to consumer spending on the toy category consistent with what happened with the 2008-2009 recession.
Speaker Change: The toy category was down, roughly mid-single digits, Hasbro faired a bit better at that time based on entertainment road maps and innovation that we had as well as Wizards of the Coast.
Speaker Change: And then in terms of what we think the inflationary outlook looks like, in terms of prices in the category, we went back to 2020 and 2021 with the early days of COVID.
Speaker Change: So we basically see a combination of inflation and some recessionary pressures on the macro.
Speaker Change: That said, we think the toy category early in 2025, and we think this will extend throughout the year, will kind of reassert its traditional focus on resiliency or its traditional position of resiliency.
Speaker Change: It tends to be a category of small luxuries. It tends to be a category which is heavily gift-oriented. And so we think it's going to fare better than other discretionary categories or other experienced categories.
Speaker Change: So that's kind of the puts in the takes we have. Obviously, if tariffs change, that outlook will change, but right now that's our basis at 145% with China and 10% everywhere else.
Speaker Change: We got it. That's really helpful. And to talk to, you know, what are your conversations with retailers like this, this media reports about some big players can't find orders from China, but it sounds like you're not seeing that.
Speaker Change: And could you maybe talk about how much of this pressure is being absorbed by maybe the third party manufacturers versus the retailers?
Speaker Change: and are you seeing retailers go to more direct imports to negotiate direct-with-the-manufacturers and just any color there on how the impact is being shared across this slide.
Speaker Change: Got it. Morning, Christian. Our conversations with the retailers are pretty fluid. For as many curved balls that are being thrown at us, the same kind of curved balls are being thrown to them.
Speaker Change: And everyone is taking a slightly different approach with how they're managing their inventory and their order pattern. So we haven't seen, you know, on the big three, we're not seeing a ton of canceled orders and different thinking of how they're going to approach the holiday. But we are having very active discussions on how we're managing inventory as we move through this Q2 period and then Q3, which is one you tend to see the reset.
Speaker Change: Start to happen ahead of the holiday season. So nothing hugely material in terms of orders being canceled, or seeing instances as you said in your, or asking your question of them going directly to the manufacturer, but we are seeing some shifts on how we're thinking about the phasing throughout the year.
Yeah, just to add a little bit more color.
Speaker Change: You know, I would say our first principle in all of this is Don't Overreact, and I think our retail partners have appreciated that perspective. Now, Hasbro is able to come from a privileged perspective on that, you know, somewhere around 45 to 50%
Speaker Change: of our U.S. sales are either domestically sourced or based on digital or licensing from domestic companies.
Speaker Change: So that gives us a little bit more buffer than the typical toy company, which is 80% plus of their volume comes from China and most of it the rest from Southeast Asia.
Speaker Change: So, in terms of our discussions with retailers, we're talking a lot about okay.
Speaker Change: How can we keep prices as consistent as possible for consumers, especially for items that we think will be fantastic gifts that kids will be asking for and moms and dads and aunts and uncles will want to give?
Speaker Change: That said, we are having discussions around pricing more broadly, you know, at this level of tariff, so I don't think you can avoid it.
But generally speaking I think it's a...
Speaker Change: It's a set of discussions in the spirit of partnership. The one thing I'll add to a little bit on what Gina said is...
Speaker Change: We are seeing a change from direct import to domestic, and that will change the nature of the timing of when our orders will be fulfilled.
Speaker Change: You know, I think Q2 is pretty dynamic, but I definitely think Q2 will be impacted on direct import. Now that said, we might be able to compensate for it on domestic. We'll probably have to give you guys some updates as the quarter goes on on future conferences.
Speaker Change: How about this for the longest answer ever to this question? I'm going to add one more point to Chris's comment. The other strengths or opportunity that we have with the discussions that we're having, we're anticipating
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Super helpful. Thank you very much. Best of luck.
Our next question is from Megan Klatt with Morgan Stanley .
Megan Klatt: Good morning, thanks so much. My first question is just a bit more of a clarification and then I have a follow-up on Withers. The clarifying question is Chris, I think you said something, I know you said something in your prepared remarks just about prolonged, the potential for prolonged tariffs.
