Q3 2025 Hasbro Inc Earnings Call

Speaker #1: Good morning . Welcome to Hasbro . Third quarter 2020 earnings Conference Call . At this time , all parties will be in a listen only mode .

Operator: Good morning. Welcome to Hasbro, Inc.'s third quarter 2025 earnings conference call. At this time, all parties will be in a listen-only mode. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Speaker #1: If anyone should require operator assistance during the conference , please press Star Zero on your telephone keypad . Today's conference is being recorded .

Speaker #1: If you have any objections , you may disconnect at this time . At this time , I would like to turn the call over to Frederick Wightman Vice President , Investor Relations .

Gina Goetter: At this time, I would like to.

Operator: Turn the call over to Fred Wightman, Vice President, Investor Relations. Please go ahead.

Speaker #1: Please go ahead .

Speaker #2: 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 .

Fred Wightman: Thank you and good morning everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer, and Gina Goetter, Hasbro's Chief Financial Officer and Chief Operating Officer. Today we will begin with Chris and Gina providing commentary on the company's performance and then we'll take your questions. Our earnings release and presentation slides for today's call are posted on our investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

Speaker #2: Today , we will begin with Chris and Gina providing commentary on the company's performance , and then we'll take your questions . Our earnings release and presentation slides for today's call are posted on our investor website .

Speaker #2: The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures . Our call today will discuss certain adjusted measures , which exclude these non-GAAP adjustments .

Speaker #2: A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation . Please note that whenever we discuss earnings per share or EPs , we are referring to earnings per diluted share before we begin , I would like to remind you that during this call and the question and answer session that follows , members of Hasbro management may make forward looking statements concerning management's expectations , goals , objectives , and similar matters .

Fred Wightman: Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. 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 Cocks. Chris.

Speaker #2: 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 #2: These factors include those set forth in our annual Report on Form 10-K , our most recent 10-q in today's press release and in our other public disclosures .

Speaker #2: We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

Speaker #2: I'd now like to introduce Chris Cox . Chris .

Speaker #3: Thanks , Fred , and good morning . Hasbro delivered another strong quarter in Q3 , extending our growth trajectory in 2025 . Net revenue and operating profit both showed robust year over year gains , underscoring the power of our playing to win strategy , which positions Hasbro as a diversified digitally forward play company .

Chris Cocks: Thanks Fred and good morning. Hasbro delivered another strong quarter in Q3, extending our growth trajectory in 2025. Net revenue and operating profit both showed robust year-over-year gains, underscoring the power of our Playing to Win strategy, which positions Hasbro as a diversified, digitally forward play company uniquely resilient in today's tariff-sensitive market. Key drivers were Magic: The Gathering, Marvel, Monopoly, Peppa Pig, Beyblade, and G.I. Joe brands, exemplifying durable, diversified growth that differentiate Hasbro from traditional competitors. Year to date, revenue is up 7% and adjusted operating profit has increased 14%. We anticipate full-year revenue growth in the high single digits and adjusted operating profit growth exceeding 20%. Magic: The Gathering continues to outperform expectations, posting 40% growth year to date. This success is fueled by unprecedented new player acquisition and standout collaborations with brands like Spider-Man and Final Fantasy.

Speaker #3: Uniquely resilient in today's tariff sensitive market . Key drivers were magic , Marvel , monopoly , Peppa Pig , Beyblade and G.I. Joe brands exemplifying durable , diversified growth that differentiate Hasbro from traditional competitors .

Speaker #3: Year to date, revenue is up 7%, and adjusted operating profit has increased 14%. We anticipate full year revenue growth in the high single digits and adjusted operating profit growth exceeding 20%.

Speaker #3: Magic continues to outperform expectations , posting 40% growth year to date . This success is fueled by unprecedented new player acquisition and standout collaborations with brands like Spider-Man and Final Fantasy .

Speaker #3: Our universe is beyond strategy , leveraging magic steps with beloved IPS is generating extraordinary engagement . Looking ahead , we'll build on this momentum in 2026 with original magic IP sets and blockbuster collaborations including Teenage Mutant Ninja Turtles , The Hobbit , Star Trek , and Marvel superheroes .

Chris Cocks: Our Universes Beyond strategy, leveraging Magic: The Gathering sets with beloved IPs, is generating extraordinary engagement. Looking ahead, we'll build on this momentum in 2026 with original Magic: The Gathering IP sets and blockbuster collaborations including Teenage Mutant Ninja Turtles, The Hobbit, Star Trek, and Marvel Superheroes. Interest indicators like event attendance, search metrics, MagicCon participation, sales in new channels like mass and convenience, and player growth are all at record levels. We expect momentum to continue into the fourth quarter, fueled by upcoming Magic: The Gathering releases including Avatar: The Last Airbender and Final Fantasy's Holiday Set. Alongside sustained momentum in Secret Lair and backlist offerings, Wizards of the Coast is more than Magic: The Gathering. The refreshed 2024 editions of Dungeons & Dragons' Monster Manual, Player's Handbook, and DM Guide are off to the strongest ever start for Dungeons & Dragons books.

Speaker #3: Interest indicators like event attendance , search metrics , magic on participation , sales , and new channels like mass and convenience , and player growth are all at record levels .

Speaker #3: We expect momentum to continue into the fourth quarter , fueled by upcoming magic releases , including The Last Airbender and Final Fantasy Holiday set alongside sustained momentum in Secret Lair and backlist offerings .

Speaker #3: Wizards of the coast is more than magic . The refreshed 2024 editions of NDS Monster Manual , Player's Handbook , and DM guide are off to the strongest ever start for D&D books .

Speaker #3: D&D Beyond's new accessible virtual tabletop has driven weekly traffic up nearly 50% since the September launch . Meanwhile , our digital licensing business , highlighted by monopoly , go and our recent launch of Sorry World with Game , Berry Labs continues to outperform with both games topping mobile player charts in digital gaming .

Chris Cocks: D&D Beyond's new accessible virtual tabletop has driven weekly traffic up nearly 50% since the September launch. Meanwhile, our digital licensing business, highlighted by Monopoly Go! and our recent launch of Sorry World with Gameberry Labs, continues to outperform, with both games topping mobile player charts in digital gaming. The Game Awards this December will showcase some new announcements from Hasbro, including updates on our upcoming sci-fi RPG Exodus, further cementing our commitment to innovative digital play experiences. Consumer Products met our Q3 expectations, although retailer shifts pushed some revenue into Q4. We anticipate a solid bounce back in the fourth quarter driven by innovation, entertainment tie-ins, and strategic partnerships. Key highlights include momentum from Peppa Pig and Marvel's blockbuster content lineup, steady growth from Beyblade, G.I.

Speaker #3: The game Awards is December will showcase some new announcements from Hasbro , including updates on our upcoming sci fi RPG Exodus . Further cementing our commitment to innovative digital play experiences .

Speaker #3: Consumer products met our Q3 expectations , although retailer shifts pushed some revenue into Q4 . We anticipate a solid bounce back in the fourth quarter , driven by innovation , entertainment tie ins and strategic partnerships .

Speaker #3: Key highlights include momentum from Peppa Pig and Marvel's blockbuster content lineup, steady growth from Beyblade, G.I. Joe's rebound post supplier transition, and solid traction for new products like Nanomols and D.J.

Chris Cocks: Joe's rebound post supplier transition, and solid traction for new products like Nanimalz, DJ Furby, Baby Eevee, Star Wars Kyber Forge Lightsabers, and Play-Doh Barbie. Retail shelf resets since late August have led to a mid single-digit POS increase entering the holiday season and share gains for Hasbro across our focus categories. We expect Consumer Products to finish the year down mid single digits, primarily impacted by tariffs. However, because of our proactive supply chain diversification initiatives, we expect that by year end 2026, no single country outside the U.S. will represent more than a third of Hasbro's supply chain. Additionally, new vendor and manufacturing partnerships will unlock attractive pricing opportunities globally from bodegas in Santiago to dollar stores in Peoria, expanding our retail footprint and total addressable market significantly.

Speaker #3: , Furby , Baby EV , Star Wars , Kyber Forge , lightsabers , priorities and Play-Doh Barbie Retail shelf resets . Since late August have led to a mid-single digit POS increase entering the holiday season , and share gains for Hasbro across our focus categories , we expect consumer products to finish the year down mid-single digits , primarily impacted by tariffs .

Speaker #3: However , because of our proactive supply chain diversification initiatives , we expect that by year end 2026 , no single country outside the US will represent more than a third of Hasbro's supply chain .

Speaker #3: Additionally , new vendor and manufacturing partnerships will unlock attractive pricing opportunities globally from bodegas in Santiago to dollar stores in Peoria , expanding our retail footprint and total addressable market significantly .

Speaker #3: After a long turnaround effort , we expect Q4 to be the start of a long term growth period for our toys business , driven by innovation , a killer entertainment slate , and new partnerships .

Chris Cocks: After a long turnaround effort, we expect Q4 to be the start of a long-term growth period for our toys business driven by innovation, a killer entertainment slate, and new partnerships. Just this week, we announced an exciting collaboration tied to Netflix hit film K-Pop Demon Hunters. Product is expected to hit shelves in 2026, but for fans who can't wait, pre-orders are already live for our Monopoly Deal card game inspired by the film. In summary, Q3 reinforces that Hasbro's Play to Win strategy is delivering results. We're confident in our ability to sustain long-term growth through diversified digital initiatives, strategic partnerships, and resilience against external pressures. Before I close, I want to thank our incredible employees and partners around the world. Hasbro's return to growth is a direct result of your creativity, focus, and belief in inspiring a lifetime of play. Now over to Gina.

