Q2 2025 Hasbro Inc Earnings Call
Good morning and welcome to the Hasbro second quarter 2025 earnings conference call.
At the time, all parties will be in. Listen only mode.
Speaker Change: At the time, I'd like to turn the call over to Fred Whiteman, vice president, 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 getter Hasbro's Chief Financial Officer and Chief Operating Officer. Today, we'll begin with Chris and Gina providing commentary on the company's performance and then we'll take your questions. The earnings release and presentation slides for today's call, or 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 exclude these non-gaap adjustments. A Reconciliation of gaap to non-gaap measures is included in the press release and presentation.
Speaker Change: Please note that whenever we discuss earnings per share or EPS or referring to earnings per diluted share,
Speaker Change: Objectives and similar matters.
There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.
Speaker Change: These factors include those set forth in our annual report on form. 10K.
Speaker Change: 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'd now like to introduce Chris Cox. Chris
Chris Cox: Good morning, and thank you for joining us today.
Speaker Change: Before we begin today's call, I want to take a moment to honor The Life and Legacy of Alan hassenfeld. Our former chairman and CEO.
Chris Cox: And the dear friend and mentor.
Alan was a driving force behind Hasbro for decades.
He led with heart conviction and an unwavering belief in the transformative power of play.
Chris Cox: But more than that Alan believed in people.
He made it his mission to lead with empathy to give generously and to use Hasbro as a platform for doing good in the world.
Chris Cox: Alan reminded us that the true measure of our success. Isn't just financial performance. It's the positive impact we make on people's lives.
Chris Cox: Especially the joy. We bring it every day to children around the world.
Chris Cox: Allan.
Chris Cox: You will be missed, but your vision and Mission will never be forgotten.
Now, let's turn to 2q results.
Chris Cox: We're now halfway through 2025, and already seeing momentum on our plane to win. Strategic plan announced in February.
Chris Cox: I'm pleased to report that it has Rose performing ahead of expectations, driven by exceptional results from our Wizards of the Coast business.
Continued performance in our licensing and digital segments.
Chris Cox: And a steady long-term approach to navigating a complicated and evolving macro environment.
Chris Cox: While the broader consumer landscape remains Dynamic, our play focused partner scale. Strategy is paying off.
Leaning into premium high margin segments, like Wizards licensing and digital.
Chris Cox: And we're seeing it translate to bottom line outperformance.
Chris Cox: Let's break it down.
Chris Cox: Wizards of the Coast had a standout quarter.
Chris Cox: Match at the Gathering continues to deliver growing 23% year-over-year in the second quarter and up 32% year to date.
Chris Cox: This isn't just a 1-off moment, it's a clear indication of the power of Magic's Community, our release Cadence and the Resonance of our universes Beyond strategy.
Chris Cox: Magic's engine growth is durable, its Diversified.
Chris Cox: And its accelerated.
Chris Cox: We're seeing strength across every kpi of the brand.
Chris Cox: Terje dragonstorm is on Pace to become the top selling magic Premiere set of all time.
Chris Cox: Final Fantasy, the latest release in our universe is beyond portfolio is already the highest grossing magic set ever.
Chris Cox: And secret lair, our direct to Consumer collectible business. Just delivered the strongest sales quarter in its history.
Chris Cox: It's not just about our new releases either. Our backlist magic sets have already set, an all-time annual sales record and we're only 6 months into the year, that's a testament to the depth and durability of Magic's value to players collectors and fans alike.
Chris Cox: A play System of over 22,000 cards that retain full compatibility.
Chris Cox: Community engagement is also hitting new highs.
Chris Cox: Last month's magic con Las Vegas, Drew record attendance, with over 19,000, badges sold eclipsing our previous high from Chicago, just earlier this year.
Chris Cox: And the Wizards play Network continues to expand. Now totaling nearly 9,000 locations globally. Organized plays on fire.
Chris Cox: We saw a nearly 40% year-over-year increase in unique players during the first half of 2025.
Chris Cox: A clear signal that our play programs are bringing new energy and deeper connection to local communities. Final Fantasy set, a record for new player growth, delivering more new players in its first 2 weeks than any prior set posted over an entire season,
Chris Cox: For the balance of this year, fans are eagerly anticipating our upcoming slate of releases, including the edge of eternities, Marvel Spider-Man, and avatar The Last Airbender, both new additions to our ever expanding universes Beyond portfolio.
We're committed to scaling magic through thoughtful Innovation, smart, operational execution, and a continued focus on player first experiences.
Chris Cox: Future for the brand, both in the second half of 2025 and Beyond.
Chris Cox: To Simply put magic stronger than ever and we're just getting started.
Chris Cox: Sticking with Wizards. We're now in a place where we can start talking more confidently about our digital pipeline, a major investment area for both Wizards and Hasbro. As we scale our ability to deliver play in new ways across more platforms with more partners.
Chris Cox: Exodus are Flagship AAA sci-fi RPG from archetype entertainment is progressing. Well
Chris Cox: And it's currently targeting launch in the second half of calendar 2026.
Chris Cox: This game represents a bold step forward into premium digital storytelling and will be sharing a major update with players later this year.
Speaker Change: This quarter we announced an exclusive publishing agreement with giant skull led by industry veterans Stig asmis.
Speaker Change: Stig has an exceptional track record and not coincidentally is the force behind some of my favorite games. God of War III and Star Wars. Jedi Fallen order to name 2 and he's now leading the development of a brand new single player Dungeons and Dragons action adventure game.
Speaker Change: This is a premium title built from the ground up in Unreal, Engine 5 and we believe it will set a new bar for narrative and immersion in the DND universe.
Speaker Change: Disagreement reflects our plane to win strategy in action. Investing in top, tier Talent, deepening, digital engagement and expanding our presence in premium genres.