Megan Klatt: The headwind that Gina talked about this year, could that get worse next year? Is that what you were meaning to imply from a cost perspective? Obviously, you'll have to lap through it as it rolls into 2026 given inventory, but I just wanted to maybe if you could expand upon what exactly that comment meant.
Megan Klatt: Yeah, well, I think it's two things. I think the first thing you're correct in that, you know, right now we're able to basically defer paying a bunch of tariffs because, you know, for the first four or five months of the year we're not having a large number of deliveries.
Megan Klatt: So there will be incremental tariff exposure that you'd have next year if the current duties continued, that would be a headwind.
Megan Klatt: The second thing is by moving things around in our supply chain, we have a lot of flexibility, by the end of this year.
Hundreds of skews will be for the US.
Megan Klatt: And, you know, I think we're going to meaningfully accelerate our diversification efforts in terms of where we can source product from. Right now, we source it from eight countries that's probably going to expand at nine to ten in the very near term. And I think you're going to meaningfully see a big difference in terms of the percentage of product coming from China to the US. And, you know, I think we're going to have a big difference in terms of the percentage of product coming from China to the US.
and much faster than what we previously communicated. Okay.
Some of that, though, comes with a cost. [inaudible]
Megan Klatt: You know, when we manufacture board games in the US, it is significantly more expensive to manufacture here than it is in China for instance.
If we move products like sourcing for Play-Doh
Megan Klatt: from China, which is where it's dominantly sourced from the US today.
to Turkey, which we've been using to Source to Europe .
Megan Klatt: There's a cost associated with that because the logistics in Turkey are just kind of different.
And we were looking at that across multiple product lines.
Megan Klatt: We feel like over time, we'll be able to manage the bulk of that and we'll be able to make these changes on a cost neutral basis, but at least in the midterm, that increased complexity and that increased load on new logistic centers, we'll have some costs associated with our outlook.
Gina Goetter: Yeah, Megan, as you think about the phasing of that growth impact that I had in my prepared remarks of $100 to $300 million, that is really all in the in the back half. So just as you think about what that is going to mean for for 26.
The absolute kind of annualized number goes up.
Okay, that's really helpful and makes a lot of sense.
Gina Goetter: And then just to follow up on Wizard, so really strong performance and magic in particular in one cue, it sounds like you're raising the guide both for the one cue out performance versus your expectations.
Gina Goetter: as well as some better expectations for the remainder of the year. Is there any way to kind of parse out what is being raised for one giver's the rest of the year and related to that, you know, you're incorporating some additional.
Gina Goetter: It seems like conservatism just around the consumer and to CP, are you doing the same in wizards?
Speaker Change: Well, we'll tag team this between Gina and I. So, I'd say Wizard's had meaningful app performance in Q1. We also think it's going to do pretty darn well in Q2, just to give some color on that.
Speaker Change: Final Fantasy will be the best-selling set of all time on day one. It already is.
Speaker Change: and so then it will have room to run in Q3 and Q4.
Speaker Change: and we feel really good about the back half releases as well, particularly the new University on sets.
You know, as we look at wizards...
Speaker Change: The universe is beyond as a strategy, has increased the total active install base of magic players, both in terms of reigniting lapsed fans as well as bringing in new fans.
Speaker Change: And just historically, magic has been very economically macro-resilient. In 2008-2009, it was growing double digits.
Speaker Change: It's a passion-based game that's not really tight and the collectors aren't really tied to the S&G 500.
Speaker Change: or the performance there. So, we feel pretty good about where a wizard is sitting and pretty confident in our guidance raised for it.
Speaker Change: So if you think about the phasing of the year, remember back in February , we said that Q1 and Q4 for Wizards, we're going to be the strongest growth quarters.
Speaker Change: and we continue to believe that, as you look at the ones though sandwiched in the middle of Q2 and Q3, they're stronger, Q2 is going to look a little bit goofy because of some of the cops.
James in Revenue, and then from a margin standpoint, still very healthy, but you'll see that big step up in royalty expense as we launch universes beyond.
Speaker Change: So I think the way that most models have been set with that growth Q1, Q4, that's the right way to think about it. And the middle two quarters got a little bit better, but there's a little bit of bumpiness just given, given comps.