Speaker #3: Just this week , we announced an exciting collaboration tied to Netflix hit film K-pop Demon Hunters . Product is expected to hit shelves in 2026 , but for fans who can't wait , pre-orders are already live for our monopoly deal card game .

Speaker #3: Inspired by the film . In summary , Q3 reinforces that Hasbro's playing to win strategy is delivering results . We're confident in our ability to sustain long term growth through diversified digital initiatives , strategic partnerships and resilience against external pressures .

Speaker #3: Before I close , I want to thank our incredible employees and partners around the world . Hasbro's return to growth is a direct result of your creativity , focus and belief in inspiring a lifetime of play .

Speaker #3: Now over to Gina . Thanks , Chris .

Speaker #2: , and good morning , everyone .

Speaker #3: We delivered . another solid .

Gina Goetter: Thanks Chris and good morning everyone. We delivered another solid quarter, outperforming expectations on revenue and profit while operating with discipline in a dynamic macro environment. Our results reflect the strength of Wizards, ongoing cost transformation, and continued progress toward our 2027 profitability goals. Net revenue in the third quarter was $1.4 billion, up 8% versus last year, driven by double-digit growth in Wizards and steady execution across Consumer Products. Adjusted operating profit increased 8% to $356 million with an adjusted operating margin of 25.6%, holding steady versus last year despite increased cost pressure. Adjusted earnings per diluted share were $1.68, down 3%, driven by a higher tax rate and FX impacts. Year to date, total Hasbro, Inc. revenue is up 7% and adjusted operating profit has increased 14%, underscoring the strength of our diversified portfolio and the impact of our transformation efforts.

Speaker #4: Quarter outperforming expectations on revenue and profit while operating with discipline in a dynamic macro environment. Our results reflect the strength of Wizard's ongoing cost transformation and continued progress toward our 2027 profitability goals.

Speaker #4: Net revenue in the third quarter was $1.4 billion , up 8% versus last year , driven by double digit growth in Wizards and steady execution across consumer products .

Speaker #4: Adjusted operating profit increased 8% to $356 million , with an adjusted operating margin of 25.6% , holding steady versus last year . Despite increased cost pressure .

Speaker #4: Adjusted earnings per diluted share were $1.68 , down 3% , driven by a higher tax rate and FX impacts . Year to date , total Hasbro revenue is up 7% and adjusted operating profit has increased 14% , underscoring the strength of our diversified portfolio and the impact of our transformation efforts .

Speaker #4: The growth in magic , coupled with sequential improvement in consumer products , is fueling our overall financial performance . Turning to our segments , Wizards once again led our performance in the quarter .

Gina Goetter: The growth in Magic coupled with sequential improvement in Consumer Products is fueling our overall financial performance. Turning to our segments, Wizards once again led our performance in the quarter. Revenue grew 42% to $572 million with broad-based gains across both tabletop and digital Magic. Revenue increased 55% to $459 million, driven by engagement with our Universes Beyond sets, our core IP Edge of Eternities, as well as continued momentum across Secret Lair and Backless products. Operating profit rose 39% to $252 million, delivering an exceptional 44% operating margin, reflecting the positive benefit of scale and mix within the Magic portfolio. Consumer Products navigated a complex quarter and the team demonstrated agility as we adjusted to delayed on-shelf days from retailers and lapped a difficult comparison last year in licensing. Revenue of $797 million was down 7% versus last year, with growth in Europe offsetting softer performance in North America.

Speaker #4: Revenue grew 42% to $572 million , with broad based gains across both tabletop and digital Magic . Revenue increased 55% to $459 million , driven by engagement with our universes beyond sets our core IP edge of eternities , as well as continued momentum across Secret Lair and backlist products .

Speaker #4: Operating profit rose 39% to $252 million , delivering an exceptional 44% operating margin , reflecting the positive benefit of scale and mix within the magic portfolio .

Speaker #4: Consumer products navigated a complex quarter , and the team demonstrated agility as we adjusted to delayed on shelf dates from retailers and lapped a difficult comparison .

Speaker #4: Last year in licensing revenue of $797 million was down 7% versus last year , with growth in Europe offsetting softer performance in North America .

Speaker #4: Adjusted operating profit was $89 million , with an 11.2% margin , compared to 15.1% last year . The margin change was driven primarily by tariff expense and unfavorable mix , offset in part by productivity improvements across our supply chain and expense management .

Gina Goetter: Adjusted operating profit was $89 million with an 11.2% margin compared to 15.1% last year. The margin change was driven primarily by tariff expense and unfavorable mix, offset in part by productivity improvements across our supply chain and expense management. The Entertainment segment delivered revenue of $19 million, up 8%, and an adjusted operating margin of 61%, which is consistent with the asset-light model we're building in this segment. Year to date, adjusted EBITDA stands at $989 million, up 11% versus last year, demonstrating the combined impact of top line growth, operational excellence, and disciplined investment. Year to date, we generated $490 million in operating cash flow, returned $294 million to shareholders via the dividend, and spent $120 million on debt reduction through the combination of bond repurchases and pre-funding our 2026 maturity via treasuries, a proactive step that provides flexibility while keeping us ahead of our long-term leverage targets.

Speaker #4: The entertainment segment delivered revenue of $19 million , up 8% , and an adjusted operating margin of 61% , which is consistent with the asset light model we're building in the segment .

Speaker #4: Year to date , adjusted EBITDA stands at $989 million , up 11% versus last year , demonstrating the combined impact of top line growth , operational excellence and disciplined investment .

Speaker #4: Year to date , we generated $490 million in operating cash flow , returned $294 million to shareholders via the dividend , and spent $120 million on debt reduction through the combination of bond repurchases and prefunding .

Speaker #4: Our 2026 maturity via treasuries . A proactive step that provides flexibility while keeping us ahead of our long term leverage targets . We continue to see tangible benefits from our cost transformation efforts through the first nine months , we've delivered approximately $150 million in realized gross savings , keeping us on track to achieve our full year target .

Gina Goetter: We continue to see tangible benefits from our cost transformation effort. Through the first nine months, we delivered approximately $150 million in realized growth savings, keeping us on track to achieve our full year target. Operational efficiencies, expense management, and productivity gains across sourcing and logistics are driving strong margin performance even as we absorb higher royalty costs at Wizards of the Coast and trade-related headwinds in Consumer Products. These savings are translating directly into margin resilience and giving us the flexibility to reinvest behind our highest return growth engines. We're executing our tariff remediation playbook decisively, mitigating risk and protecting profitability. Maintaining our assumption that the China tariff rate stays at 30% and Vietnam at 20%, we continue to expect $60 million of impact in our 2025 P&L. Owned inventory levels remain healthy and firmly aligned with our year-end targets.

Speaker #4: Operational efficiencies , expense management , and productivity gains across sourcing and logistics are driving strong margin performance , even as we absorb higher royalty costs at Wizards and trade related headwinds in consumer products .

Speaker #4: These savings are translating directly into margin resilience and giving us the flexibility to reinvest behind our highest return growth engines . We're executing our tariff remediation playbook decisively , mitigating risk and protecting profitability , maintaining our assumption that the China tariff rate stays at 30% and Vietnam at 20% .

Speaker #4: We continue to expect $60 million of impact in our 2025 personnel owned inventory levels remain healthy and firmly aligned with our year end targets .

Speaker #4: We believe we have appropriate inventory in our warehouses to fulfill the anticipated holiday build and replenishment orders with a robust entertainment lineup scheduled for 2026 , we remain laser focused on exiting the year with clean company owned and retail inventories .

Gina Goetter: We believe we have appropriate inventory in our warehouses to fulfill the anticipated holiday build and replenishment orders. With a robust entertainment lineup scheduled for 2026, we remain laser focused on exiting the year with clean company-owned and retail inventories. We are continuing with our diversification efforts to build resiliency across the supply chain and coupling those with the incredible growth in Magic: The Gathering. By 2026, we expect approximately 30% of our total Hasbro toy and game revenue will be sourced from China and 30% of our revenue will be based in the U.S. as we opportunistically lean into our U.S. manufacturing capacity. As we enter the final quarter, our momentum remains strong and we are raising our full year guidance. We now expect Hasbro revenue to grow high single digits with an adjusted operating margin between 22% to 23%.

Speaker #4: We are continuing with our diversification efforts to build resiliency across the supply chain . In coupling those with the incredible growth in magic .

Speaker #4: By 2026 , we expect approximately 30% of our total Hasbro toy and game revenue will be sourced from China , and 30% of our revenue will be based in the US .

Speaker #4: As we . Opportunistically lean into our US manufacturing capacity as we enter the final quarter , our momentum remains strong and we are raising our full year guidance .

Speaker #4: We now expect Hasbro revenue to grow high single digits with an adjusted operating margin between 22 to 23% . This results in our adjusted EBITDA increasing to approximately $1.25 billion at the midpoint .

Gina Goetter: This results in our adjusted EBITDA increasing to approximately $1.25 billion at the midpoint. For Wizards, we expect full year revenue growth between 36% to 38% with an operating margin of approximately 44%. This improved guidance reflects the Magic over delivery in Q3 and sustained engagement and high demand through year end releases. In Consumer Products, we are holding our latest guidance and continue to expect revenue to decline 5% to 8% year over year with margins between 4% to 6% as productivity works to mitigate cost pressures. Our capital allocation priorities are unchanged, and with our updated outlook we will likely achieve our 2.5 times leverage target at the end of this year. The Board has declared a quarterly dividend of $0.70 per share, consistent with our capital allocation priorities to return cash to shareholders. We remain focused on execution and operational efficiency in our core toy business.