Speaker Change: Whether it's Exodus DN D or tapping into the amazing portfolio of collector and age up oriented Brands across Hasbro. We're building a diverse, high-quality slate, that strengthens our connections with Vans and unlocks new growth for Hasbro's. Digital game portfolio.
Speaker Change: Starting at this year's Game Awards in December, you will be hearing a lot more from us.
Speaker Change: Returning to Consumer products as anticipated sales were down in the quarter, particularly in North America, where our Retail Partners, made a shift in ordering from direct Imports to to domestic given the uncertainty around tariffs over the last few months.
Speaker Change: We expect to make up much of this delayed, ordering in Q3, and into Q4 a sales ramp into the holidays.
Speaker Change: In Mia and APAC are performing. Well, and we anticipate each of these regions will end the year in growth mode.
Speaker Change: While tar, tariffs represents a headwind for the business. The current Duties are better than the range we discussed in our last earnings call.
Speaker Change: we are compensating for these costs through a combination of cost, reductions rebalancing, our marketing, spend diversifying, our supplier mix and implementing some targeted, pricing actions,
Speaker Change: Coupled with a strong slate of new toys, including Plato Barbie, our new line of Peppa Pig toys celebrating the birth of Peppa's, little sister, Eevee reto, and reimagine board game favorites. Like Candyland and operation and Marvel Legends series products. Tied to the upcoming, Fantastic 4 release. We expect Topline performance, for Consumer products, to improve sequentially. As we move through the balance of the year.
Speaker Change: Lastly, our licensing business, which is embedded into our CP and wizard, segments continues to outperform.
Speaker Change: Monopoly. Go continues and impressive run of user and revenue, Milestones proving to be an enduring hit from our partners at scopely.
Speaker Change: We've just Inked, a new multi-party deal and casino gaming with the Aristocrat Technologies BS, Evolution and Galaxy gaming.
Speaker Change: They joined cyp play to form a 5 company partnership to expand our brands in a lucrative and high growth market for digital on premise gaming.
Speaker Change: And the balance of our lbe consumer products and digital gaming. Licensing, business is both growing and providing an important source of high profit diversification.
Speaker Change: All of this adds up to a business that is showing strong signs of underlying momentum and meaningful progress against our playing to win objectives.
Speaker Change: While I won't steal much of Gina's Thunder. Based on the strength, we are seeing across our Diversified portfolio, especially for magic rear raising both top and bottom line, guidance for 2025 and reaffirming our midterm Outlook.
2025 will be the year Hasbro returns to growth and we will do so back by record operating margins.
Speaker Change: I want to thank our teams across the world for making this possible. Our supply chain organization has done y's work. Diversifying our supply chain while keeping costs low
Speaker Change: Our sales teams are partnering with our retailers to navigate an unpredictable environment with agility and a long-term mindset.
Speaker Change: Alan would be proud.
Speaker Change: Now, I'll turn over to the call, the Gina getter, our CFO and coo Gina
Gina Getter: Thanks, Chris and good morning, everyone.
Gina Getter: We delivered a strong Q2 outperforming expectations on Revenue profit and margin all, when while navigating a dynamic external environment.
Our performance is quarter reflects the strength of our portfolio strategy. The outside momentum in our magic business.
Gina Getter: And the discipline execution behind our transformation and operational excellence initiatives.
Gina Getter: Net revenue came in at 9881 million, essentially flat year-over-year on the strength of magic.
Gina Getter: Adjusted operating profit delivered 247 million with an adjusted operating margin of 25.2%, which was up 20 basis points versus last year, despite a material Step Up in royalties expense.
Gina Getter: Adjusted earnings per diluted share, Rose to $1.30 up 7% year-over-year driven by favorable mix and margin discipline.
Our Wizards of the Coast in digital gaming, segment continues to be the growth engine.
Revenue, grew 16% to 522 million, led by Magic, the Gathering, which delivered 23% growth.
Gina Getter: Final Fantasy became the biggest magic set in our history. Exceeding expectations, and attracting both longtime players and new fans.
Gina Getter: Segment, operating profit was 242 million with an exceptional, 46.3% margin reflecting, both scale and discipline cost execution.
Gina Getter: As expected consumer products Revenue declined, 16% to 442 million.
Primarily due to retailer order timing and Market softness in select geographies.
Gina Getter: As we foreshadowed last quarter, most of our us retailers managed, their discretionary inventory, tightly, through the quarter.
While Revenue declined we improved margins delivering near break even profitability through cost actions mix and promotional spending discipline.
Gina Getter: Entertainment delivered 60 million dollars in Revenue in line with plan and 10 million dollars in adjusted operating profit.
Gina Getter: The team continues to execute well against the leaner, more focused content portfolio.
Gina Getter: As we look at our year-to-date results, we are back to growth with Revenue growing 7% versus last year behind the strength of magic.
Gina Getter: Operating profit of 470. Million is up, 18% behind volume.
Favorable business mix and cost productivity.
Gina Getter: We remain intensely focused on transformation and cost leadership with 98 million of growth savings delivered through the first half.
Gina Getter: We are firmly on track to meet our annual Target reflecting strong execution, across supply chain, sgna and product development.
Year to date adjusted ebita reached 576 million up. 19% behind the drivers previously noted.
Gina Getter: through the first half of the year, we generated 209 million in operating cash flow and returned 196 million to shareholders via dividends
We've also bought back 62 million dollars of debt, as we work towards our Target. Leverage ratio.
Gina Getter: Our teams are executing decisively against the evolving tariff backdrop.
While the current China tariff rate is more favorable than what was proposed in April rates. Remain fluid.
Last quarter, we were modeling a broad range of potential outcomes with a net impact of 60 to 180 million.
Based on the updated trade policies with China at 30% and Vietnam at 20%.