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Okay, super helpful. Thank you. Thanks, Megan.
Our next question is from James Hardiman with City [inaudible]
James Hardiman: Hey, good morning. Thanks for taking my question. So I wanted to dig in a little bit. I think Chris, you talked about the conservative nature of the guide. And I guess specifically, um,
I think it's slide six.
James Hardiman: Jean The Bridge Slide, and I love a good bridge. I love a good bridge slide, everyone loves a good bridge slide. So, I'm going to make sure we're all capturing all the information that's in that slide. I think what this would suggest.
James Hardiman: is that you're factoring in the full brunt of the 145% and anything less than that.
James Hardiman: Wood ultimately have led to a higher adjusted EBITDA guide versus where you previously were.
James Hardiman: And then I think there were some also some comments about sort of the industry assumption in a prepared remark that I guess
James Hardiman: You know, the second part of the question would be, I mean, GFC level industry declines and COVID level inflation.
James Hardiman: Is that also sort of what's built into this unchanged EBITDA guide, and if we get anything better than that, would that also ultimately be upside to the number?
Chris Cox: Yeah, doing it, don't I, sir? One good morning, James. I just want to clarify my quote because on advice of counsel, you'll never hear me say conservative. I always say cautious, but I'm going to let Gina take this one.
Gina Goetter: Good clarification. So, good question. I think your synopsis is generally right.
Speaker Change: So when you look at the waterfall chart on page 16, what is embedded in that red bar is that higher tariff rate of 145% and an assumption that...
Speaker Change: that the retail sales followed similar trends to what we saw in 2008 and 2009. Like the overall kind of macro was down, call it six to eight percent, and that's what we have factored in to our outlook for that kind of worst case scenario. Now to your point, if...
Speaker Change: We weren't on the worst case and we go to the other side. Would our guide be up? Yes, probably. However, you know, one of the muscles that we're flexing is we're pulling in and accelerating a lot of the cost savings pipeline initiatives that we had in motion. So there could be, you know, if it starts to mitigate some, you might see us. We're on the other side. We're on the other side.
Speaker Change: Floater, a re-sync, a pacing of some of those, but by and large, I mean the strength of wizards and the momentum that we have there in and of itself would have probably taken us over if that red bar wasn't there.
Speaker Change: Got it. That all makes a ton of sense. And then maybe help us sort of handicap the risk of the rest of the world seems to me that that
Speaker Change: At least one of the incremental surprises coming out of Liberation Day was the heavy handed nature on the rest of the world, right, outside of China, and so much of your...
Speaker Change: sort of diversification strategy has been to move out of China into some of these other countries that are now being tariffed to a certain degree, you know, that 10% number and who knows what's ultimately going to happen in July , but maybe help us.
Speaker Change: Understand the CP exposure to the rest of the world, specifically those 10% care of countries and how you think about, again, moving production out of China.
Speaker Change: You know, a lot of these countries seem like safe havens and I don't know, how do you even make decisions in this current environment? Thanks.
Thank you.
Speaker Change: Well, I think that goes back to first principle, dishancering your last question, which is don't overreact. Our assumption is that we will get to a reasonable and logical trade policy, ultimately, once all the negotiations are done.
Speaker Change: We're not making any kind of hopeful assumptions that that happens soon. Our guidance is based off of 145 and 10% reciprocal everywhere else.
Speaker Change: and we're assuming that that holds for the balance of the year. If the reciprocal tariffs increased and China did not change.
Speaker Change: That would be a headwind, obviously, and we would have to take that into account You know in terms of how we're thinking about the rest of the world in terms of a market and not just as a supply, a source of supply.
Speaker Change: We see it as an opportunity. You know, our business is under indexed a bit inside of Europe . We see a lot of retailer excitement for some of the new product lines we have.
Speaker Change: You know, the new pet the pig products that we have, all the great marvel stuff that we have coming out.
Speaker Change: Magic certainly is looking like it's going to be a winner in markets like Europe and Japan.
Speaker Change: So we see some potential for upside there, especially as we kind of prioritize where our skis are going and where our marketing dollars are going in terms of market upside.
Speaker Change: And then the other thing that we're doing a lot of is starting to look at ODMs in Vietnam, India and even China in terms of more value skews and getting more aggressive about real low price points and driving some breakthrough.