Speaker #4: For Wizards , we expect full year revenue growth between 36 to 38% , with an operating margin of approximately 44% . This improved guidance reflects the magic over delivery in Q3 and sustained engagement in high demand through year end releases in consumer products .

Speaker #4: We are holding our latest guidance and continue to expect revenue to decline 5 to 8% year over year , with margins between 4 to 6% as productivity works to mitigate cost pressures .

Speaker #4: Our capital allocation priorities are unchanged and with our updated outlook , we will likely achieve our two and a half times leverage target at the end of this year .

Speaker #4: The board has declared a quarterly dividend of $0.70 per share , consistent with our capital allocation priorities to return cash to shareholders . We remain focused on execution and operational efficiency in our core toy business .

Speaker #4: At the same time , we're thoughtfully investing for the future with a disciplined , returns driven approach , particularly in digital gaming and with strategic partners who help bring our brands to new audiences and categories .

Gina Goetter: At the same time, we're thoughtfully investing for the future with a disciplined, returns driven approach, particularly in Digital Gaming and with strategic partners who help bring our brands to new audiences and categories. We are on track to close the year from a position of strength, delivering profitable growth, deepening engagement in our most valuable brands, and advancing toward our long term financial and strategic goals. With that, I'll turn it back to the operator for questions.

Speaker #4: We are on track to close the year from a position of strength , delivering profitable growth , deepening engagement in our most valuable brands , and advancing toward our long term strategic goals .

Speaker #4: And with that, I'll turn it back to the operator for questions.

Speaker #1: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Speaker #1: Thank you . We will now be conducting a question and answer

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow up question. Our first question is from Megan Clapp with Morgan Stanley. Please proceed.

Speaker #1: A confirmation tone will indicate your line is in the question queue . You may press star two . If you would like to remove your question from the queue .

Speaker #1: using speaker equipment , it may be necessary to pick up your handset before pressing the star keys . We ask that you please limit yourself to financial and one question and one follow up question .

Speaker #1: Our first question is from Megan Clapp with Morgan Stanley. Please proceed.

Speaker #5: Hi . Good morning . Thanks for taking my question . Maybe Gina wanted to start with just ending with your comments there . Just on the implied for queue outlook , at least on the EBITDA line .

Gina Goetter: Thanks for taking my question. Maybe Gina, wanted to start with just ending with your comments there just on the implied Q4 outlook. At least on the EBITDA line, it does seem to be above what the street was expecting, and from a profitability standpoint, implies that your growth accelerates versus the third quarter. It does seem like versus the third quarter, both segments are contributing. Can you just walk through some of the puts and takes segment as we think about Q3 versus Q4 profitability, and related to that, on the top line for Consumer Products, I think the guide implies flattish sort of top line growth for the fourth quarter.

Speaker #5: It does seem to be above what the Street was expecting . And from a profitability standpoint implies that your growth accelerates versus the third quarter .

Speaker #5: It does seem like versus the third quarter . Both segments are contributing . So can you just walk through some of the puts and takes by segment as we think about three q versus four Q profitability and related to that on the top line for CP , I think the guide implies flattish sort of top line growth for the fourth quarter .

Speaker #5: I think you talked about crisp POS accelerating . So how should we think about kind of the timing of retailer ordering shifts into the fourth quarter and POS being positive in the context of what I think is a flat guide for the top line .

Gina Goetter: I think you talked about, Chris, POS accelerating, so how should we think about kind of the timing of retailer ordering shifts into the fourth quarter and POS being positive in the context of what I think is a flat guide for the top line? Thank you.

Speaker #5: Thank you .

Speaker #3: Hey , Megan , I'll start and then I'll turn it over to Gina . I . Think for CP , we do expect modest revenue growth .

Chris Cocks: Hey, Megan, I'll start and then I'll turn it over to Gina. I think for Consumer Products, we do expect modest revenue growth. I think toy and games will have a little bit more robust and it'll be offset by some licensing comp headwinds we have last year related to My Little Pony, which had just an amazing quarter based on My Little Pony trading cards, which has since settled into more of a run rate. We also expect Wizards of the Coast is going to have a heck of a quarter as well. The early reads on Avatar: The Last Airbender look terrific. We have another bite at the Final Fantasy apple with our holiday set. Overall, we're expecting pretty good top line growth and some nice operating profit growth as well. I'll turn it over to Gina to kind of dig into point B, C, D, and E.

Speaker #3: I think toy and games will have a little bit more robust , and it'll be offset by some licensing comp headwinds . We have last year related to My Little Pony , which had just an amazing quarter based on My Little Pony trading cards , which has since settled into more of a run rate .

Speaker #3: We also expect Wizards is going to have a heck of a quarter as well . The early reads on Avatar The Last Airbender look terrific .

Speaker #3: And then we have another bite at the Final Fantasy Apple with our holiday set . So overall , we're expecting pretty good top line growth and some nice operating profit growth as well .

Speaker #3: I'll turn it over to Gina to kind of dig into point BC , D and E of your first question .

Speaker #4: Hi , Megan . All right . Let's start . So you're correct . Like we are . We're raising guidance . A lot of it is driven by the strength that we're seeing play through .

Chris Cocks: Your first question, Megan.

Gina Goetter: All right, let's start. You're correct, we are raising guidance. A lot of it is driven by the strength that we're seeing play through and continue to play through really all year on Magic: The Gathering in Q3 and really firming up our outlook for Consumer Products as we move into Q4. When you peel apart Wizards of the Coast, the increase or the raise there is all based on revenue. We've continued to see momentum, and as we look out at the set releases that we've got planned in Q4, coupled with, remember, we have a holiday release this year that drives nice revenue. It also drives leverage throughout the P&L. The one thing that we've talked about a lot as we came into the year on Wizards of the Coast is the royalty expense.

Speaker #4: And continue to play through. Really, all year on magic in Q3, and really firming up our outlook for consumer products as we move into Q4.

Speaker #4: When you peel apart wizards , the the increase or the raise , there is all based on revenue . So we've continued to see momentum .

Speaker #4: And as we look out at the set releases that we've got planned in Q4 , coupled with , remember , we have a holiday release this year that drives nice revenue , it also drives leverage throughout the PNL .

Speaker #4: The one thing that we've talked about a lot as we came into the year on Wizards , is the royalty expense . So just from a modeling standpoint , what we saw in royalty expense in Q3 will largely be the same as what we see in Q4 .

Gina Goetter: Just from a modeling standpoint, what we saw in royalty expense in Q3 will largely be the same as what we see in Q4. The raise in Wizards of the Coast is really all due to the revenue momentum that we're seeing and just the trickle on the positive benefit that that has down the line in the P&L on our Consumer Products business. To your point, a relatively flat outlook. Depending on which range you go, you could see us getting to some growth within the quarter. We have seen our POS momentum accelerate as we came out of Q3. We've continued to see that as we've moved here into Q4 and with the whole retail order shipments. Many in the industry were talking about these later shelf resets that absolutely impacted Q2.

Speaker #4: So . So the raise in Wizards is really all due to the revenue momentum that we're seeing . And just the trickle on the positive benefit that that has down the line in the PNL on our CP business .

Speaker #4: To your point , you know , relatively flat outlook . I mean , it depending on which range you go , you could see us getting to some some growth within the quarter .

Speaker #4: We have seen our POS momentum accelerate as we came out of Q3 . We've continued to see that as we've moved here into into Q4 , and with the whole retail order shipments , you know , we you know , we many in the industry were talking about these later shelf resets that absolutely impacted Q2 .

Speaker #4: We started seeing their shipments pick up in Q3 . And again , we've seen that continue into Q4 . So our expectations for CP as we move through the holiday period is that we're going to have shipments outpacing outpacing what our POS is so that that benefit will help .

Gina Goetter: We started seeing their shipments pick up in Q3 and again we've seen that continue into Q4. Our expectations for Consumer Products as we move through the holiday period is that we're going to have shipments outpacing what our POS is. That benefit will help again create some leverage within the P&L as well from a margin standpoint. Okay, perfect. Thank you. Did I hit all of your points? Yes, thank you. A quick follow up just on the balance sheet and capital allocation. You said leverage target by the end of this year, free cash flow growth has been quite strong and I think that should continue into 2026. How are you thinking about capital allocation priorities as we head into 2026 with the balance sheet now at your leverage target? Yeah, where we sit today without getting too much into 2026 guidance, unchanged priorities.

Speaker #4: Again , create some leverage within the piano as well , from a margin standpoint .

Speaker #5: Okay , perfect . Thank you .

Speaker #4: Did I hit all of you ? Did I hit all of .

Speaker #5: Your points ? Yes . Thank you .

Speaker #6: Okay. If you are quick.

Speaker #5: Follow up just on on the balance sheet and capital allocation . So you said leverage target by the end of this year . Free cash flow growth has been quite strong .

Speaker #5: And I think that should continue into 2026. So how are you thinking about capital allocation priorities as we head into 2026, with the balance sheet now at your leverage target?

Speaker #4: Yeah . Where we sit today without getting too much into 26 guidance , unchanged priorities . You we continue to first and foremost want to invest back into the business .

Gina Goetter: We continue to first and foremost want to invest back into the business and invest into our growth drivers. You'll continue to see us do that. Obviously we have the dividend and we're committed to the dividend. Lastly, we will continue to pay down debt. We feel great that we're going to be at a point from a leverage ratio standpoint that will be at 2.5 times. We still think there's opportunities for us to bring that down even further, to just create more optionality and flexibility for us as a business. As we turn the corner in 2026, we'll come back and see if any of those are changed. For now we're sticking with those.

Speaker #4: And invest into our growth drivers. So you'll continue to see us do that. Obviously, we have the dividend, and we're committed to the dividend.