Gina Getter: We are now estimating the that will be at the lower end of the range and expect 60 million dollars of expense in our 2025 pnl.
Gina Getter: We've incurred minimum tariff related expense, in our year to date results. As most of the impacted inventory is still sitting on the balance sheet and is yet to flow through the p&l.
Gina Getter: Company owned inventories are up versus last year, but reflects several factors including tariffs, foreign exchange and a planned shift in Revenue mix towards domestic fulfillment.
We feel well positioned ahead of the retail seasonal inventory, build, and expect to exit the year slightly up versus last year.
Gina Getter: As a result of the impact of tariffs and our long-term Outlook, we recorded a 1 billion dollar non-cash, Goodwill impairment charge in the consumer product segment, this quarter.
Gina Getter: We're also seeing Downstream impacts from trade uncertainty across the Retail Landscape.
Gina Getter: Shelf resets into Q3 both of which weighed on Q2 consumer products revenue and are requiring us to remain agile in the second half.
Gina Getter: To that end, we've activated a comprehensive mitigation Playbook including SKU rationalization sourcing diversification pricing strategy and retailer collaboration to manage risk and Preserve profitability.
Gina Getter: Today, approximately 50% of our Us toy and game. Volume originates from China. And we have plans in place to bring that exposure down to less than 40% by 2027 through accelerated Geographic diversification.
Gina Getter: At the same time, we're identifying opportunities to ensure more production, including continuing to Source from East Long Meadow, which manufactures, most of our us, Hasbro gaming portfolio.
Gina Getter: These steps are strengthening our long-term supply chain resilience while protecting margin performance.
Gina Getter: based on our strong first half and improved visibility into the back half, we are raising full year, guidance for Revenue, margin and adjusted ebita,
Gina Getter: the upgrade reflects the continued strength of our Wizards, business confidence in our cost transformation efforts, and a tariff impact that is now expected to be less significant than we had anticipated back in April.
Gina Getter: As Chris said, we are back to growth. And we now, expect total Hasbro to grow Revenue, mid single digits and it adjusted operating margin of 22 to 23%.
Gina Getter: We are now forecasting Wizards of the Coast Revenue to grow in the high, 20% range, with an operating margin between 42 and 43%.
Speaker Change: The stronger Outlook is driven by the record-breaking success of Final Fantasy, strong engagement across upcoming universe, beyond sets, like Spider-Man and avatar The Last Airbender.
Speaker Change: And continued momentum in backless titles and secret lair, all of which are reinforcing the durability and depth of the magic franchise.
Speaker Change: In consumer products. We now expect Revenue to decline 5 to 8% for the year with an adjusted operating margin between 4 and 6%.
Speaker Change: This revised guidance, reflects the cost of the tariffs themselves.
Speaker Change: The revenue shortfall and operating deleveraging Q2 tied to changing order patterns.
Speaker Change: And the anticipated impact from retailers, shifting, their holiday resets back as they adjust to a more fluid consumer, demand environment.
Speaker Change: We are also on track to achieve 175 to 225 million in Gross cost. Savings this year.
Speaker Change: And continue to prioritize Investments behind our core growth engines, while maintaining balance sheet, strength and financial flexibility.
Speaker Change: As a result, we are increasing our full year adjusted ebita guidance, to 1.17 to 1.2 billion dollars.
Speaker Change: Which reflects the strong first half, execution, cost discipline and improved tariff backdrop.
Speaker Change: Our Capital allocation priorities remain unchanged. Our first priority is to invest in the business.
Speaker Change: Particularly behind High return growth drivers, like Wizards and digital.
Second, we remain focused on debt reduction and long-term leverage goals, including opportunistic, debt repurchases, and pre-funding, next year's Bond maturity through match. Dated treasuries,
Speaker Change: And third return cash to shareholders via VIA our dividend.
Speaker Change: As announced in today's release, we have kept the Q3 dividend unchanged.
Speaker Change: In short, we delivered another strong quarter beating expectations, expanding margins and strengthening our foundation for the second half.
Speaker Change: The magic business continues to lead. Our portfolio is resilient and our teams are executing with Clarity and discipline.
Speaker Change: We remain confident in our ability to deliver our updated full-year, Financial commitments, and create long-term value for shareholders.
Speaker Change: And with that, I'll turn it back to the operator for questions.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2. If you'd like to remove your question from the queue.
To allow as many as possible to ask questions, we ask you, please. Send me yourself to 1 question and 1 follow-up.
Speaker Change: For positions, using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
Speaker Change: Thank you. And our first question is from the line of Stephen leic with Goldman Sachs. Please receive with your questions.
Stephen: Hey, good morning, and thanks for taking the questions. Uh, Christina maybe first on Final Fantasy. Biggest set release in history.
Stephen: How much of that elevated demand? Do you think is still out there in the marketplace for you to execute against into the into the back half of the year? Uh and what's factored into the the updated guide you gave today on on Wizards and then maybe looking ahead on on the magic segment. Chris, I'm curious. What was it about this particular set that you think made it so successful. And are there any key elements of that success that you think you can carry forward into future universes Beyond sets? And uh, you mentioned just getting started in terms of the momentum of the magic. How do you feel about uh growing off this record year that you're about to have in 2025 in particular uh looking into 26 growing off? This this this new Revenue base. Thank you.
Stephen: Hey, Stephen. Good morning. Uh, I'll start and then I'll turn it over to John.
In terms of Final Fantasy and how it met expectations. I'll I'll give you a comparison between 2 of our biggest universities of Beyond sets. Lord of the Rings took 6 months to deliver $200 million of Revenue. Final Fantasy took 1 day
John: uh and we left Demand on the table. So we we couldn't produce enough. I think we increased production runs on it 4 times pre-release. Yep. Uh it was substantially by many many, very high double-digit. Percentages ahead of any other production run we've ever done and we left the market wanting more.