Speaker Change: Pricing opportunities for markets like Latam and Southeast Asia via our everyone plays initiative as part of play to win.
Speaker Change: So, you know, I'd say 145 and 10 is our base outlook if that changes.
Speaker Change: to the negative. It certainly is a headwind. What we don't necessarily have factored into our guide, though, is, hey, is there any market upside in terms of kind of shifting skews and shifting our marketing priorities? And so we'll play that out over the next couple months.
Speaker Change: Yeah, with our team, we're really trying to avoid the analysis paralysis and the churn that can cause undecision making.
Speaker Change: So we're we're seeing very focused on what is known and right now what is known is the 145 and the 10 all of the moves that we're making both within our supply chain as well as with our customer base. We would we would categorize as no regret moves.
Speaker Change: It's good for us to have a more diversified footprint so we'll just keep moving on that path.
Got it. That's really helpful. Thanks, Chris. Thanks, Gina.
Thank you. Thanks.
Speaker Change: Our next question is from Arpine Kocharyan with UBS. Please proceed with your question.
Speaker Change: Hi. Thanks for taking my question, and thanks for all the detail you already provided. Sorry to go back to the tale of sensitivity slide, but...
Speaker Change: Could you maybe clarify? Is it there to assume that those mitigating efforts?
Speaker Change: Will include bringing Chinese exposure for consumer products below, substantially below the 50% mark. I think you had given 40% exposure for China for 2026 before.
Speaker Change: I guess do you have a sense of where that could be for next year as of today to the extent you can predict that?
Speaker Change: Let's say making things cheaper could offset extra cent of impact and then pricing will offset the rest to the extent it's possible to quantify. I know it's very difficult at this point. You're probably looking at thousand factors.
Speaker Change: 1000 factors, that's probably right. Good questions and good morning. I'll start by saying first, we are a global company.
Speaker Change: China is going to continue to remain an important manufacturing hub for us. And while our U.S. toying gay businesses is roughly 55% of our revenue, 45% of it is okay with getting goods from China. So China is always going to be a manufacturing hub for us.
Speaker Change: As we think about our moves from the 50, to your point, we said back in February we were on a path to move to under 40 by 2026.
Speaker Change: We are speeding that up, so we are accelerating our efforts there. It will, you know, we're targeting to be below that 40% by 2026. We are still kind of nailing down final plans and final product lines and what all this is going to mean with our, with the supplier base, etc. So I'm not going to give you an exact percentage now.
Speaker Change: But I think that the path we were on to get to 40 by 2026 is going to be faster than that.
Speaker Change: As you think about then the mitigating levers that we have, again, I'm not going to give you exact
Speaker Change: Dollars, because they're all in the way that you've laid it out, they're all kind of muddled together, but there's really, if you go from that gross impact [inaudible]
Speaker Change: I'll just anchor to the high end of the range of 300 million dollar kind of gross exposure.
Speaker Change: Down to the 180 what we're seeing is in that impact. There's really three big things to focus on and we've talked a lot about the supply chain That's the first big thing and just how we're both shifting product around our existing manufacturing base
Speaker Change: Howard Managing, Inventory Levels, Howard then kind of accelerating diversification. That provides a big mitigating lever for us.
Speaker Change: The second piece is on how we're managing our products in the broader portfolio. So we have done a significant amount of skewer reduction leading up our skewer kind of rationalization as we led into this year. We're continuing to evaluate what makes sense in this current environment for the U.S. market. So some of our higher priced items or products that we just don't think are going to be tenable from a profitability standpoint with 145 percent tariff on, we're taking...
Speaker Change: And then the third piece of mitigating actions has everything to do with customer and commercial, how we're thinking about pricing and writing the pricing actions, how we're managing our allowances with the retailers. Now, when we talk about allowances, those are all the dollars that are sitting within gross to net, how we put those either to better use or drop them all together. [inaudible]
Speaker Change: So taking together supply chain, how we're thinking about products, how we're thinking about commercial customer pricing, that's what gets us to kind of that $120 million difference between gross [inaudible]
Speaker Change: That's very, very helpful, Gina. Thank you. And then one quick follow up, you know, have you done?