Speaker #4: And then lastly , we will continue to pay down debt . So we feel great that we're going to be at a point from a leverage ratio standpoint that will be at two and a half times .

Speaker #4: We still think there's opportunities for us to bring that down even further to just create more optionality and flexibility for us as a business .

Speaker #4: So as we turn the corner into 26 , we'll we'll come back and see if any of those are changed . But for now , we're sticking with those .

Speaker #1: Our next question is from our with UBS . Please proceed .

Operator: Our next question is from Arpine Kocharyan with UBS. Please proceed.

Speaker #7: Hi . Good morning . Thanks for taking my question . What do you think is driving this acceleration in retail POS for you and for the industry ?

Gina Goetter: Hi, good morning. Thanks for taking my question. What do you think is driving this acceleration in retail POS for you and for the industry? What are some of the indicators that you look at to decide whether this holds up in the next 40 days as you compare it to sort of prior holiday seasons or what you know about the consumer? I have a quick follow up.

Speaker #7: And what are some of the indicators that you look at to decide whether this holds pulls up in the next 40 days as you compare it to sort of prior holiday seasons or what you know about the consumer .

Speaker #7: Then I have a quick follow up .

Speaker #3: Sure . Hey , good morning . I think a couple of things . Each product is a little different . For instance , with the G.I.

[Analyst]: Sure.

Chris Cocks: Hey, Arpine, good morning. I think a couple things. Each product is a little different. For instance, with G.I. Joe, we just didn't have supply because we were going through a supplier transition for the first half of the year, and we're in catch up mode on others. I think it has to do with just great innovation. You know, Nanimalz, DJ Furby, some of our new board games are hitting the mark and hitting what we think players want, and then still others I think just are kind of bulwarked by fantastic brands and really strong content. Marvel in particular is one that's really doing well this year, and we expect that to continue moving forward. Transformers has been benefiting from that throughout the year, even though we don't have new content this year.

Speaker #3: Joe , we just didn't have supply because we were going through a supplier transition for the first half of the year . And so we're in catch up mode on others .

Speaker #3: I think it has to do with just great innovation . You know , animals . D.J. Furby , some of our new board games are hitting the mark and hitting what we think players want .

Speaker #3: And then still others . I think , just are kind of bulwark by fantastic brands and really strong content . You know , Marvel in particular is one that's really doing well this year .

Speaker #3: And we expect that to continue moving forward . Transformers has been benefiting from that throughout the year , even though we don't have new content this year .

Speaker #3: Last year's Transformers one has had a nice long tail for us . So you know , we've been pleased with it . We've been seeing acceleration in POS for probably the last 7 to 8 weeks , and usually what we see in September and October is a pretty good harbinger for what's going to happen throughout the holidays .

Chris Cocks: Last year's Transformers 1 has had a nice long tail for us, so we've been pleased with it. We've been seeing acceleration in POS for probably the last seven to eight weeks, and usually what we see in September and October is a pretty good harbinger for what's going to happen throughout the holidays.

Speaker #7: Very helpful . Thank you . And then oh , sorry . Go ahead .

Gina Goetter: Very helpful, thank you. My one add that I would have is on, just as you think about the overall category and pricing as a dynamic, you know, we really haven't seen overall huge increases in ASPs. We've seen some mix shift, but not big increases in ASPs. As you look at where the consumer could be heading and how our portfolio shapes, you know, roughly call it 40 to 50% of our portfolio is priced under that $20 kind of magic price point. As we're innovating, as we're executing with our retailers, our prices are staying in that nice zone for consumers heading into the holidays. That's very helpful, thank you, Gina. Just a quick follow up. You have had incredible in Magic this year and will likely finish the year on a strong note.

Speaker #4: My one ad that I would have is on just as you think about the overall category and pricing as a dynamic.

Speaker #4: You know, we really haven't seen overall huge increases in ASPs. We've seen some mix shift, but not big increases in ASPs.

Speaker #4: And as you look at where the consumer could be heading and how our portfolio shapes, you know, roughly call it 40% to 50% of our portfolio is priced under that $20 kind of magic price point.

Speaker #4: So, as we're innovating and executing with our retailers, our prices are staying in that nice zone for consumers heading into the holidays.

Speaker #7: That's very helpful . Thank you . Gina . So just a quick follow up . You have had incredible growth in magic this year .

Speaker #7: And will likely finish the year on a strong note . There is a bit of concern how you left that next year and arguably Marvel's strength in the second half of this year has probably legs well into the first half of next year .

Gina Goetter: There is a bit of concern how you left that next year and arguably, you know, Marvel's strength in the second half of this year has probably lagged well into the first half of next year I would imagine. This business is very much driven by the timing of set releases. Anything you could tell us to help think through how you left these very strong numbers from this year into 2026. Gina, just a quick question for you. The licensing expense under Magic for the back, you had raised that from $40 million range to closer to $60 million plus. Is that updated number now $70 million? $70 million plus? Just given the outperformance in that segment, is that. Are you talking about the digital Magic Digital, correct. I'm talking about the royalty expense within Wizards tied to third party IP. Oh, the royalty expense, I see, yeah.

Speaker #7: I would imagine . But this business is very much driven by the timing of set releases . Anything you could tell us to help think through how you let these very strong numbers from this year into 2026 .

Speaker #7: And just a quick question for you . The licensing expense under magic for the back half , you had raised that from 40 million range to closer to 60 plus .

Speaker #7: Is that updated number now 7070 million plus . Just given the outperformance in that segment .

Speaker #4: Is that are you talking about the end digital magic digital . ?

Speaker #7: Correct . I'm talking about the royalty expense within Wizard tied to third party IP .

Speaker #4: Oh , the royalty expense I see . Yeah . The the back . Just the back half of the year was always going to be back weighted in terms of expense .

Gina Goetter: The back, just a. The back half of the year was always going to be back weighted in terms of expense just given the timing of the Universes Beyond set releases. We had Avatar: The Last Airbender and the Spider-Man are falling in the back half of the year, whereas it was just Final Fantasy in the front half of the year. That's why you see that weighting. It'll be roughly, call it $50 million to $60 million of royalty expense in the back half of the year. Of course, what we accrued in the front half, I think total royalty expense change is $80 million year over year, I believe. It's a pretty sizable step up in expense.

Speaker #4: Just given the timing of the universes beyond set releases . So we had , you know , avatar , avatar and you know , the Spider-Man are falling in the back half of the year , whereas it was just Final Fantasy in the front half of the year .

Speaker #4: So that's why you see that weighting . It'll be roughly call it 50 , $60 million of royalty expense in the back half of the year .

Speaker #4: And then , of course , what we accrued in the front half , I think total total royalty expense change is $80 million year over year .

Speaker #4: I believe . So it's a pretty it's a pretty sizable step up in expense .

Speaker #3: Yeah . In terms of your your question about the underlying durability of magic's growth , I think there's a couple of things going on .

[Analyst]: Yeah.

Chris Cocks: Arpine, in terms of your question about the underlying durability of Magic's growth, I think there's a couple things going on. At the easiest level this year, we had, call it, six and a half sets because one of our sets was a little bit of crossover in terms of sell-in between Q4 and Q1. Next year we're going to have about the equivalent of seven sets. You are naturally going to have more content to sell, which generally is correlated with higher sales. When you look at the momentum that we have on backlist, I think we continue to see that as being a nice kind of floor for the business that is continuing to raise. Our backlist business, I think, is 70% ahead of what it was last year already for the full year basis, and last year was a record.

Speaker #3: You know , the easiest level this year we had call it six and a half cents because one of our sets was a little bit of a , a little bit of crossover in terms of selling between Q4 and Q1 next year , we're going to have about the equivalent of seven sets .

Speaker #3: So just you're naturally going to have more content to sell , which generally is correlated with higher sales . Then when you look at kind of like the momentum that we have on backlist , I think we continue to see that as being kind of like a a nice kind of floor for the business .

Speaker #3: That Will is continuing to raise . I mean , our backlist business , I think is 70% ahead of what it was last year already for the full year basis .

Speaker #3: And last year was a record . And then I think like the last one is universes Beyond is just working . The whole theory of the business was it's going to increase our distribution .

Chris Cocks: The last one is Universes Beyond is just working. The whole theory of the business was it's going to increase our distribution, it's going to increase our number of active players, it's going to bring in new fans that were adjacent to Magic, and that has just worked. Basically every set we've done in Universes Beyond has set records in terms of new player engagement, in terms of search queries, in terms of number of people who are going into stores, in terms of sales in non-traditional outlets like mass and convenience for us. We don't see that slowing down. If anything, I think there's potential to accelerate it just with the quality of partners we have next year and the early reads we're getting on those partners.

Speaker #3: It's going to increase our number of active players . It's going to bring in new fans that were adjacent to magic and that has just worked like basically every set we've done a universe is beyond has set records in terms of new player engagement , in terms of search queries , in terms of number of people who are going into stores , in terms of sales in non-traditional outlets like mass and convenience .

Speaker #3: For us . And we don't see that slowing down . If anything , I think there's potential to accelerate it just with the quality of partners we have next year and the early reads we're getting on those partners , you know , Teenage Mutant Ninja Turtles , Marvel Super Heroes , The Hobbit , Star Trek , which for a big nerd like myself is near and dear to my heart .

Chris Cocks: Teenage Mutant Ninja Turtles, Marvel Superheroes, The Hobbit, Star Trek, which for a big nerd like myself is near and dear to my heart. I think all of those have had excellent initial reactions and bode well for continued robust sales.

Speaker #3: I think all of those have had excellent initial reactions and bode well for continued robust sales .

Speaker #1: Our next question is from Steven with Goldman Sachs . Please proceed .