John: And you know our expectation is there's going to be a a nice long tail of back lifts for the product likewise. There's we're still selling Lord of the Rings product today
John: So you know even though we hit 200 million in December of 22 for Lord of the Rings, you know, we sold a substantial percentage of that in the several years following, we expect Final Fantasy to be no different, it's partially. What's powering our back lift which you know already in like 5 and a half months in the year did more than we've ever done in any year prior
So I think that's a little bit on kind of what our bullishness is on Final Fantasy. What drove success for it. You know, I I think it's a couple of things.
John: I think first and foremost it's finding the right IPS that are a great adjacencies to what magic fans might appeal to, or what magic might appeal to another fan base, Lord of the Rings was fantastic because it's kind of the granddaddy of, of fantasy. It invented. The genre major books, major movies, major animation, and games, Final Fantasy. I think is almost as strong as Lord of the Rings in terms of it strength, if not stronger in some regions, I think it has stronger cross Regional appeal, and it has probably more of a sweet spot in gaming than Lord of the Rings have because it was kind of born from gaming.
So I think potentially the overlap of fan bases was stronger than you might have even seen for something like Lord of the Rings.
John: And I think when you couple that with some savviness that the Wizards team has learned over the last couple years in terms of managing the SKU mix managing, what the ASP expectation should be and shifting people up in terms of what they want to collect and what they want to buy. Uh you know, it it just breeds very, very strong success.
John: And then in terms of your third, kind of sneaky question, uh, very sneaky. Yeah, yeah, yeah, yeah, keep them all out at the beginning, 1 C, uh,
John: In terms of our outlook for magic, we feel pretty darn good about the universe is beyond lineup. We have set up for 2026 and 2027. We're very player focused in terms of how we announced these things. So we're not going to take away any of the magic team Thunder. But over the next couple months, usually in August and September the magic teams reveals what the new sets are going to be for the following year, and we feel pretty good about the brand collaborations and the first party sets we have next year, in terms of being Final Fantasy, like, uh, in terms of the, the types of players, the size of community and the adjacencies we have
Speaker Change: Yes, even the only the only color I would add to to Chris's answer. There is, I'll give I'll give props and and kudos to our magic team who really navigated this unprecedented demand. They were very agile uh, you know and every week we were getting an updated view of of what the the sales could be and almost instantly. We were back working uh, options on how we would be able to produce and kind of lean into lean into as much demand as we could. Uh, so as Chris said, we we upped production 4 different times, we're continuing to produce the set, we think the the
Speaker Change: The set itself is going to have a huge long tail but the team really has honed in their their agile, operating skills to be able to respond. It was it was impressive this quarter.
Speaker Change: Appreciate that all. Thank you. Thank you, both.
Speaker Change: No worries.
Speaker Change: Are you done with your 5-point question? Stephen out of the next
Speaker Change: The next question comes from the line of Megan clap with Morgan Stanley, please receive your questions.
Megan: Hey, good morning, Chris, Gina. Thanks for taking your question. Um, a couple of follow-ups, I guess. Starting with the midterm Outlook, you reaffirm the midterm Outlook you call for, in that Outlook 500 to 100 basis points of average annual operating margin expansion, through 27. We just take the high end of your updated outlook for this year. You could achieve most of that this year alone. So just as we think about calibrating our models Beyond this year,
Megan: so we think about those targets as potentially conservative and I recognize, they're going to be incremental costs coming in from Exodus, but you're also absorbing a lot of royalty expense and and tariffs this year tariffs could use over time. You still have cost savings to be realized and it seems like you think you can continue the momentum for magic. So just any help and kind of thinking about squaring those targets versus where you're going to end this year?
Megan: Yeah, good morning Megan. Uh good question I I guess at this point we're not going to make any changes to our our midterm targets. We still feel like we have we have a path as you as you pointed out this year is is clearly overd delivering the expectations that we set in in February. So there could be some some lumpiness.
As we think 25, 26 27, uh, but we do, we do still believe that we've got a path to that, uh, to that, that growth profile to your point. The headwinds that we have now that we didn't know, then in in,
When we settled in February, here's a big 1. So even though the the net impact of this year is 60, we expect that to be bigger as we move into 2627, but to your point, it remains fluid. So I think we'll, we'll get a little bit deeper into this year, uh, before we give any sort of updated, guidance, on on 2627, but but big picture, we feel pretty good uh, with with Where We Are.
Speaker Change: Okay, that's helpful.
Speaker Change: And and just a follow-up. I guess. A monopoly go. Which accelerated, uh, pretty nicely at this quarter. I think 44 million is the highest contribution you've ever recognized in a quarter game to date. So can you just talk a little bit about what you're seeing there? Are you finding that? Maybe there's some seasonality in the business. Um, was there any change in marketing Cadence from scopely? Just, maybe a little bit more on what drove that acceleration. And then just any updates in terms of the assumptions. For that decay rate you factored into the updated guidance,
Speaker Change: Their user metrics, continue to be excellent. And I think, you know, I think it exceeds just about any other Benchmark in the industry, they're being very scope is being very Savvy. In terms of their Partnerships, they had a fantastic collaboration with Star Wars in May and June. And then I'd also say that the user acquisition costs and the percentage of Revenue that the this were spending against user, acquisition has probably come in, on the lower side of our expectations. All of those things combined have, uh, you know, raised the amount of Revenue contribution that we're able to take from that game. And, you know, I get, I think we've previously said about 10 million dollars a month. That's likely on the conservative Side, based on what we're seeing for the first 6 months,
Speaker Change: Yeah, I would, I would guide you to the, it's more. You know, we've been running roughly 14. I would guide you to that 12 to 14 million a month in the back half. Just give them what we're given. What we're seeing.
Speaker Change: Okay, great. Thank you and I'll pass it on.