Speaker Change: Any price elasticity of demand work to basically say, you know, X percent of growth in pricing is X percent impact on demand. I know it's difficult, right, especially in this environment, but anything you could share with investors to sort of help them think through pricing as a mitigating factor.
Speaker Change: Well, we have. There's not a lot that I can share publicly since most of it's proprietary.
We definitely think 999 and 1999 are important.
Speaker Change: A must-have factor to it, something that the kid asks for, and is based off of a passion-based purchase is also super important. And then last but not least, having great brands backed by...
Speaker Change: Fantastic fan bases and big entertainment moments is also super important.
Speaker Change: And so when you look at what we just announced with Disney,
Speaker Change: There's no bigger brands in the Toilet Isle than Marble and Star Awards.
Speaker Change: We're thrilled to be extending our multi-decade partnership with them. We've been working with the Disney Walt Disney company since the 1950s.
Speaker Change: I think Snow White was in Cinderella, we're one of our first collaborations together.
Speaker Change: and I love their road map, what they have coming up in 2026 and what they just announced.
Speaker Change: At their Star Wars event in Japan a week or so ago for 2027, I think those pretty favorably for what the feature is for that.
Speaker Change: And that's just one partnership in a series of partnerships that you're going to be hearing from us over the next several months and quarters.
Speaker Change: that we're going to bring the best brands to our Isles that have the highest pricing power and the surest demand, and I think that's going to position us favorably over the long term.
Thank you very much [inaudible]
Speaker Change: Thank you. Our next question is from Eric Handler with Roth Capital.
Eric Handler: Good morning. Thanks for the question. You had pretty significant outperformance from magic in the quarter, at least
Speaker Change: So I think it's a couple of things. We did have a bit of an extra set or half an extra set in terms of a remastered set. Our backlist performed very very well. And then early ordering for Tarkier Dragon Storm has been very strong.
Speaker Change: So, you know, probably the biggest thing was like the back list over performance.
Speaker Change: And then secret layer has actually been doing pretty well. I mean, the whole magic business is just, it's difficult to identify just one thing. Really, I think what we're seeing on magic is a expansion of the player base.
Speaker Change: And when you expand the player base, it's just a great opportunity to engage them with more products and create a network effect amongst the players in the collecting community. And we see that only strengthening as the year goes.
Thanks, Chris. And then...
Speaker Change: One question on manufacturing. How easy is it to just pick up and leave a China manufacturing plant? How much lead time do you need to sort of switch over to another country and
Speaker Change: You know, can you do that before peak manufacturing time for the holidays for this year? Is this more of a 2026 event?
Yeah, good question. Yeah, I would have to do that.
Speaker Change: in others there's a there's a brand new build of capability so it kind of runs the spectrum in terms of the length of time but if you kind of anchor back to what we said in February it was going to take us a couple of years to move from that 50% down to under 40 and and now we're saying oh gosh we're going to get there a lot sooner so we're speeding up the time to get that diversification.
Again, it depends on the category, Eric.
Speaker Change: So, like for Plato, it's, you know, send the boat to—
Speaker Change: Send the boat to the U.S., don't send the boat to Italy from Turkey, and then send the boat from China to Europe .
Speaker Change: Where we have a very large India-based footprint, we are able to like change production, but you know not necessarily where the skews are produced. So we are changing what the skew mix looks like inside of the aisle for the US.
Speaker Change: so that we can favor India-based SKUs, which maybe are older SKUs, but are tried and true.
Speaker Change: But the benefit there is, is most of our competition, the White Label competition, and some of our other named competitors.
Speaker Change: They're solely China-based, so we actually could come to market with a pricing advantage versus them.
Speaker Change: So it's category by category. I think where you're going to find China-based manufacturing the stickiest.
Speaker Change: is really anything with electronics, anything with super high end deco, and then surprisingly anything made out of foam. Except for dark. Except for dark. Except for dark. Yeah, but like foam role play, that tends to be a very specialized set of capabilities of Chinese manufacturing.
Thank you.
Speaker Change: Our next question is from Alex Perry with Bank of America.
Alex Perry: Hi. Thanks for taking my questions here and congrats on a strong quarter. All right, I guess.