Operator: Our next question is from Stephen Neild Laszczyk with Goldman Sachs. Please proceed.

Speaker #8: Hey , good morning . Thanks for taking the questions . Maybe first on consumer products for Chris and Gina . Just be curious to get your latest thoughts on higher prices and just generally how they're being digested by retailers and consumers .

[Analyst]: Hey, good morning. Thanks for taking the questions. Maybe first on Consumer Products for Chris and Gina. Just be curious to get your latest thoughts on higher prices and just generally how they're being digested by retailers and consumers. Curious, you know, what you're seeing so far, the types of conversations you're having with retailers this fall. If that's influencing your strategy as you look at promotional activity into the back part of the year, maybe opportunities to take pricing if needed in 2026.

Speaker #8: Curious what you're seeing so far , the types of conversations you're having with retailers this fall , and if that's influencing your strategy .

Speaker #8: As you look at promotional activity into the back part of the year , and then maybe opportunities to take pricing if needed in 2026 ?

Speaker #3: Yeah , I would say pricing so far has been relatively muted in the category . We started seeing evidence of it , like in July , August , I think you'll see more of it in September and October .

Chris Cocks: Yeah, I would say pricing so far has been relatively muted in the category. We started seeing evidence of it like in July, August. I think you'll see more of it in September and October. We've been pretty surgical in where we've chosen to price. We've chosen to put it usually against brands that have some pretty robust content and latent demand associated with it, and trying to hit price points where we think the consumer tends to be a little less price sensitive, particularly under that kind of $15 threshold, maybe the $20 threshold. We haven't seen a tremendous amount of elasticity so far based on the early reads in terms of ongoing pricing. I think we just kind of have to see how the holiday goes and how the consumer holds up. Right now I think it's really kind of a tale of two consumers.

Speaker #3: We've been pretty surgical in where we've chosen to price . We've chosen to put it usually against brands that have some pretty robust content in latent demand associated with it , and trying to hit price points where we think the consumer tends to be a little less price sensitive , particularly under that kind of $15 threshold .

Speaker #3: Maybe the $20 threshold . And we haven't seen we haven't seen a tremendous amount of elasticity so far based on the early reads .

Speaker #3: You know , in terms of ongoing pricing , I think we just kind of have to see how the holiday goes and how the consumer holds up .

Speaker #3: Right now , I think it's really kind of a tale of two consumers . The top 20% , particularly in the US , the top 20% of households continue to spend pretty robustly .

Chris Cocks: The top 20%, particularly in the U.S., the top 20% of households continue to spend pretty robustly. We've got a nice fan business with them. We've got a nice trading card and gaming business with them. The balance of households are watching their wallets a bit more, a little bit more promotional and price sensitive. As Gina mentioned, about 50% of our items that we're selling are under that $20 price range. We think that's going to expand as we go into 2026 with some of the new suppliers we're working with and some of the new product we're working with. Net net, so far so good.

Speaker #3: We've got a nice fan business with them . We've got a nice trading card and gaming business with them . The balance of households are watching their wallets a bit more , a little bit more promotional and price sensitive .

[Analyst]: That's great. Maybe one on 2026 around Exodus. Gina, it sounds like we're about a year from Exodus being released. I was just curious if there is any way you can maybe help investors size the cost impact expected from the game next year, perhaps over the course of 2026 and 2027. Appreciate it. We'll probably learn more in December, but anything or any frameworks you could provide at the moment help set the frame of mind looking into next year.

Gina Goetter: Got it. Yeah, good question. You're right. We'll provide more specifics when we get to December. I'll give you some tidbits on the framing and how to think about it from an accounting standpoint without getting too deep into unit expectations. When you look at our balance sheet, you'll see that line that says capitalized software and there's roughly $350 million that's sitting on our balance sheet. This includes development costs for Exodus as well as all of the other games that are within our portfolio. It is not just an Exodus charge, it's the entire pipeline of games that we're working on and how that will come off of the balance sheet through the P&L. As Exodus ships and we launch the units, that cost will depreciate alongside with units. It will flow through our cost of goods. That's where you'll see it will impact our gross margins.

Gina Goetter: That's what you'll see it flow through. The other important thing to call out is because it is a product development cost, it's an input cost, it will not be an add back into EBITDA. It will show up as a depreciation charge within cost of goods, but it's not going to be added back on an EBITDA basis. In terms of Exodus and how to think about the dollar impact when we're modeling it out, roughly, kind of rule of thumb, 65% of that development cost is going to hit in the quarter that we launch the game. In the four quarters in that first year, roughly 85% of that development cost will have been worked through the P&L. That's right now how we're modeling it out.

Got it. Yeah, good question. And and you're right we'll provide more uh, specifics when we get to December. So I'll give you some tidbits on the, the framing and how to think about it from an accounting standpoint without getting too deep into unit expectations. Uh, but when you look at our balance sheet, you'll see that line that says capitalized software and there's roughly, you know, 350 million dollars that sitting on our balance sheet. Uh, this includes development costs for Exodus as well as all of the other games uh, that are within our portfolio. So it is, it is not just uh, an exodus charge. It's the entire pipeline of of games that were were working on, uh, and how that will come off of the balance sheet through the the p&l. So it as, as exit it ships and we launched the units that cost will depreciate alongside uh alongside with units. It will flow through our cost of goods so that's what you'll you'll see it. It will, it will impact our gross margins. That's what you'll see it flow through. And then the other important thing to call out is because it is a product.

Gina Goetter: Obviously, as we get sharper on the absolute units and the absolute timeline for when we're going to launch, that will impact it. That's the good, good rule of thumb in terms of how we're thinking about the overall expense standpoint. You've heard us talk about how AAA video games, some of them can be very, very expensive. We are not playing in that range. You've heard us talk in the previous calls that our development budgets are anywhere from, you know, call it $100 million, if we're working with partners, up to, call it, $200, $250 million. That's the range of outcome in terms of absolute expense and absolute depreciation that you'll see come through the P&L. Obviously, that's the P&L impact as we launch the game, as we create, have the units, have the revenue, there's going to be a pretty material uplift in our cash flow.

Development costs. It's an input cost. Um, it will not be an add back into ibaa. So it will it will show up as a depreciation charge within cost of goods but it's not going to be added back uh on an IBA de on an IBA de basis in terms of Exodus and how to think about the dollar impact when we're modeling it out, roughly kind of rule of thumb, 65% of that development cost is going to hit in the quarter that we launched the game and in the the 4 quarters. You know, in that first year, roughly 85% of that development cost will have been worked through the pnl. That's right now, how our how we're modeling it out. Obviously, as we get uh sharper on the absolute, uh, units and the absolute timeline for when we're we're going to launch. That will that will impact it but that's the good good rule of thumb. Um, in terms of uh, how we're thinking about the overall expense standpoint. You know, you've you've heard us talk about how AAA video game. Some of them can be very, very

Very, very expensive. We are not playing in that range. You've heard us talk in in the, the previous calls that, you know, our development budgets are anywhere from, you know, call it 100 million, if we're working with Partners up to call it, you know, 200250 million. So, so that's the range of outcome in terms of absolute, absolute expense and absolute, uh, deprecation, that you'll see come through the panel. Now, obviously, that's the p&l impact as we launched the game, as we create, you know, have the units, have the revenue

Gina Goetter: We kind of have to look at it through what's going to happen in the balance sheet. That capitalized asset comes down P&L, the depreciation hit goes in, but then we have a nice uptick in our operating cash. Does that help, Steven?

And there's going to be a pretty material uplift in our cash flow. Um so we kind of have to look at it through. What's going to happen in the balance sheet. That capitalized asset comes down. P&l the depreciation hit goes in but then we have a nice uptick um in our in our operating cash.

Does that help Steen?

Operator: Our next question is from Christopher Michael Horvers with J.P. Morgan Chase. Please proceed.

Chris Cocks: Thanks. Good morning everybody. Maybe talk a little bit about what the gross net headwinds from tariffs were in the third quarter. As you churn through more sales, does that dollar headwind actually worsen as you get into the fourth quarter? Stepping back, thinking longer term about the potential profitability of the Consumer Products business, is the expectation ultimately that you can get the tariff rate pressure back over time through pricing, or does the long term outlook for Consumer Products profitability change?

Our next question is from Christopher Harvard's with JP Morgan. Chase please proceed.

Thanks, good morning everybody. So maybe talk a little bit about you know what, the gross net headwinds from tariffs were on the third quarter. You know as you turn through more sales does that does that dollar headwind actually worsen uh as you get into the fourth quarter and and then stepping back um

thinking longer term about the potential profitability of the CP business,

Gina Goetter: Got it. Morning. The tariff pressure in Q3 was roughly, call it, $20 million of cost. As we look into Q4, there's a bit more. It's a bit of a heavier quarter still. The net impact is going to be, you know, $60 million within 2025. As we look into 2026, we are fully running our tariff playbook. As we calculate the various scenarios of where that absolute rate will play out, we're really putting all of our levers to work from how we think about pricing, how we're thinking about our product mix, how we're thinking about our supply chain, and how we're managing all of our operating expenses to mitigate and offset the impact.

Is the expectation ultimately that you can get the Tariff rate, pressure back over time through pricing or does the long-term outlook for CP profitability change?

Uh morning. Uh, so the Tariff pressure in Q3 was roughly call. It 20-ish million dollars of of cost as we look into Q4, there's a bit more. So it's a, it's a bit of a heavier quarter. Uh, still the net impact is going to be, you know, 60 million within 2025. As we look into 2026, you know, we are fully running our tariffs Playbook. And so as we calculate the various scenarios of where that absolute rates will play out. Um we're really putting all of our levers to work from how we think about pricing. How we're thinking about our product mix how we're thinking about our supply chain and how we're managing all of our operating expenses.