Speaker Change: Thanks Megan.
Speaker Change: The next question, is coming from the line of our PNA coach Arian with UBS. Please just use your questions.
Speaker Change: Hi. Thanks for taking my question and congrats on that on a great quarter. Um, so you had upside in your full year guide, um, given to 1 out performance already and by my calculation that operating profit margin as well as the dollar higher a bit than the original 2020 to, um, then the original guidance for 2025,
Speaker Change: So original was 21 to 22. I was sort of expecting a little bit, uh, maybe upside to the, uh, guidance that you gave today given the q1 outperformance already.
Speaker Change: I understand why you would want to keep that sort of checked a bit given to the significant uncertainty ahead of you. Um, and you still have holiday season ahead of you. But would you say that leaves room for a nice upside for the full year? How would you sort of calibrate that guidance given that there was already upside to the original guide? Given the q1 out performance? Then I have a quick follow-up.
Speaker Change: To keep in mind is that we haven't seen any of that tariff impact in the p&l quite yet. So that starts to manifest in the back half of the year. And that's, that's almost a 2-point drag on our margins as we move through that, through that back half. So, and to your point, it's still early in the in the sales selling cycle for for holidays. So, there there is a, you know, a question mark on how all of that is going to impact, kind of our our margin in the back half, but, you know, right now I would say we we feel good about the guidance that we put out there for the year.
Okay, thank you. And then maybe bigger picture question for you, Chris. As you look at the wizard business today, and wizard in its entirety, including DN D, your success in digital and of course Magic, the Gathering is there. Anything that has changed in your thinking in terms of growth profile and opportunity today versus a year ago or even 6 months ago in terms of what third-party IP could mean for this business, let's say 3 years from now.
Speaker Change: Yeah. Hey, good morning rpna.
Speaker Change: We built the universe is beyond strategy for magic with the idea of new player and total player expansion.
Speaker Change: I would say that.
Speaker Change: Every kpi that we're able to measure indicates that not only has that strategy been successful. It's been it's been really successful.
Speaker Change: You know, I think we're seeing meaningful player growth on Magic. I think we're seeing meaningful distribution growth and that to me translates into enduring business success.
Speaker Change: And, you know, it's kind of a, it's a Tale As Old As Time inside of toys and games. It's why licensing is as big of a business as it is. And Magic is really a single Source provider inside of trading cards for this kind of business. And you know, it's great for magic because it grows our overall player base. It's tends to be very lucrative for us. It's also fantastic for the licorice because the scale of releases that we're able to achieve. We basically like a licensure gets a, a new Blockbuster movie or a new AAA video games worth of Revenue. Um, for a year that tends to have a nice long tail associated with it.
Speaker Change: So to me, I think universe is beyond, is exceeding expectations. And, you know, I, I think despite maybe some headwinds that we see in the consumer product segment, due to tariffs, that's, uh, partially why we're able to very strongly. Reaffirm our midterm guidance because we see upside in games,
Speaker Change: Thank you very much.
Speaker Change: Our next question is from the line of James Hardman with City. Let's just see if there are questions.
James Hardman: Hey, good morning. Um so uh obviously uh uh fantastic quarter from a, from a Wizard's perspective.
James Hardman: Um but even CP, um, I think was in line with to maybe a little bit better than we were modeling. I guess the biggest question I'm getting as we think about a, a beat versus the street of about 75 million the race seems a bit more muted, right? So call it 60 million dollars at the midpoint help us Bridge some of that. Um, you talked about tariffs going from, I think, what was assumed in your previous guidance 180 to Now, 60. So that's about 120 million dollars of a of a good guy right there. And then obviously the Wizards, um, a little fuzzier, but I get to maybe 75 million of upside from Wizards. Um, so how what's the the the offset to that? I mean in your Bridge slide, it looks like as is often the case, CP is the answer, but maybe, walk us through where we?
James Hardman: In today on CP versus where we were going months ago. Yeah, yeah. Good question, morning. James, uh, let's start with where CP came in on, Q2 to your point. It was a, it was the overall segment was a bit better than what we were saying. We were we were calling kind of 1920 percent down last April and and now we we came in down 16, really it was on the back of some timing within within LCP. So the toy and game part of of the CP finish almost spot on, um, what we had anticipated, uh, within the quarter. So, the just as we think about digesting, Q2 in terms of how the the guide is working in the, what's going on with CP business. So there's the net, tariff impact itself, which to your point is, is materially improved from where we, where we had it last Peg. Last quarter. Um, the things though that are different, you know, we, we did see uh, you know, with that that Revenue coming out in Q2 while we'll see some improvement in our performance. In the back half. We're we're
James Hardman: Is a revenue loss and then the impact that that has on the business. As, as we move through from a de-lever, you know, the both kind of within the, within the supply chain as well as within our managed expense route. So it really is just how we're thinking about the the stickiness of that Q2 loss, as it plays through the back half of the year, um, we have we've also watching, you know, with all of our retailers, they have, you know, taken very they're they're carefully watching their inventory levels and they've taken decisions to push the sets back, uh, the holiday sets back further. So, that's impacting how we're thinking about the flow, through of our inventory. You know, in the back half of the year and what that is ultimately going to lead to a demand Outlook. So, it really comes down to how we how we our forecasting Q3 Q4 for C CP.
James Hardman: Yeah, James. I would say it's a bit of a tale of 2 categories, you know, on the game side.
James Hardman: In q1. We were bullish, I think, Q2 reaffirmed, our bullishness and we see that flowing through in the back, half of the year, the collectible segment, the hobby segment is continuing to be very buoyant. Um and you know, that's obviously based on the chart where we see a lot of The Upside on the consumer products and more general merchandise and toy side.