Gina Goetter: Good morning. Gina, I just wanted to bridge some of your comments on the segment guide.
Alex Perry: So, the outlook for CP unchanged but now factoring in, you know,
Alex Perry: You know, full company guide, I guess is the, is the puts and takes like a lower CP implied op margin offset by the higher wizards, a profit contribution like,
Alex Perry: I just wanted to make sure, you know, we're sort of clear on, you know, the segment puts and takes. Thanks. Yeah, yeah. Good question. I mean, I think that we spelled out wizard. So that's and that should be pretty clear of where we're.
Alex Perry: Rising both, we're rising both, we're raising both the revenue outlook and the operating margin outlook.
Alex Perry: In terms of CP, we're leaving it unchanged, just given the wide range in potential outcome here.
Alex Perry: You'll see a higher revenue loss and you'll see those operating margins to your point. They're going to come down in the mid-single digit range. We just can't absorb the entirety of the cost impact in that margin structure.
Alex Perry: But if you go to the other end of the range, if we net out there, you know, if the trade policy kind of starts to calm down a bit, if we don't see as much negative reaction from consumers or our customer order patterns or rain study, if we end on that lower end of the range, we stay then within spitting distance of our original guides. So that's why right now we just don't have enough clarity to narrow that down any further. Hopefully, you know, by the time we get to July , we're able to
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Speaker Change: Really helpful. And then just my follow-up question, I wanted to circle back on...
Speaker Change: What parts of the portfolio do you have the most ability to raise price? Would you ever consider price increases on parts of the portfolio that seem like they have significant momentum right now, like magic, or will it all be concentrated in the toward portfolio where you're seeing the most tariff exposure? No, no, no, no.
Speaker Change: I think we're going to pick and choose, so pricing is ultimately going to be a discussion with our retail partners and ultimately what price ends up on shelves is up to them.
Speaker Change: We're going to work hard to try to figure out how to hit those magic price points for the items that we think are most exciting and or minimize any price increases associated with hot items that we think have a lot of good innovation.
Speaker Change: The Arts and Crafts category, you know, potentially ever. We think that's a huge collaboration and happy to be partnering with Mattel on it. Likewise, we have a lot of opportunities across board games and games. Magic is really on fire.
You know, I think our, our
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Speaker Change: is to not pass on price wherever possible and instead to drive share and drive shelf space opportunities. That said, we are going to have to raise prices inside of a hundred and forty-five percent tariff regime with China. We're just trying to do it as selectively as possible and minimize the burden to the fans and families that we serve.
Speaker Change: Perfect, that's incredibly helpful, best of luck going forward. Thanks a lot, have a good day.
Christopher Horvers, Jaime Katz,
Our next question is from Stephen Laszczyk with Goldman Sachs.
to light summer, early fall.
Yeah. Morning, Stephen. Yeah, it's it.
Speaker Change: Very fluid is how I would describe discussions with our retailers and to your point right now in this moment, we're sitting in April , the holidays are a long ways away, so when you think about order patterns, what we are planning for, and I think Chris said it in Q&A here already this morning. We're planning for Q2 to have a pretty material shift in both kind of DI versus DOM, as the retailers themselves are managing their inventory. [inaudible]
Speaker Change: Louise, so some of that order pattern, that anticipated order pattern that we've seen Q2 does look different.
Speaker Change: As we think about the the back half of the year, when we can model out our revenue, there's not a material change in terms of the back half of the year really represents about still to call it 60-65% of our revenue base.
Speaker Change: We expect our inventory to then be moving out from us to our retailers to be more back half loaded into Indicute 3 and Q4.
Speaker Change: We don't see any material change in how retailers are thinking about the holidays, but to your point, they are making decisions right now. Do I take it here in May and June or do I wait until we're closer to the holiday resets?
Speaker Change: which are going to happen in September , September , October . So that's how we've contemplated our phasing. That's what is all embedded in our guide and the range of outcomes. But if you think about what CP is going to look like in Q2, it's going to be a down quarter for us, just given the change in the order patterns there. And then we can build back as we move through Q3, Q4.
Speaker Change: Thanks, that's really helpful. And then maybe one on Monopoly Go, it looks like revenue is accelerated here in the first quarter. Curious if you just speak a little bit more to the momentum you're seeing there. What's been working so well to keep that IP going and then any updates to your outlook in terms of the decay you're factoring into the guidance.