Expenses, um, to mitigate and offset the impact.

Chris Cocks: Got it. I'm guessing, is the net headwind next year smaller than the $60 million, or do we have to lap through something similar? I would think, just based on the seasonality of the business, that it would.

Gina Goetter: It'll be less overall for the year, that the tariff cost itself will be bigger just because we'll have a full year. The impact, we're still working through what the net kind of impact is as we put all of the levers to work. The actual tariff cost itself, obviously with four quarters worth, we really didn't start seeing that impact to the P&L until third quarter.

Got it. But the I'm guessing, just is the is the net headwind next year, uh, smaller than the 60 million, or, or do we have to lap, do something similar would think, just based on the seasonality of the business that that it would be less.

It'll be less next overall for the year, that that tariff cost itself will be.

Chris Cocks: Yeah, Chris, I think if you think about the midterm in terms of CP and total company, I think at a total company we're very confident in our operating profit guidance. Our games business is performing very well, well ahead of plan. Our licensing business continues to perform very well, and frankly at or ahead of plan. Toys were, I think, in the early innings of getting to the growth portion of the turnaround, which is great. From a top line perspective, I think we feel good about the guidance we gave in February. I think from a margin perspective for the CP business, if tariffs persist at a 20% and 30% range, it probably carves off a couple points of margin from the expectations for that business.

Bigger just because we'll have a full a full year. Um, but the impact we're still working through with the net. Kind of impact is as we put all of the the levers to work, but the actual tariff costs itself, obviously, with with 4 quarters worth, you know, we really didn't start seeing that impact to the p&l until until third quarter. Yeah, Professor I think if you think about the midterm in terms of CP and total company,

I think at a total company, we're very confident in our operating part profit guidance. Um, our games business is performing very well, well, ahead of plan, our licensing business continues to perform very well and frankly at or ahead of plan toys were, I think in the early Innings of getting to the growth portion of the turnaround, uh, which is great. And so from the Top Line perspective, I think we feel good about the guidance we gave in February.

Chris Cocks: Low double digits probably becomes high single digits if nothing changes on the tariff front and nothing changes on the nature of the business. I think it's a little too early for us to call that ball for CP. We feel pretty good about the partnerships where we're inking. K Pop Demon Hunters just being the first. That's probably one of the hottest new entertainment properties of the year. We love what's going on with Star Wars and Marvel in terms of their content and how those brands are coming roaring back. I think we'll have a more fulsome update come February when we talk about 2026 and an update to midterm.

Operator: Got it.

I think from a margin perspective for the CP business. If tariffs persist at a 20 and 30% range, it probably carves off, you know, a couple points of margin from the expectations for that business. So low double digits, probably becomes High single digits if nothing changes on the Tariff front and nothing changes on the nature of the business. I think it's a little too early for us to call that ball. Um for CP we feel pretty good about the Partnerships. We're we're inking, K-pop demon Hunters, just being the first uh that's probably 1 of the hottest new Entertainment Properties of the Year. We love what's going on with uh, Star Wars and Marvel in terms of their content and how those brands are coming roaring back. So, you know, I think we'll have a more wholesome, a more wholesome update come February when we talk about 2026 in a update to midterm,

Chris Cocks: My follow up is a follow up to a prior question about Magic next year. Can you talk about how big is Final Fantasy this year? Obviously it's played out exceptionally well and you have this holiday set. As you think about the content that you have for next year, is the strategy a little bit of like all those UB sets combined are sort of like an aggregate become bigger, or do you think maybe the Star Trek set, for example, could be actually bigger than Final Fantasy? Thanks so much. Final Fantasy is a record-breaking set. It's already the biggest set in Magic's history. I won't tell you which one next year we think could rival or beat Final Fantasy, but we definitely see at least one that we think can do that.

Got it. And then my, my follow-up is, um, a follow up to a prior question about magic next year. Can you talk about? You know, how big is Final Fantasy this year? Obviously it's played out exceptionally well and you have this holiday set. And as you think about the, the the, uh, the content that you have for next year is is the strategy. A little bit of like all of those, um, UB sets.

Gina Goetter: That's good.

Chris Cocks: Yeah, I think I'll stick it there. We haven't shared with you guys the content lineup we have for 2027 and beyond, but we also feel pretty darn good about the partners we have lined up. I mean, this is a great deal for Magic in terms of, hey, we get access to some of the premier IP in the world. It's a great opportunity for the partners because really there's never been an opportunity for them to access the trading card business, certainly at the scale Magic: The Gathering is delivering for them. We pretty much have had our pick of partners. I think if you can conceive of a collaboration that we could do with Magic, we probably have inked the deal or are in conversations on a deal on that. I think again, we're still at the relatively early innings of what Universes Beyond can do.

For 2027 and beyond. But we also feel pretty darn good about the partners we have lined up. I mean, this is a great deal for Magic. In terms of, hey, we get access to some of the premier IP in the world. Um, it's a great opportunity for the partners because really there's never been an opportunity for them to access the trading card business, certainly at the scale Magic: The Gathering is delivering for them. And so, you know, we pretty much have had our pick of partners. And so, I think if you can conceive of a collaboration that we could do with Magic, um, we probably have inked a deal or are in conversations on a deal on that.

Chris Cocks: I think there's upside in terms of what the sets can do in the future, and I think that's also just going to be buoyed by a very long and lucrative backlist as well, which we've been seeing play out in 2020 and definitely in 2025.

So, you know, I think, again, we're still at the relatively early Innings of what universe is beyond can do.

Gina Goetter: We should probably say that our owned Magic: The Gathering IP is also performing quite well.

Chris Cocks: Yeah, I think that's a great point. People aren't just coming in and buying Final Fantasy, people are coming in and buying Edge of Eternities. They're buying other sets, and we've also been setting records with what we've been doing with our own sets as well. There's a nice halo here.

I think there's upside in terms of what the sets are, what the sets can do in the future. And then I think that's also just going to be boyed by a very long, and lucrative backlist as well, which we've been seeing play out in 2024 and definitely in 2025 and we should probably say that our owned magic IP is also performing quite well. Yeah, I mean that's a great point. You know, people aren't just coming in and buying Final Fantasy. People are coming by in and buying edge of eternities, they're buying other sets. Um, and so, we've also been setting records with what we've been doing with our own sets as well. So there's a nice Halo here.

Operator: Our next question is from James Lloyd Hardiman with Citi. Please proceed.

Our next question is from James Hardiman with City. Please proceed.

James Lloyd Hardiman: Hey, good morning. To that last question, Chris, I'm not going to ask you which set you think can beat Final Fantasy.

Gina Goetter: It sounds like Gina is ready to get a book or not.

Hey, good morning. Um, so to that last question. Chris, I'm not going to ask you which set. Do you think can be Final Fantasy? It sounds like

James Lloyd Hardiman: I am curious. This K Pop Demon Hunters press release did mention Wizards of the Coast. Curious what the thoughts are there, how those two could integrate. On the margin side of Wizards, we came into the year thinking that margins would be down pretty materially and obviously that's not going to be the case. Any thoughts on how to think about Wizards margins into next year? Any color on the royalty piece would also be helpful.

Chris Cocks: Yeah, we're pretty excited about K Pop. I remember the weekend it came out. I watched it and sent a text over to Tim who runs our toy business, and I'm like, why haven't we talked to these guys? Because this thing's awesome. If you look at my Spotify playlist, it looks like a 12 year old kid's. You know, I got Soda Pop, that Golden on there, along with some other stuff. I'm pretty jazzed for K Pop. We're working with Netflix. Mattel is doing basically dolls and figurines. We're basically doing just about everything else: plush, games, trading cards, as you mentioned, for something like Magic, as well as electronics and role play. I think that's going to be a pretty lucrative license.

This K-pop demon Hunter's press release did mention Wizards of the Coast, you know, with curious curious, what the thoughts are there, how how those 2 could integrate. And then just on the margin side of wizards, you know, we came into the year thinking that margins would be down pretty materially and obviously that's not going to be the case you know any thoughts on how to think about Wizards margins into next year and you know any color on the royalty piece would would also be helpful. Thanks.

Yeah, we're pretty excited about K-pop. Um, I remember the weekend it came out, I watched it and uh sent a text over to Tim who runs our toy business and I'm like, uh, why haven't we talked to these guys? Because this thing's awesome. Uh, if you look at my Spotify playlist, it looks like uh a 12 year old kid. Uh you know, I got soda pop that the golden on there, uh along with some other stuff. So I'm pretty, I'm pretty jazzed for K-pop. You know, we're working with Netflix uh, Mattel's doing.

Chris Cocks: You know, that's had incredible staying power, and frankly, it's just the first new partnership inside of our toys business that we're going to be really excited to share more details about over the coming couple quarters. I think there's a lot of reasons to believe that our toy business is in the early stages of a long term growth from entertainment to toy partnerships to new licenses. I think that's good. On your question about Magic, I think Magic has proven that it can fit a large number of IPs. One of the best selling Secret Lair products of all time was SpongeBob SquarePants. If we can figure out how to get people jazzed up about SpongeBob SquarePants collectible cards, I'm pretty sure we can do it with one of the biggest movies of all time.