I would say we share a similar sentiment with our retailers, which is cautious optimism, you know, optimism in that consumer sentiment. It seems to be bouncing back from April lows, the consumer tends to be continuing to buy and we don't see much evidence of pull forward buying, uh, you know, anticipating inflation or tariffs that said, though, um, you know, the tariffs are going to have an impact. We do expect pricing to happen across the industry. And so it's a little bit of a black box. Um, what the back half of the year is going to look like, I think you're going to see companies like us be cautious on our inventory. I think you're going to see retailers be cautious on inventory. And I think consumers are going to have a bit of a choice because they're still very promotional right now. But a lot of hot products are going to likely be out of stock this holiday because we're just not going to be able to refund them because we didn't have the upfront inventory for them.
James Hardman: So like a Plano Barbie an animals a baby Eevee, you know if you're a mom or a dad you're probably going to want to go and buy that early.
Speaker Change: Got it. That's all really great color. Um, maybe it's a follow-up. Um, as I think about CP and what happened in 2q, it it I I feel like I'm hearing 2 different factors here. 1 is the the direct import versus domestic, which I think you believe.
Speaker Change: Believe is more just the timing issue which you should get back in the second half and then there's a a piece of well, maybe overall. We think the category is is a little slower than we thought. So maybe tease those pieces out at the end of the day. Everybody's trying to figure out how conservative this guidance is. And I think some of it sort of depends on on how you're thinking about some of those factors.
Yeah, in Q2 we we definitely saw inventory.
Speaker Change: Kind of order pattern shift. So we did see retailers, you know, we talked about this last quarter. There's no need for them to be pre- buying discretionary holiday Goods, uh, in in the second quarter. So they made a lot of decisions to stop or pause or slow their direct Imports in. Um, and so then, you know, we are sitting at more of the inventory within within domestic, we believe that order pattern. I mean, Christmas is going to come, parents are going to buy toys. We know that they will be pulling the inventory, it's just going to be later. And in line with their Shelf, resets with which again, many of them, push their shelf resets out of kind of Q2 into later, uh, later within Q3. So that as I think, di Dom, there was an, there was a situation in Q2 that I think as we move through Q3 Q4 goes back to more normal more normal order patterns
Speaker Change: Got it. That's helpful. Thanks guys.
Our next question is from the line of Eric Handler with Ross Capital, please receive your questions.
Eric Handler: Good morning. Thanks for the question. A couple magic questions here. Um, first when the Final Fantasy set first got announced, I forget, you know, over a year ago, there was an expectation that it would have a positive impact on International sales, particularly in Japan. Which at the time I believe was your largest international market for Magic.
Speaker Change: How did that play out? And how does that have you thinking about future magic sales, going forward? And then I've got a follow-up.
Japan behind only monitoring to but we anticipate it will be modern Horizons too within days or weeks.
Speaker Change: So, it was a big seller there.
As an impacting, your decisions on future International growth of magic.
Oh sorry. I missed the second half of the question. Um, there's a sneaky second half of the question and I find it's fine I'll count that all as 1.
Speaker Change: We see Japan as a growth market for magic, you know, obviously the more that we can find obviously we had a fantastic experience with Square Enix. Uh they've got a lot of great IP and you know generally speaking we see Japan as a gold, mine of potential, licensed Partners to work on Magic. You know, Japan tends to be kind of like the learning lab for trading card games worldwide. It's probably 1 of the most Innovative market for them. They have the greatest variety of them. So, you know, we're all in on the Japanese Market. Likewise I think things like, you know, Final Fantasy and what we're doing with the universe is beyond is also allowing us to be able to get into more maths drugstore. Uh, non-traditional uh, like convenience store style distribution, both in the Japanese market and around the world. So I think you're seeing things like Final Fantasy.
Speaker Change: Future sets like Spider-Man, helping to crack the door, open on, wider Mass distribution, which will help us, not just in Japan, but also in the US and Europe.
Great, that's helpful. And then with regards to your player demographics in your bud presentation, you know, it says the average tabletop player is about 35 years old. Um, now you've got you know,
Speaker Change: Spider-Man, which theoretically skews a bit, younger Avatar is more between type products. Uh, in secret lair, I think you have just put out, or will soon be putting out a secret lair, release for Sonic the Hedgehog. So, I'm curious about how you're thinking about, um, you know, the demographic shift, maybe getting younger, um, for Magic.
I mean.
Speaker Change: I I won't do the The Cheeky answer our our our our our young, our new player, a our new player average is always in, kind of that 11 to 14 year old range. The thing is, is that magic players just never stopped playing. So the median age goes up over time because people play into their 50s and 60s, uh, and then it starts to become multi-generational. So, yeah, you know, we see things like Spider-Man, things like Sonic the Hedgehog, you know, General, uh, kind of efforts that we have like secret lair. That just help us test and learn uh, new IPS uh, as ways for us to be able to expand the demos of the game.
Speaker Change: And then, you know, it's not just about age, you know magic, I think does better than most hardcore games or Enthusiast games in terms of penetration with, you know, people who identify as female. Uh, but we still have a ways to go there. I think about 30% of the player Base today are uh, women and we'd like to see that increase over time. So we're also looking at, you know, IPS that could have some uh, resonance there. So, you know, don't be surprised if you see us poking into romantic. Don't be surprised if you see us looking at uh, K-pop bands, um, you know, nothing's off the table.
Speaker Change: Very helpful. Thanks for
Speaker Change: Thank you.
Speaker Change: Next questions are from the line of Christopher Horus with JP Morgan. Please just see you through your questions.
Speaker Change: Thanks, good morning, everybody. So understanding that you've only seen a little tariff impact so far. Given production timing, and, and orders. But are you seeing prices seep in from others already in the market. And, and how do you think the US consumer is reacting to tariffs at the category levels? So you know, send another way. How did you see posos Trend at the industry level in 2 q and a sneaky 1? As we assess the estimate of what's that? The end of the day as we assess the
Speaker Change: Estimate of loss sales from 2 cue that you're putting into the guide. How does your ps ps Trend? Relative to the industry?