Speaker Change: Well, I think first and foremost, Scott Belize made a fantastic game based on a fantastic brand.
Speaker Change: So it's very sticky. They're having excellent player engagement. They're doing good events.
Speaker Change: with major partners. They just announced a new one with Star Wars, which I think kicks off in a month or so.
Speaker Change: So they've just been doing a really good job and I think they're getting to a more mature place in terms of you know how much they have to spend in terms of
Speaker Change: Driving, New Player Engagement, New Player Adoption, which was a favorable aspect of the quarter for us.
Speaker Change: I think our previous guidance of about $10 million a month in terms of what we'll make is fair for the balance of the year and what we're currently modeling in our outlook.
Our next question is from Jaime Katz with Morningstar
Thank you.
Jamie Katz: Hey, good morning. I just want to ask a quick question on POS, which was in the back of the document of the slide deck today.
Speaker Change: I guess I'm trying to triangulate, you know, the strong revenue performance into it.
Speaker Change: sort of a weaker market share performance. And I'm wondering if maybe that's a function of just decreasing inventories or working down inventories at retailers, there's something else maybe that I'm missing.
Chris Cox: Yeah, our CP performance in the first quarter was the toy part of it was pretty on our plan expectation. As Chris said, we didn't have anything crazy in terms of having a clear inventory and promotional and promotions like that because we came into the year pretty healthy. Licensing was what drove the upside on revenue in the quarter.
Speaker Change: Okay, and then can you talk a little bit about what you guys are seeing at value price points? I think from other consumer discretionary firms, we're just hearing incremental weakness across that consumer base. Thanks.
I don't think we have any real-
Speaker Change: Thunderous Insights to share with you right now in terms of...
Speaker Change: What the consumer behavior is, generally speaking, toys is a category that is pretty well in first quarter, and Easter kind of went off as expected, so I think people are continuing to buy toys.
Speaker Change: You know, personally I don't think we're seeing any indication that people are pulling forward like holiday buys or summer buys toys tend to be a occasion based purchase or you know a purchase of passion and consumers are behaving normally.
Thanks so much.
Our next question is from Kylie Cohu with Jeffries.
For more information visit www.FEMA.gov
Kylie Kohu: Hey, good morning, you guys. Thanks for taking my question. All of the color around the CP exposure is super super helpful, but I was wanting to dig into the wizard's exposure a little more. I know it's small, but I do believe you do source some from Japan, but I was curious if there were any other countries to call out or details to ask the rest of the world for that segment specifically.
Kylie Kohu: Yeah, the exposure for wizard and slash magic is pretty minimal. I mean, and it's embedded in the wizard's bar, in the bar chart embedded in the wizard's guide.
Kylie Kohu: So on a kind of 12 month basis, call it five to tenish million dollars of exposure. To your point, we do manufacture in Japan. We do also manufacture over in Europe a bit. The bulk of the manufacturing is coming from the US. Yeah, the only thing in Wizards that we import from China is like D&D box sets. [inaudible]
Kylie Kohu: So that's actually where that's actually a bigger input on the era of duties I mentioned for Wizards and the Japanese duties for magic.
Okay, you know, that is super helpful.
Kylie Kohu: And he's kind of falling back up on the POS trends. I think you mentioned that life in fingers better than expected, but I'm just curious what were those bright thoughts specifically? That would just be helpful. And kind of what did you see, you know, anything around Easter, obviously there's a timing shift this year, anything that performs in particular really well. Thank you very much.
Kylie Kohu: Well, I'm licensing certainly my little pony continued to perform well and had a favorable year of your comp.
Manapolego is doing quite well.
Kylie Kohu: and then in terms of POS for our brand, you know, we had Transformers who was up, Donald Master, I'm sorry.
Kylie Kohu: They've laid was up. We had a good quarter in terms of Marvel. Those would probably be like the big bright spots for us on POS.
Awesome, super helpful. All right, thanks. Thanks, Kylie.
Speaker Change: Thank you. There are no further questions at this time. This does conclude today's conference. We thank you for your participation. You may now disconnect your lines.
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