Basically dolls and figurines were basically doing just about everything else, uh, plush games trading cards, as you mentioned for something like magic, um, as well as Electronics, um, and role-play. So, you know, I I think that's going to be a pretty lucrative license. You know, that's been had incredible, staying power. And frankly, it's just the First new partnership inside of our toys business. That we're going to be really excited to share more details about over the coming couple quarters. I think there's a lot of reasons to believe that our toy business is in the early stages of a long-term growth uh, from entertainment to toy Partnerships to new licenses. So I think that's good. And on your question about magic, I I think magic is proven that it can fit a large number of ips 1 of the best-selling. Um, secret lair products of all time was SpongeBob SquarePants. And if we

Gina Goetter: If you look at the margins, you know, we're not going to get into 2026 guides today, but we've always said that our Wizards segment is going to be in that high 30s, low 40s. If you look back over our recent history, you'll see that we're dancing around those levels over multiple years. This is where we're going to expect to run that business. That's what we're asking our teams to deliver, even knowing that that is our growth engine. We're going to continue to make sure that we're making the appropriate investments back into the business. I would say without giving guidance, you know, we've always talked about a high 30s, low 40s Wizards segment. That's what you should expect from us over time.

can figure out how to get people jazzed up about SpongeBob SquarePants, collectible cards. I'm pretty sure we can do it with 1 of the biggest movies of all time.

And if you look at our at the margins, you know, we're not going to get into 2026 guides, uh, today. Uh, but we've always said that our Wizards segment is going to be in that, you know, high 30s, low 40s. If you look back over our recent history, you'll see that we're, we're dancing around, uh, those, those levels over multiple years,

James Lloyd Hardiman: Got it. That's helpful. Just real quick on the inventory front, there's a lot of discussion obviously about shifting orders between Q3 and Q4. Where are retailers with respect to your product versus last year? I'm assuming there's a deficit versus a year ago. That will ultimately sort of bridge that deficit as we make our way through the fourth quarter, but maybe speak to that a little bit.

Um, and this is where we're going to expect to run that business and that's what we're asking our teams to deliver. Uh, even knowing that, that is our growth engine. So we're going to continue to make sure that we're making the appropriate uh, Investments back into the business. But I I would say, without giving giving guidance, you know, we we've always talked about a high 30s, low 40s, uh, wizard segment, uh over you know, that's what you should expect from us over time.

You know, there's a lot of discussion, obviously, about shifting orders between 32 and 42. Where are we?

Chris Cocks: Yeah, our retail inventories were down kind of mid to high teens in the U.S. coming into fourth quarter. Our order book has accelerated versus what we've seen in previous fourth quarters. You know, domestic is actually doing pretty well. DI is maybe a little bit behind, but you know, everything kind of augurs towards continued robust kind of replenishment from our retailers. I think we would expect that. Let's use the mid teens as kind of like the anchor point. We think retail inventories will be down by the end of the year, but if current trends persist, we probably cut that ratio in half. You know, that's kind of what underscores our belief that fourth quarter will be a pretty good quarter for Consumer Products.

Uh, retailers with respect to your product, um, versus last year. I'm, I'm assuming there's a deficit versus a year ago and that will will ultimately sort of bridge that deficit as we make our way through the fourth quarter. But maybe speak to that a little bit.

Yeah, our retail inventories were down kind of mid to high teens, um, in the U.S. coming into the fourth quarter.

Gina Goetter: I think this is our first quarter that we've talked about actual restocking happening as we've moved into the fourth quarter. We're definitely seeing that. We can see that play through in our early October shipment data.

Um our order book has accelerated versus what we've seen um in previous fourth quarters you know domestic is actually doing pretty well. D is maybe a little bit behind but uh you know, everything kind of augers towards uh continued robust kind of replenishment from our retailers and I think we would expect that, you know, let's let's use let's use the mid teens as kind of like the Anchor Point. We think retail inventories will be down by the end of the year, but if current trends persist, it's probably we've probably cut that ratio in half and, uh, you know, that's kind of what underscores our belief that fourth quarter will be a pretty good quarter for CP. I think this is our first quarter that we've talked about actual restocking happening as we've moved into the fourth quarter. So we're we're definitely seeing that. We can see that play through in our early October shipment data.

Operator: Our next question is from Alexander Thomas Perry with Bank of America, please proceed.

Alexander Thomas Perry: Hi, thanks for taking my questions here. I guess as a follow-up to the last line of questioning, but more Consumer Products focus. Can you help us think about the building blocks for next year for the EBIT margin on the Consumer Products segment with the cost saves versus tariff impact versus potential volume leverage, and then I guess on the content side for Consumer Products, what are you most excited about next year thinking about that? Thanks.

Our next question is from Alex Perry with Bank of America, please proceed.

Hi, thanks for taking my questions here. Um, I guess as a follow-up to the last line of questioning, but more consumer, products Focus. Um, could you help us think about the building blocks for next year? Uh, for the ebit margin, um, on the CP segment with the cost days versus tariff Impact versus, you know, potential volume leverage. And then, you know I guess on the content side for for Consumer products, um what are you most excited about next year uh thinking about that? Thanks.

Gina Goetter: Thanks for the question, Alex. We're not going to get too much into the building blocks for 2026 quite yet. We do think we've got some nice tailwinds as we're exiting the year that set us up nicely from a top line perspective. Obviously, we've talked about how not having top line creates a delegation on the P&L. That flips to positive next year, that becomes a benefit for us. We're actively working all of our levers to offset the margin impact, and we continue to stay on our margin impact from tariffs, and we continue to stay on our trajectory to deliver that $1 billion of cost savings in 2027. As we get, you know, obviously the next time you talk with us in February, we'll give a lot more detail on where the Consumer Products kind of outlook will be for 2026.

Thanks for the question as, you know, we're not going to get too much into the building blocks for for 2026 quite yet. Uh, we do think we've got some nice Tailwind as we're exiting the year that set us up nicely from a from a, top line perspective. Obviously, we've talked about how, you know, not having Top Line creates a a dive impact on, on the p&l. So is that that flips d-positive? Uh, next year that becomes a benefit for us. We're actively working, uh, all of our levers to offset, the margin impact. And we continue to stay on our uh, the margin impact from tariffs. Um, and we continue to stay on our trajectory to deliver that billion dollars of cost savings, uh, in 2027. So as we get, you know, obviously the next time you talk with us in, in February, we'll, we'll get a

Chris Cocks: I mean, I think a couple breadcrumbs that are public. You know, certainly we're bullish on the potential of K Pop. We've got a lot of really cool ideas. It's been fun working with Netflix on it in a fairly quick order. We already have a product that's got a for sale with Monopoly Deal, and hopefully we'll have a couple preorders up for some cool items for fans before the end of the year. The content lineup that we have, particularly from The Walt Disney Company, is amazing. You have Toy Story 5, which always helps to drive Mr. Potato Head sales in a big way. You have a new Star Wars movie with Grogu and the Mandalorian. You have a new Spider-Man movie, and you have the Avengers returning to form with Robert Downey Jr. in the role of Dr. Doom.

Chris Cocks: I couldn't imagine a much more stacked content lineup than what we have, kind of forming a tailwind for us next year.

A lot more detail on where the, the CP kind of Outlook will look will be for 26. I mean, I think a couple breadcrumbs that are public, you know, certainly, we are bullish on the potential of K-pop. Uh, we've got a lot of really cool ideas. Uh, it's been fun, working with Netflix on it, uh, in a fairly quick order. Uh, we already have a product that's got for sale with the Monopoly Deal and, you know, hopefully we'll have a couple pre-orders up for some cool items, uh, for fans before the end of the year. Uh, and then the content lineup, we have particularly from the Walt Disney Company is amazing. You have, you know, uh, Toy Story 5, which always helps to drive Mr. Potato Head sales, uh, in a big way, you have a new Star Wars movie with, uh, uh, grou. And the Mandalorian, you have a new Spider-Man movie and you have the Avengers returning to form with Robert Downey, Junior in the role of Dr. Doom

I couldn't imagine a much more stacked content lineup than what we have kind of, uh, forming a tailwind for us next year.

Alexander Thomas Perry: That's very exciting.

Chris Cocks: I guess my follow up question.

Alexander Thomas Perry: Is on Magic and specifically could you talk through the Magic growth that you're seeing in the mass channel, especially how the Universes Beyond strategy sort of plays into it. I think based on some of the disclosure, the retail distribution network for Wizards continues to grow nicely. I think store count sort of up 7% sequentially versus the last quarter. Can you talk about sort of where that is coming from and where you're seeing the growth there?

It's very exciting, um, and I guess my follow-up question is on on Magic and and specifically, could you talk through the magic growth that you're seeing in the mass Channel, especially how the universe is beyond strategy, sort of plays into it? Um, and I think, you know, based on some of the disclosure, the retail, uh, distribution Network for, for wizards continues to grow nicely.

Operator: Thanks.

Chris Cocks: Yeah. Hobby store growth continues apace. I don't think it's so much that there's more hobby stores. I think it's just more that are qualifying to become part of the Wizards Play Network and leaning into Magic. What we tend to find is when a hobby store really adopts Magic, it becomes a big section of their mix and they help to propel player growth and player engagement in a positive way. Mass is just a very easy sell with mass. When you go in and say, hey, here's a video game that you've sold tens of millions of copies of, like Final Fantasy, there's obvious demand for it. Let's expand distribution inside Magic. Or, hey, here's a superhero that is beloved. Everyone from 2 years old through adulthood wants to collect and play with like we have with Spider-Man.

I think you know store count sort of up 7% sequentially versus the last quarter. Can you talk about you know, sort of where that is coming from and where you're seeing the growth there. Thanks.

Chris Cocks: That's just caused us to be able to have both incremental placements within the store, new promotion within the store, as well as opening up new doors for us, especially in underserved markets for Magic, like a lot of Europe where we haven't had as robust of a mass offering. We've been able to do things with the Tescos of the world and the Carrefours of the world with some pretty meaningful and enduring results.