Chris Cox: Hey, Chris. Um,
Chris Cox: Trading cards, um, and and maybe building sets and then outside of that, I think the industry is behaving about what we thought, which was flat slightly down.
Chris Cox: Uh, our categories are behaving about what we figured, they would, we have a lineup that is very backpack weighted, in terms of where our new products are coming out. But where we have seen success, it's been with, you know, great entertainment Partnerships. Like what we saw with Transformers which Transformers 1 had a modest box office, but it's had an excellent, uh, set of toy sales. So mission accomplished as far as we're concerned, you know, Marvel's back to growth, uh, particularly with Captain America and we're looking forward to uh, the Fantastic 4. And then I think the industry is generally seeing a similar Trend where, you know, 4 quadrants theatrical is really working. Whether it's Minecraft or Sonic the Hedgehog or most recently Jurassic world and then Innovation is also paying dividends. So, you know, we're seeing that with Beyblade. Um, you know, we've only had a couple weeks of sales at a couple at a couple
Retailers. So it didn't really affect rpos but we're very pleased with the early uh, impact of our collaboration with Mattel, on Plato Barbie uh the new baby Eevee has really turned around the pep to take brand inside of toys. And so we see that, you know, as part of our thesis in the back half of the year with sequential growth with toy,
Chris Cox: Employees, uh, being replenishment based, uh, kind of tracking with PS.
Now, in terms of how tariffs have impacted the C category, I think the answer is it hasn't impacted takeaway from the consumer that much yet because usually it takes, you know, 5 to 8 months for a toy to go from uh, the factory to the Shelf. But, you know, I think you started to see some indications that toy prices were starting to creep up in May and June. And we think that will happen, slowly, and consistently likely through the balance of the year. And into next year, you know, I don't think you're going to magically see 1 day. You know, toy prices go from X to Y. I think it's going to be kind of more uh line by line skew by skew and over several months as the General Industry kind of gets the feel for what the consumer can bear.
And then the only add I have is on on mix as well. So I I think what will pricing will start to get muted based on the mix of products and you know, just speaking to the the discussions that we've been having with our retailers. It's a lot of focus on how do you protect again, those magic price points and keeping them to where we we think consumers are going to be able to come in uh and buy. So I I would anticipate in the back half and into 26 you'll see some mix shifts happening, broadly across the category as we try to to keep the prices low.
Chris Cox: Got it and that and I guess that's some of the like some assumed tariff head win, which is like anything above a certain magic price point. Just there's there would be too much inflation for the in in the elasticity elasticity would be net negative.
Chris Cox: Yeah, that's right.
Speaker Change: And then my follow-up is sorry. Go ahead.
No, all is going to say some of that math or that logic has informed how we've thought about our portfolio in the back half of this year and into 26. Meaning if, if, if the product itself couldn't kind of survive, the huge pricing. We've taken because it it would have just popped into a price point. That was just not going to be palatable for the for the consumer. We've taken decisions to not bring that product into the US.
Speaker Change: And then my follow-up is, you know, you have 2 of your largest retailers have big marketplaces. Um, I'm I'm curious if they're asking you to more directly bear, the inventory risk, IE will fulfill it for you. We'll put it in our DC but you know, it's going to be a Marketplace item. It's not going to be in store, and you're going to still own that inventory. So curious, if that, if that's something that's accelerating as well,
Speaker Change: No, we haven't seen that, though. Like the DI to domestic definitely is a uh, at the risk shift.
Speaker Change: Got it understood. Thanks very much.
Speaker Change: No worries. Thanks.
Speaker Change: Our next question is from the line of Alex Perry with Bank of America. Please assist you with your questions.
Alex Perry: Hi. Thanks for taking my questions here and congrats on a strong quarter. I guess just first, um, can you talk about the health of the magic player base? I think you said up 40% year-over-year in the first half in terms of unique players. Uh just a little more color on sort of how you're measuring that, how many new players are the universes Beyond since bringing into the game and and how sticky are those new entrance that you're seeing from the universe is beyond sets. Thanks.
Alex Perry: 40% uh, unique increase is specific to people who participate in organized play.
So that's a subset of the total player base, but it's probably the most measurable that we have week to week. And so, Final Fantasy has been generally speaking. The, uh, the overall active player base in terms of playing in store, has been leaping up. 40% is a pretty impressive growth metric Final Fantasy. Specifically has been very effective at bringing in new players into our organized play Network. I think we did more new players in 2 weeks of Final Fantasy than we would typically do over a 12 week period for any other set that we've ever done in terms of the total player base, we don't have a, a formal metric that we can share. Yet we are working on, uh,
Alex Perry: uh, a very robust kind of model for us to be able to track that the challenge is, you know, most of the play with magic is offline. You know, only about 15 or so percent of the player base plays on something like a Arena or something like in a store, uh, but every metric we can see from, uh, social listening, to search queries to, uh, Magic PS reports to organize play to Magic con to back list sales indicates that the total player base is growing quite robustly. And when we acquire a new player,
Alex Perry: Even on something like a universe is beyond. We tend to see a long tail and we tend to see repeat purchases for future sets.
Speaker Change: That's, that's incredibly helpful. And then, I just wanted to follow up on some of the consumer products, sort of line, line of questioning from earlier. So, I think the guide down 5 to 8% is sort of a downgrade from the flat to down 4% the last time you provided I think formal quantitative guidance. So I guess just parsing it out. Did you see holiday orders sort of cut in the quarter or more cautious stance by retailers. Obviously we have some of the you know di Dom sort of shift but just wanted to to get a little more color on sort of the the downgrade in the CP guide. Thanks.
Speaker Change: Yeah, morning, Alex. Yeah, it was some of the factors we've talked already about on the call. So in Q2, we definitely, saw retailers pausing bringing in inventory, discretionary inventory, for the holidays, we they took decisions as well to push back the resets of their their shelf to Q3. So both of those impacted the quarter. Uh, but then also impacted how we're thinking about the annual, the annual Outlook. Um, and then, as we look at the back half of the year, we we've gotten a better line of sight. Now, to just, you know, how the shelves are going to set, what the promotional activity is going to be uh what our our call is with with each of the retailers, in terms of where they are going to pull in the inventory, uh,
Speaker Change: So all of those factors went into the updated guide, not only, you know what what happened in Q2 but then how that was going to trickle into Q3 and Q4.
Speaker Change: Perfect. That's incredibly helpful. Best of luck going forward.
Speaker Change: Thanks, thank you.
Jamie Katz: The next question is from the line of Jamie Katz. Good morning star. Please just use your questions.
Hey, good morning. I just wanted to ask a question on um Wizards of the Coast in digital margins. I think
Jamie Katz: Um, ahead of or Beyond this year. Uh, the operating margins of the segments were expected to fall back under 40%. And I'm curious if you guys would be able to reset expectations for that. Are there any structural changes maybe that you've seen, that can lift that, um, to, to above 40 or, um, is there something else that may sort of normalize that that profit margin in that segment going forward?
Jamie Katz: Got it morning. Jamie uh no there's no update to the margin as we look out. Keep in mind as we start in 26.
We'll have the depreciation hitting for for Exodus and then any subsequent games after that. So that that's 1 factor that isn't in our Base today that will be a margin drag as we as we move forward.
Speaker Change: Okay, and then I think SKU rationalization was mentioned um in the prepared. Remarks can you talk about? I guess, maybe what that means um more concisely and then what that portends for for CP particularly next year? Do you think we'll be able to return to growth in that segment or um is there more to maybe be pruned or outsourced to other manufacturers. Thanks. Okay.
Speaker Change: You have Spider-Man Star Wars and then Avengers doomsday that alone. Uh, it's a pretty stacked lineup and pretty meaningful Topline growth across our Marvel portfolio. And then I think you'll be, uh, lapping, especially in the first half, a lot of quality Innovation that we're seeing, uh, very positive early signs on this year, Plato Barbie Peppa Pig. We'll have a full year of Iron Man and his awesome friends. I know Spider-Man has amazing. Friends Iron Man has awesome ones. Uh, and animals, uh, a lot of back half Innovation that we have early indications will be good hits.
Speaker Change: Yeah. And on the on the SKU rationalization front, you know, we have been on a journey, the past couple of years as part of our transformation to really hone in take the complexity out, uh, when you get into an environment like this, where not only, you know, our retailers, but us are managing our inventory, very carefully, uh, looking in continuing to prune and look at those kind of call it C and D levels. Skus, uh, is, is always on the docket. We've also taken decisions as I, I said earlier a product that that we're probably not going to be fit for the US market, given the Tariff, uh, impact and where we would have to price them. So, we, we called those out of bringing into the US. It doesn't mean that they're not going to be shipping elsewhere in the world, but we have taken some different decisions on the portfolio for the US. Uh, just given given the environment.
Speaker Change: Excellent. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you. Our final question is from the line of Kylie coot with Jeffrey's please. Just see with your questions.
Speaker Change: Hey, good morning, you guys and congrats on a strong quarter. Um, you've kind of gone into detail on this already. But curious what your specifically seeing in terms of the mix of new elapsed and existing customers for magic specifically. Um, is it kind of a are you kind of seeing, you know, more New Growth or are you really kind of seeing your existing
Speaker Change: Um, players also spend more on the the cards. Thanks.
I think if you get to the detailed player demographics for probably going to have to go, uh, offline, I would generally say that we're seeing a stronger mix of new players than we've seen in Prior years. This year, I can't give you a, a precise quantitative breakdown though. Um, but like I said, in Prior in the prior questions,
Speaker Change: Every metric. We're seeing uh, it all points to, there's more people playing Magic and there's more of people who've never played magic, who are now playing Magic than ever before.
Speaker Change: And it's quite meaningful.
Speaker Change: Gotcha, know, that's super helpful. Um and then last 1 from me is just looking at
Speaker Change: Step up and inventory. Could you give us a little more color?
Speaker Change: Spectrum that I know you called out, you know a combination of planned, build versus you know um the FX tariff which is any more color, there would be helpful, thank you.
Speaker Change: Absolutely. Yeah. And you know we're at that time of the year where we would naturally be seeing a step up in in inventories, right. We're building. Um, but a couple unique factors this quarter so obviously the the Tariff cost itself is is an increase cost of of inventory. We've got roughly call it 15 million dollars of of cost of tariffs tied up in on the balance sheet right now, just to give you a sense of of magnitude or I should say through Q2, we had about 15 million dollars of cost, head up on the, on the balance sheet. So, that's 1 piece of, it FX. Is another is, it's making our inventory a little bit, uh, more expensive. But then, lastly, it's this piece that we've been talking about in terms of Dom di. So as, as the retailers stop pulling, or, or slowed, or, or paused, their di shipments, we were still producing and bringing it in and having it sit within within our domestic inventory. So, those are the the 3 factors, you know, as I said in, in our prepared remarks, we have the path that uh, we we we know how the inventory is going to flow in Q3.
Speaker Change: Q4 we think we may end the year slightly higher than where we were where we were last year, uh but everything right now is is kind of in line with expectation.
Speaker Change: Great, thank you so much.
Thanks, thank you.
Speaker Change: Thank you. This now, concludes our question and answer session, and we'll also conclude today's call ladies and gentlemen. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.