Magic. It becomes a big section of their mix, uh and they helped to propel player growth and player engagement in a positive way. And then Mass, it's, it's just a very easy sell with mass. When you go in and say, hey, here's a uh, a video game that you've sold tens of millions of copies of like Final Fantasy. There's obvious demand for it. Let's expand distribution inside of magic or hey here's a superhero that is beloved and everyone from 2 years old uh through adulthood uh wants to collect and play with like we have with Spider-Man.

So that's just caused us to be able to have both incremental placements within the store, new promotion, within the store, as well as, as well as opening up new doors for us, especially in underserved markets for magic. Like, uh, a lot of Europe, uh, where we haven't had as robust of a mass offering and we've been able to do things with, you know, the Tesco's of the world and the care, fors of the world uh with some pretty meaningful and enduring results.

Operator: Our next question is from Kylie Nicole Cohu with Jefferies. Please proceed.

Our next question is from Kylie. Co with Jeffrey's please proceed.

Gina Goetter: Good morning and thank you for taking my question. Kind of already touched on this, but I was curious what you were seeing specifically in terms of promotional cadence. One of your peers might have said that it's intensifying heading into the holidays. Just kind of curious what you guys are seeing.

Good morning, and thank you for taking my questions. I kind of already touched on this, but I was curious about what you were saying specifically in terms of promotional cadence. One of your peers might have said that it's intensifying heading into the holidays. Just kind of curious what you guys are seeing.

Chris Cocks: Yeah, yeah. We've been pretty choiceful with our pricing through this year, and that's benefiting us in terms of incremental promotion opportunities with basically every major U.S. vendor, Amazon, Walmart, and Target in particular. That kind of underscores some of the order growth that we think we can see and the sustainability of our point of sale for this holiday as well. Last year we had some replenishment outages for things like board games that we won't be lapping this year. That again, we think will kind of help to underscore it. As we've leaned in on trying to provide value to consumers, especially in hot categories where we're the category leader, like board games, like action figures, like compounds, the retailers have responded in kind, leaning back with us and giving us extra opportunities to share that value with consumers.

Yeah, yeah. So, you know, we've been pretty choice with our pricing through this year. And so, you know, that's benefiting us in terms of incremental promotion opportunities with, uh, basically every major U.S. vendor: Amazon, Walmart, and Target in particular. And so, you know, that kind of underscores some of the

order growth that we think we can see and the sustainability of our point of sale for this holiday as well.

Gina Goetter: Yeah, I think it's a bit early to say the quality and kind of when your word intensifying because of the shelf reset and that moving back, we're really just starting to see the impact of promotions start playing through. Obviously, everyone from a retail standpoint, they were really concentrating on all that sitting within Q4. Gotcha. Thank you for the context. I know this is kind of small potatoes, but I was curious a little bit if you could expand on your expectations for the entertainment segment both in Q4 and then beyond in like steady state as well. Yeah, good question. The interview, overall, you should expect more of the same on entertainment. It's going to be roughly that same revenue base at roughly that call it 50 to 60% margin.

Uh and then last year, we had, you know, some replenishment uh outages for things like board games that we won't be lapping this year that again, we think will kind of help to underscore it. So you know as we've leaned in on, trying to provide value to Consumers, especially in hot categories, where we're the category leader in like board games, like action figures, uh, like compounds, uh, the retailers have responded in kind, uh, leaning back with us and uh, giving us extra opportunities to share that value with consumers.

Yeah, and I think it's a bit early to say the quality and kind of when your word intensifying because of the shelf reset and that moving back. We're really just starting to see the impact of promotions start playing through. So, you know, obviously, everyone from a retail standpoint, where they were really concentrating on all that, sitting within Q4.

Gotcha. Um thank you for the contacts and then I know this is kind of a small potatoes, but I was curious a little bit if you could expand on your expectations for the entertainment segment, both in Q4, and then Beyond in like steady state,

Gina Goetter: As we're moving forward and really think about that, that is all either the content that we're creating for brands like Peppa Pig or it is rights that we are giving to other studios to develop our IP. The delivery of the revenue gets a little bit lumpy just because it's based on when deals are inked. Overall, that's how you should think about the mix of how it's going to play out through this year and the balance of next year.

Chris Cocks: Yeah, I think we think of entertainment as a long-term brand development pipeline. There's some revenue associated with it. It kind of, it's advertising that pays for itself with fantastic content partners. I think at last count, we have something like 45, maybe 50 shows and movies and reality TV offerings in development across a range of partners. We work with the best of the best. We're working with Paramount, Warner Brothers, Netflix, Universal, The Walt Disney Company, you name it, Lionsgate. We'll have more to share on that. As those kind of deals matriculate, we tend to not announce a development deal. We tend to wait until it's actually in production. Those are starting to kind of go through. You know, probably in 2026 there will be a lot more to share.

Yeah, good question. Uh, the you know, overall you should expect more of the same on entertainment. You know, it's going to be roughly that same Revenue base that roughly, that kind of like 50 to 60%, uh, margin as we're moving forward and really think about that. That is all the either that's the content that we're creating for Brands, like Peppa or it is, um, rights that we are giving to other students, to develop our IP. Um, the the delivery of the revenue gets a little bit lumpy just because it's based on 1 deals are Inked, but overall, that's, that's how you should think about. Uh, think about the, the the mix of um, how it's going to play out through this year and the, the balance of next year

Gina Goetter: We're going to continue with the asset-light model. That's why you're going to see just a high, high margin within that segment moving forward. Great helpful color. Thanks.

But we're going to continue with the asset light model that's that's that's why you're going to see just a high high margin uh within that segment moving forward.

Great helpful caller. Thanks.

Operator: Our next question is from Jaime Katz with Morningstar Research. Please proceed.

Our next question is from Jaime Katz with Morningstar Research. Please proceed.

Gina Goetter: Hi, good morning. I was hoping to touch on product development spend. It has stepped up a little bit in 2025, but I think given everything that you guys have said about content and innovation coming on, can we think about this staying sort of structurally higher than it maybe has been in the past? Yeah, I mean, you hit on it. The increase or the step up that you're seeing is largely driven, largely driven by Wizards and digital. There's some this year within toy. Just as we've kind of revamped our innovation pipeline. As we started going out, you heard us talk about K Pop and securing some of these new licenses, but the bulk of the uptick has been within Wizards as we look into next year and we're probably at that right watermark level. Like we've been slowly increasing, decreasing that cost over time.

Hi, good morning. I was hoping to touch on Product Development Fund. Uh, it has stepped up a little bit in 2025, but I think given, um, everything that you guys have said about content and Innovation coming on. Can we can we think about this saying, sort of structurally higher than it maybe has been in the past?

Gina Goetter: We're probably in that zone as we think about next year. Okay. Dungeons & Dragons hasn't really been discussed, but there's obviously a little bit more emphasis on the brand as you guys expand into more space. Can you just maybe help us think about what the long term growth prognosis is for Dungeons & Dragons relative to Magic: The Gathering or maybe what incrementally it might add to Wizards of the Coast over time?

Yeah, I mean you hit on it, the, the increase, or the step up that you're seeing is largely driven largely driven by by Wizards and and digital. Uh, you know, there's some this year, uh, within the to uh, within toy just as we've kind of revamped uh our our Innovation pipeline as we started, you know, going out. You you heard us talk about K-pop and securing some of these new licenses, but the the bulk of the, the uptick has been within Wizards as we look into next year and kind of you were probably at that right Watermark level. Like we've been slowly increasing that cost over time. Uh and we're we're probably in that in that zone as we think about next year.

Okay, and then, you know, D&D hasn't really been discussed, but there's obviously a little bit more.

Emphasis on the brand, as you guys expand uh, into more space. Can you just maybe help us? Think about what the long-term growth prognosis is for DND relative to magic or um, maybe what incrementally it might add to, um,

Chris Cocks: Yeah, I think the big thing for Dungeons & Dragons is going to be digital games. We have several games in development. We're working with some fantastic creators in that space. Like I said for entertainment, we tend to be a little gun shy talking about projects too early. Very likely over the next, call it couple quarters, you're going to start to see more of our digital ambitions come to life with Dungeons & Dragons and understand some of the things we have in development. I think they're going to be pretty exciting. Baldur's Gate 3 was a seminal project. I think it really showed that if we build something that's great, consumers will come. There's probably five projects in development for Dungeons & Dragons across our portfolio, ranging from more casual and kid oriented to very high end action adventure and role playing games.

whether the coast over time,

Yeah, so I think the big thing for DND is going to be digital games. Uh, we have several games in development, uh, we're working with some, you know, fantastic creators in that space. And, you know, again like I said, for entertainment, we tend to be, uh, a little gunshy talking about projects too early, but

very likely over the next call it.

Couple quarters. You're going to start to see more of our digital Ambitions come to life with the and d and understand some of the things we have in development and uh, I think they're going to be pretty exciting. You know, Baldur's Gate 3 was a seminal project, I think it really showed that if we build something that's great, uh, consumers will come. And so, you know, there's probably

Chris Cocks: That's in addition to a continued focus on building out the core business, the core TRPG, with a special emphasis on D&D Beyond as the best place to play a TRPG.

5 projects and development for Dungeons and Dragons from more casual and kid oriented to, um, you know, very high-end, um, action adventure and role playing games.

And that's in addition to a continued focus on building out, kind of the Core Business, the core trpg, uh, with a special emphasis on DND Beyond as kind of like the the best place to play a trpg.

Gina Goetter: Thanks.

Chris Cocks: Thanks.

Thanks.

Operator: With no further questions, ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

Thanks.

No further questions, ladies and gentlemen, thank you for your participation. This does conclude today's teleconference, please disconnect your lines and have a wonderful day.

[Analyst]: SA.